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Praise for The Success FormulaAndrew Kakabadses book offers unique insights and practical suggestions. Success, particularly in turbulent and unpredictable environments, is driven by value and decisions anchored to value. A recent parliamentary commission on future of management identified people, purpose, and potential as drivers of success. This book offers practical suggestions in all three areas.

Professor Abby Ghobadian, Head of School of Leadership, Organisations and Behaviour, Henley Business School

In front of the hard leaders are the smart leaders. A world filled with smart leaders.

Yvon Pesqueux, Professor, Conservatoire National des Arts et Mtiers, Paris, France

Understanding what makes a successful organisation is vital in todays fast changing environment The Success Formula explores the relationship between, values, evidence, strategy and engagement.

Lesley King-Lewis, CEO, Windsor Leadership

Finally we have a book which recognizes that organizations cannot achieve genuine sustainability unless social value is given equal weighting to shareholder, other stakeholder and financial value. If there is a strong values base, diversity of thinking and effective governance, organizations can build long-lasting success.

Simon Osborne FCIS, Chief Executive ICSA

This book contains a multitude of insights concerning success that Andrew has derived from interviews with senior managers from over a 100 organizations in 14 countries. It provides much useful advice as to how to recognize successful organizations and how to determine what is required to make success a reality.

Dr Chris Pierce, CEO, Global Governance Services Ltd., London

Kakabadses extensive global research shows how few top companies have a proper engagement with their stakeholders and his evidence reveals the great and sustainable success arise from so doing. A must read for the C suite and the Board.

John Board, Dean of Henley Business School

Once again, Dr Kakabadses in depth research draws out governance and dynamic governance insights, helping us to drive value in our companies.

Yasmin Allen BCom, FAICD and Company Director, IAG, Cochlear and Santos Ltd

The evidence-based account, and unparalleled access, of Professor Kakabadse cuts like a knife to the very heart of this complex and frequently misunderstood subject. This book is a must read for anybody attempting to come to terms with organizational success - or failure.

Dr Ian Richardson, Director of Executive Education, Stockholm Business School, Stockholm University

I read The Success Formula with great interest, and recommend it to any business manager who seeks to ensure the health and continuity of the enterprise he/she leads. Andrew Kakabadses guidelines in this book strike me as convincing and eminently practical.

Andr van Heemstra, Former member of the board of Unilever

This book is about leadership, about sustaining vision and values to deliver consistent quality, about the humility to respect the team and the intellectual rigor to challenge its certainties. This is a manual on how values generate value.

Dr. Ilia Roubanis, Athens

The Success Formula is a refreshing read for those leaders committed to employee engagement and transformational results. It underlines the role of the leader in building alignment and delivering results based on trust, authenticity and a clear Organisational purpose.

John Pollaers, Chairman of the Australian Advanced Manufacturing Council and Former CEO of Fosters Group and Pacific Brands

There a few books which combine such outstanding academic knowledge and real world experience on leadership as this one. Government and business leaders in Europe should use it when preparing for the challenge to bring back economic growth and social progress.

Dr Stefan Schepers, Secretary General of the independent tripartite High Level Group on Innovation Policy Management (20122014)

Andrew and David have produced seriously worthwhile insights and a global perspective on success. They focus on reality coupled with sound delivery processes as a basis for successful decisions and thats just the beginning!

Peter Jollie, Director, Reliance Rail

Kakabadse has produced yet another outstanding work, cutting through the complexity of leadership to the heart of the issue to provide an accessible and actionable formula for success.

Robert Galavan, Professor of Strategic Management, National University of Ireland Maynooth

The Success Formula

The Success Formula

How smart leaders deliver outstanding value

Andrew Kakabadse

Bloomsbury InformationAn imprint of Bloomsbury Publishing Plc

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First published 2015

Andrew Kakabadse, 2015

Andrew Kakabadse has asserted his right under the Copyright, Designs and Patents Act, 1988, to be identified as Author of this work.

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying,

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No responsibility for loss caused to any individual or organization acting on or refraining from action as a result of the material in this publication can be

accepted by Bloomsbury or the author.

British Library Cataloguing-in-Publication DataA catalogue record for this book is available from the British Library.

ISBN: HB: 978-1-4729-1684-6 ePDF: 978-1-4729-1686-0 ePub: 978-1-4729-1685-3

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Design by Fiona Pike, Pike Design, WinchesterTypeset by Deanta Global Publishing Services, Chennai, India

ContentsAbout the author xi

Acknowledgments xiii

List of figures xix

Foreword xxi

Preface xxiii

Introduction xxv

1 Understanding value 1

2 Diversity of thinking 23

3 Discipline 1Evidence 43

4 Discipline 2Mission 61

5 Discipline 3Alignment 75

6 Discipline 4Engagement 95

7 Discipline 5Leadership 113

8 Discipline 6Governance 131

9 Discipline 7Wisdom 151

10 Key questions 177

Notes 183

Index 187

About the authorAndrew Kakabadse is professor of governance and strategic leader-ship at Henley Business School, UK, and emeritus professor at Cranfield School of Management. He teaches and consults in corporations and governments throughout the world. His research covers boards, top teams, governments, and policy design. Andrew has published forty-two books, over 240 articles, and eighteen monographs. His books include Leading the Board (coauthored with Nada Kakabadse), Bilderberg People (coauthored with Ian Richardson and Nada Kakabadse), and How to Make Boards Work which was co-edited by Lutgart Van den Berghe. In 2011 and 2013, he was named in the Thinkers50 ranking of the worlds top management thinkers.

More information can be found at Andrews website: http://www.kakabadse.com.

HEIDRICK & STRUGGLES

We Help Our Clients Change The World, One Leadership Team At A Time

Heidrick & Struggles is the premier provider of senior-level Executive Search, Culture Shaping and Leadership Consulting services. For more than 60 years, we have helped our clients build strong leadership teams through quality service, deep insights and our relationships with talented individuals worldwide. Today, Heidrick & Struggles leadership experts operate from principal business centers in North America, Latin America, Europe, Asia Pacific, Africa and the Middle East. For more information about Heidrick & Struggles, please visit www.heidrick.com.

AcknowledgmentsI would like to acknowledge with deep gratitude the fantastic inputs and insights of all those who spared time to be interviewed. Thank you to

Paul Achleitner, Chairman, Supervisory Board, Deutsche Bank, Germany

Achal Agarwal, President, Asia Pacific, Kimberly-Clark, Singapore Michael Andrew, Global Chairman and CEO, KPMG, Hong Kong Ilana Atlas, Director, Coca Cola Amatil, and portfolio NED,

Australia Gihan Attapatu, President, Ball Asia Pacific, Singapore Jaspal Bindra, Group Executive Director and Chief Executive Officer

Asia, Standard Chartered Bank, Singapore Ian Blackburne, Chairman, Aristocrat, Australia Peter Bodin, Chairman, Grant Thornton International, Sweden Ken Borda, Chairman, Santos, Australia, and Chairman, Aviva Asia,

Hong Kong Graham Bradley, Chairman, Stockland Corporation, and portfolio

NED, Australia Alec Brennan, Chairman, EMECO Holdings Limited, Australia Berndt Brunow, Chairman, Finnish Food and Drink Industries

Federation, and Fazer Group, Finland Stephen Chipman, CEO, Grant Thornton, LLP, Member firm of

Grant Thornton International Ltd, USA David Cunningham, President, Asia Pacific, Federal Express,

Singapore Georges Dabaghi, General Manager, Middle East and CIS countries,

Vubiquiti, UAE Lord Geoffrey Dear, House of Lords, UK Bob Dudley, Group CEO, BP, UK Doug Elix, Chairman, Advance Global Advisory Council, Australia,

and retired Senior Vice President, Group Executive Sales and Distribution, IBM, USA

Jeff Fettig, Chairman and CEO, Whirlpool, USA

xiv Acknowledgments

Mark Gainsborough, Executive Vice President, Global Commercial Business, Royal Dutch Shell, Singapore

Stephan Gerlich, Chairman, Bayer Group, Mexico Chris Gibson-Smith, Chairman, London Stock Exchange, and

Partnership, UK Rickard Gustafson, CEO, SAS Airlines, Sweden Stig Gustavsson, Vice Chairman, Konecranes, Sweden Diane Grady, Director, Macquarie Group, and portfolio NED,

Australia Russell Higgins, Director, Telstra, and portfolio NED, Australia Sarah Hillier, Team Manager, Northamptonshire County Council, UK Jeremy Hunter, President, Henkel Adhesive Technologies, India Belinda Hutchinson, Director AGL, and portfolio NED, Australia Mike Jeans, Independent NED (Deputy Chairman), Gemserv, UK Gunender Kapur, CEO and Managing Director, TPG Wholesale

Private Ltd, India Graham Kraehe, Chairman, BlueScope Steel, Australia Sanjiv Lamba, Member of the Executive Board, The Linde Group AG,

Germany Ronnie Leten, CEO, Atlas Copco, Sweden Rod Leaver, CEO, Lend Lease, Asia Region, Singapore Lionel Lim, CEO, CA, Asia Pacific, Singapore Catherine Livingstone, Chairman, Telstra, and portfolio NED,

Australia Kevin Lobo, President & CEO, Stryker Corporation, USA Dave Mackay, Director, Woolworths, Australia, and retired President

& CEO, Kellogg Worldwide, USA Vadim Makov, Chairman, OMZ Group, Russia Charlie Mayfield, Chairman, John Lewis Partnership, UK Alexey Marey, CEO, Alfa Bank, Russia Trevor Matthews, Chairman Financial Skills Council, and portfolio

NED, Australia Kevin McCann, Chairman, Macquarie Group, and Origin Energy

Ltd, Australia Paul McClintock, Chairman, Myer Holdings Limited, Australia Darshan Mehta, President & CEO, Reliance Brands, Ltd, India Bruce Morgan, Director, Origin Energy Ltd, and portfolio NED,

Australia

Acknowledgments xv

John Neill, Chairman and Group Chief Executive, Unipart Group, UK Helen Nugent, Chairman, Funds SA and portfolio NED, Australia Ren Obermann, CEO, Deutsche Telecom, Germany Michael Olosky, President, Henkel, Asia Pacific, Singapore Sir John Parker, Chairman, Anglo American, UK Jonas Persson, President APAC, Assa Abloy, Asia Pacific, Hong Kong Madhabi Puri Buch, Director, Agora Advisory, and Greater Pacific

Capital, Singapore Ed Rapp, President, Construction Industries, Caterpillar, Singapore Monika Ribar, former CEO, Panalpina Group, Switzerland and port-

folio NED. Diane de Saint Victor, General Counsel & Board Secretary, ABB,

NED, Barclays Bank, Switzerland Ulf Mark Schneider, CEO, Fresenius Group, Germany Steve Sargent, CEO, GE Australia & New Zealand, Australia Nitin Seth, Managing Director and Country Head, India, Fidelity

Worldwide Investment Ranjit Shahani, President, Novartis Group, India N Sivaraman, Whole-Time Director, L&T Finance Holdings Limited,

India Sergey Soldatenkov, Chairman of Board of Directors, Megafon, Russia Ajay Srinivasan, CEO, Financial Services, Aditya Birla Group, India Sam Su, Chairman and CEO, Yum! Brands, China Rajesh Sud, Managing Director and CEO, Max Life Insurance, India Ashu Suyash, CEO, L&T Investment Management Limited, India Robert Swannell, Chairman, Marks and Spencer, UK Kim Taylor, Group Chairman, Asia Pacific, Johnson & Johnson,

Singapore Shane Tedjarati, President and CEO, Honeywell Global, High Growth

Regions, Singapore Michael Treschow, Chairman, Unilever, Sweden Arvind Uppal, Regional President, Asia South, Whirlpool, India Rajiv Verma, Group CEO, HT Media Ltd, India Petteri Walldn, Chairman, Nokian Tyres, Finland Vladimir Yakunin, President, RZD (Russian Railways), Russia

The designations and organization of each interviewee are as offered at the time of interview. Numerous respondents now hold different positions in different enterprises.

xvi Acknowledgments

Thank you also to all who have made this book possible.

My heartfelt gratitude goes to Stuart Crainer and Des Dearlove, outstanding editors and accomplished authors in their own right. You have really brought this book to life.

My deepest thanks go to my wife, Professor Nada Kakabadse, and Madeline Fleure, who patiently and with good humor prepared numer-ous drafts.

Very special thanks to my Heidrick & Struggles colleagues who have given so generously of their time to make this project happen.

My thanks to the partners and staff of Heidrick & Struggles, who arranged the interviews and discussions with top executives worldwide and developed and coordinated the global surveys.

Thank you to

Torrey Foster, Bill Matthews, and Randall Thorne in America

Vicki Hickson, Russell King, Will Moynahan, Andrew Myers, Anabelle Parsons, and Dave Tullett in the United Kingdom

Tuomo Salonen in Finland

Alain Deniau in France

Christine Stimpel in Germany

Elise Andstrm and Carina Nordgren in Sweden

Christina Atchison, Anna Knuckey, and Thomas Liddle in Australia

Yao Li and Linda Zhang in China

Karen Fifer, Robert Knight, Karen Lau, Richard Meiklejohn, Harry ONeill, Seth Peterson, and Lily Siu in Hong Kong

Rajiv Inamdar, Neha Jain, Arun Das Mahapatra, Gauri Padmanabhan, and Puneet Pratap Singh in India and

Stafford Bagot, Karen Choy-Xavier, Charles Moore, Hamish Shaw, Frazer Wilson, and Alex Yew in Singapore

Acknowledgments xvii

In addition, there are my three Heidrick & Struggles colleagues without whom this project would never have taken off.

Peter Lever in London championed and supported this project from the start with his initial thoughts on engagement and alignment. Thank you, Peter.

My deepest gratitude goes to Steve Mullinjer in Shanghai whose thoughts on cultural diversity brought an exciting and new dimension to the original thesis. His support and thoughtful guidance has not only made this study possible but has enriched it with new insights.

Finally, I wish to convey a very special thank you to David Pumphrey in Sydney for his facilitation, perseverance, and persuasion in making this project happen. He guided me through the study and through the writ-ing of the manuscript and ensured that the process ran smoothly. I and this book have benefited considerably from his generous counsel.

As you can see, this book has been made possible by an extraordinary level of team work. From those who gave their time for interviews, to those who organized one meeting after another, to those who managed the surveys, and to those who were part of the development of the manuscript, I am grateful for all you have done.

Andrew Kakabadse

List of figuresFigure 2.1 Diversity 40

Figure 6.1 Quality of relationships 100

Figure 6.2 Organizational performance qualities 109

Figure 6.3 Impact of handling awkward or sensitive discussions at an earlier stage 110

Figure 8.1 Enterprise fault lines 143

Figure 8.2 Input into the development of the corporate strategy 146

Figure 8.3 Average number of meetings per annum 147

Figure 8.4 Shared view regarding the criteria for appointments to the Board 148

Figure 8.5 Shared view regarding the criteria for the appointments to the Executives/ Management Team 148

Figure 9.1 Those involved in determining the strategic direction of the organization 174

ForewordRobert Swannell, Chairman, Marks and Spencer, UK

What matters in business?

First, results. Executives and their organizations have to deliver perform-ances that satisfy all the stakeholders involved.

Second, how you behave. What kind of manager and leader are you? What kind of culture do you help create and nurture in the organiza-tion? How do you treat people you work with?

It is tempting, especially reading the media, to regard results as the be-all and end-all of corporate life and to begin to believe that they exist in some kind of vacuum. Reality is different. Results and behavior are inextricably linked.

I dont believe that true sustainable value can be created without values. If anyone didnt believe that before the recent banking crisis, surely it is now clear. I spent my working life in banking. Its a simple business at heart that depends on the trust of depositors and customers to exist from day to day. Trust depends on values and behaviors that are real and demonstrated every day, year after year. Businesses without values dont stand the test of time.

In terms of behavior, as a leader it is worth reminding yourself of how you would have liked to have been treated earlier in your career. If you were fortunate, you would have worked as part of a team where you were given freedom to make things happen and achieve results. Your role in the success of the team and the organization would have been acknowledged, perhaps celebrated. Often this does not happen. It should.

The work of leadership is to build such engagement so that all contrib-ute and their contribution is fairly acknowledged. The leader also must build trust. As a chairman, this is a vital part of my role. Trust is not an abstract concept; it is a day-to-day reality and it is built on respecting

xxii Foreword

individuals, listening to their concerns, and distilling and communicat-ing them. The last element is vital. Communication needs to be open and should be encouraged throughout any organization.

Engagement and trust take time. It is a long-term commitment, but one that needs to percolate into your daily activities. You must, for example, spend time on the front line of the business. In the retail world, this is comparatively easy. You can visit a store. You can feel the mood of the business and its ethos. But it is not that difficult in any business. Only by being there on the commercial front line will you really understand the company, its culture, and its performance.

Results and behaviornot necessarily in that orderlie at the heart of my view of business. This coincides with the most persuasive themes of The Success Formula. As Andrew Kakabadse argues, business is not a complex science governed by a complex algorithm, but a compelling combination of art and science.

PrefaceFor more than 60 years, Heidrick & Struggles has helped global organi-zations secure, build, and strengthen their leadership teams. As the complexities of leadership have increased, we have continued to explore the factors that underpin success.

In this recent collaboration with acclaimed top leadership advisor and business author Professor Andrew Kakabadse of Henley Business School, we set out to better understand the dynamics of leadership, diversity, and the power of teams. Our goal in supporting the global research project that forms the foundation of The Success Formula was to cut through the clutter and demystify the link between leadership and sustainable business value in todays fast-paced world.

Accelerated globalization and technology have redefined the leadership skills to be successful in the global marketplace. Many CEOs find their skills becoming obsolete as their organizations change in this volatile and unpredictable landscape. The new normal requires continuous shifts in people, process, technology, and structure to be competitive.

The skills and abilities leaders once needed to create value in their organizations are no longer sufficient. New CEO skills are required to win in this new world. The ability to harness culture and diversity of thinking to strategy has emerged as a key competitive discipline for twenty-first-century leaders.

Further questions were advanced and tested for the research. How, for example, do successful business leaders organize their strategies and teams to identifyand deliver onfleeting opportunities in an era of relentless complexity? What matters most? Is it the advantage of cross-cultural diversity across the management suite and the boardroom? Is it a bold strategy communicated robustly across all levels of the organization? What are the best companies doing and how can we learn from them?

In The Success Formula, Andrew argues that in the new VUCA world (the military acronym for Volatility, Uncertainty, Complexity, and

xxiv Preface

Ambiguity), strategy works best when leaders create an evidence-based cultureone in which they are able to transform their vision into their organizations purpose and encourage diversity of thinking to gain alignment and engagement. An organization needs to have a culture with which people are engaged and aligned before their strategy will deliver real value. And diversity of thinking is the glue that creates a common culture that encourages adaptive advantage in highly diverse markets. It provides a new model for globalizing an organization. The best-led organizations have their eyes open to opportunities, ideas, and perspectives. They embrace them where once they attempted to railroad a way through them.

Evidence and reality checking are a vital part of building the organiza-tional coalitions and momentum required to succeed and overcome obstacles in the twenty-first century. Andrew talks persuasively of the need for evidence-based leadership.

For senior executives, this means that each and every leader in an organi-zation must be constantly engaged with how the company creates value in a complex and ambiguous world. Strategy matters, but leaders must use practical evidence to illuminate reality and be willing to question-and even shatterthe status quo when necessary. The power of evidence-based leadership is its ability to harness multiple stakeholder points of view to create a dynamic strategy that engages and aligns the organiza-tion to create sustained value.

Andrews research is robust and practical. The book explores the seven disciplines vital to fulfilling the success formula and concludes with a series of thought-provoking questions that provide a starting point for CEOs and chairmen to apply the findings in todays fast-paced, complex, and uncertain world of business.

We hope that The Success Formula helps you approach your organiza-tions challenges and opportunities with renewed vigor and a clearer sense of purpose. Strong leadership is required. With it, our teams will be empowered to not only succeed, but change the world.

Steve MullinjerRegional Managing Partner, Asia PacificHeidrick & Struggles

IntroductionEach and every organizationand individualhas an idea of what success looks like. It might be a matter of getting through the next quarter, mere survival. It might be a specific targeta level of profitabil-ity, market share, ROI, or some other on offer from the host. It might be a grand vision of creating a different world.

Over the last five years, I have traveled across the globe interviewing leaders to gain new insights into the nature of organizational success and how it is created. In-depth interviews were carried out in over 100 organizations in private, public, and third sectors in fourteen countries. Insights and quotations from the research interviews are used through-out the book.

Those interviewed were all senior leaders in their organizations, includ-ing many CEOs and chairmen. Their companies, from Europe, North America, Asia, Africa, Australasia, and the Middle East, spanned indus-tries from financial services to fast-food restaurants; airlines to IT; car making to chemicals; public services to pharmaceuticals; software to shampoos; heavy machinery to home appliances; telecoms to transpor-tation; mining to banking; cereals to minerals; and retailing to railways.

The Success Formula is the result.

My researchsupported by the global leadership firm, Heidrick & Strugglesfound that the starting point for any successful organiza-tion (or, indeed, any individual) must be value. Always. Value is the currency of success. The types of value organizations seek to create and how they approach doing so lie at the very core of any understanding of what success looks like and what is required to make it a reality.

Different types of organizations seek to create different sorts of valuewhether it is shareholder value, social value, stakeholder value, or finan-cial value. But all organizations must create value to legitimize their existence and to be regarded by themselves and others as successful.

xxvi Introduction

Creating value, therefore, is the primary purpose of leadership and the building block of every success story that adorns annual reports, maga-zine covers, and more.

How do leaders create value? And how do they create value that can be sustained? The leaders I talked to in my research fell into one of three broad categories, according to their approach to value creation. Their approach was typically one of the following:

Replicate: reproduce a previously successful strategy/value proposition.

Formulate: take a gamble on an unproven strategy/value proposition.

Evidence-led: Create a value proposition hypothesis and interro-gate it with evidence.

Clearly, the replicate and formulate approaches are flawed. Replicating what worked elsewhere is a surprisingly commonplace approach. After all, that is what many consulting firms effectively sell. I have also encoun-tered many executives who have simply applied the same approach, wisdom, and ideas at a series of organizations; they are corporate ground-hogs in search of their next groundhog day. The value this delivers will inevitably diminish with time as the world and contexts change.

If someone has a track record, it can be persuasivefor recruiters, colleagues, and others. But what if they are intent on simply doing the same thing again but in a different context? A track record is obviously good, but it needs to be combined with a willingness to evolve, develop, and respond to new contexts.

The formulate category includes executivesand there are manywho see the creation of strategy to deliver value as a gamble, an intuitive and somewhat desperate art. They formulate strategy in a glorious vacuum. Sometimes it works, but good fortune has a knack of petering out fairly quickly.

Executives willing to wrestle with reality, to interrogate the facts, have a much better chance of repeating the successful creation of value.

What I discovered in my travels in C-suites worldwide is that smart leaders create value and deliver success through what I describe as

Introduction xxvii

evidence-led stakeholder engagement: they build the commitment and passion that delivers value through real evidence rather than neat consultant-generated strategies, or distant dreams. In these successful organizations, evidence is not an aberration, but the result of hard work, persistence, and structure. Reality is robustly and constructively interrogated and examined. Organizational success is built on a disci-plined approach to an array of key issuesfrom mission to diversity.

The insights from my research have a deceptive but refreshing air of simplicity: success is about delivering value and this is best and most reliably achieved through engaging with people, markets, and data and then gathering evidence on that reality and making decisions accordingly.

Sounds simple. Reality is quite different. Engaging with people within their context in order to win over their commitment, appreciating the finer points of competitive advantage, locality by locality, and pulling all that together through a cleverly thought-out global corporate strat-egy require a sophisticated level of what I describe as diversity of thinking. When managers are comfortable with complexity and are able to lever-age that defining difference, then leaders can genuinely claim that the organization delivers value. Value delivery and diversity of thinking are inextricably linked. They are the two sides of the same coin and both are required to create organizational riches. The challenge for the leader-ship of the enterprise is to nurture a mindset of value delivery together with a diversity of thinking so that true differentiation is realized.

These insights led to the development of the success formula, a simple but powerful means of getting to the heart of value. It argues that three elements are critical to value creation: strategy, engagement, and alignment.

Strategy: the plan for how the organization intends to create value going forward

Engagement: the extent to which people will voluntarily invest their efforts beyond the financial or contractual benefits to them and

Alignment: the structures, systems, processes, and protocols necessary to position the organization to realize its strategy, objectives, and desired outcomes.

xxviii Introduction

How these elements are configured is the difference between value crea-tion and value destruction. As always, below the simplicity lies a some-times dauntingly deep vein of complexity, which we will explore. The Success Formula explains how the three elements work and what organi-zations and leaders need to do to deliver value.

Value is the lifeblood of organizations and the raison dtre of leaders. My hope is that The Success Formula will broaden our understanding of the meaning of success and the vital role played by value and evidence in making success a reality.

Andrew Kakabadse, September 2014

Chapter 1Understanding valueWhat is your definition of success?

I have asked this question of executives throughout the world. Among them was Georges Dabaghi, general manager of Vubiquity in the Middle East and for the CIS countries, and formerly with SeaChange, Lucent Technologies, and AT&T. Vubiquity is the worlds largest provider of multiplatform video services and Georges has been involved in telecommunications in the Middle East and Africa for nearly twenty years. His answer was characteristically thoughtful and explored some of the issues others raised when the question was posed:

Im tempted to say that success is about meeting goals you set earlier, but I think there is more to it, a feeling of creating value somehow, that you created something. I would measure success on more than one dimension.

There is financial success, which you cannot ignore, whether it is revenue growth, profitability, or the number of employees you have. And then you have the non-quantifiable elements of success: em-ployees happiness, your own happiness, how others look at you and whether you bring value to their businesses and the community they belong to.

Even though its a very small example, we created our own company in the UAE [United Arab Emirates] so that all our financial transac-tions pass through UAE banks, all our food and drinks and hotels and conference booking, and travel is passing through local enti-ties, which is adding more to GDP, bringing more value and making the economy here a little bit more prosperous. I see that as success. Success is also measured by how much you giveto the industry, to other operators, to people doing menial jobs and so on.

Georges Dabaghis answer to the question of what constitutes success raises many of the issues we will explore in the pages that follow. Success

2 The Success Formula

is a potent and often troubling cocktail of the short-term and the long-term, money and conscience, the company and the world, and the indi-vidual and the organization.

So, what is success? To distill it down, success is the creation of valueeconomic and social benefits and outcomes that serve a purpose for the people they are intended to help, in accordance with a set of values that the organization subscribes to.

Organizational success generally comes from having a clear plan or strategy to deliver on a mission. But a strategy is not a success until it delivers its intended value.

I think the most important role for the CEO is to, first, develop a great leadership team and to develop with that leadership team a clear strat-egy, Ren Obermann, CEO of Deutsche Telekom, told me.

This involves analyzing the business and its perspectives; understand-ing the market and changes in the market; understanding technologies and the key drivers for the business; and then developing a strategy. Thereafter, the CEO and leadership team provide strategic clarity to the organization and constantly work on the alignment and execution of that strategy. All of this in order to generate value to all stakeholders.

Successful organizations create value. Organizations, of course, come in many shapes and sizes, flavors and colors. This book is predomi-nantly concerned with companies, but the same points apply to all organizations. The definition of success will vary from organization to organization, but the need to create value in support of a mission is universal.

A variety of valuesIn the case of a company, this might be shareholder value. Asked what success looks like, Sally Tennant, CEO of Kleinwort Benson Bank, replied: Creating shareholder value, having a larger client base where youve delivered and your clients are satisfied. You measure that partly by being one of the places where people want to come and work. And have a top quality team so that you could fall under a bus and the place wouldnt collapse. I dont think its success if its down to an individual.1

Understanding value 3

In the 1990s, the focus of organizations worldwide shifted to generat-ing shareholder value. Suddenly this was seen as the most relevant measure of a company and leaders success. Its allure has since paled, but it is clearly a vital ingredient in any consideration of what consti-tutes corporate success.

Pure financial value also has its place. Chris Gibson-Smith, chairman of the London Stock Exchange and formerly the chief geologist at BP, recounted to me how he helped turn a cash negative, one and a half billion, into the largest single source of cash revenue in the BP group worldwide. Turning losses into profits, creating financial value where it didnt previously exist, can be immensely exciting and satisfying. This is the corporate equivalent of alchemy, the marvelous transition of losses into profits.

Clearly, companies need to make money to survive and provide value more generally. But that is not the be-all and end-all of most organiza-tionsor should not be. As Henry Ford observed, A business that makes nothing but money is a poor kind of business. In my interviews, it was interesting how little emphasis there was on financial perform-ance. It is necessary but not sufficient, the organizational equivalent of breathing.

These are enduring themesas old as business itself. Money, price, and profit are simply indicators of value. They are by-products of value crea-tion. So, too, is quality. As the great management thinker Peter Drucker observed: Quality in a product or service is not what the supplier puts in. It is what the customer gets out and is willing to pay for. A product is not quality because it is hard to make and costs a lot of money, as manufacturers typically believe. This is incompetence. Customers pay only for what is of use to them and gives them value. Nothing else constitutes quality.2

In other words, value is in the eye of the beholder. Value is something that is created in the mind of another person. It may have a price tag or it may be something less tangible. Value might be seen in terms of social value. Increasingly, the companies I encounter throughout the world have a clear notion of contributing to society more generally. They want to help make the world a better place, while still making a profit.


Value is often also seen in terms of the stakeholders involved: the indi-viduals, groups, or organizations with a direct interest in the activities of a corporation. These include shareholders, customers, suppliers, employees, investors, and members of the community in the location where the company operates.

Stakeholder value thinking has been central to research at Harvard University and many American corporations. In particular, the work of Michael Jensen has been influential.3 In recent years, thousands of initi-atives have been launched and billions of dollars have been spent in the quest for improving stakeholder engagement to generate value. Yet, the results are mixed.

Our notions of value are continually evolving. Leading the current intellectual charge is the familiar form of Michael Porter of Harvard Business School. The originator of the Five Forces framework now talks of creating shared value. The debate about what constitutes value is gathering pace as the next set of challenges facing companies become clearer. [Companies] remain trapped in an outdated approach to value creation that has emerged over the past few decades. They continue to view value creation narrowly, optimizing short-term financial perform-ance in a bubble while missing the most important customer needs and ignoring the broader influences that determine their longer-term success, lament Porter and Mark Kramer in their 2011 Harvard Business Review article Creating shared value.4

Calling on companies to take the lead in bringing business and society back together, Porter and Kramer argue that the solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and chal-lenges. Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustain-ability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center. We believe that it can give rise to the next major transformation of business thinking.

Delivery failureValue in its many manifestations is at the center of corporate life. Different types of organizations will seek to create different sorts of


value, but all organizations must create value to legitimize their exist-ence. Value is truly the currency of success.

So far, so good. But while it is easy to agree that delivering value is the essential ingredient of success, time and time again it has become evident that value is not being delivered. In the success formula of many organizations, the numbers simply dont add up. Value is left on the factory floor or the boardroom table.

Consider the very basic notion of financial value. If corporate profita-bility alone is taken as the key measure of value, the reality is disappointing.

This is brutally exposed in Richard DAvenis 2012 book Strategic Capitalism. Americas long run profitability was highest during the 1950s and 1960s, reports DAveni. Trouble started in the early 1970s but the U.S. rebounded until returns peaked somewhere around 1980 in both the services and manufacturing sectors. Since then we have seen a continuous, long run decline in corporate profitability (return on assets), even during periods of economic growth. The decline has been about 3 percentage points in profitability for both sectors from their peaks of 9 percent in manufacturing and 5 percent in services around 1980. (It is worth noting here that service industries have not been the saviors anticipated. They havent filled the employment gulf created by the downsizing of the manufacturing sector. Nor have services gener-ated the same level of return on assets that manufacturing did over the last 50 years.).5

By this measure, US companies have, on average, been less successful over time. Increased global competition accounts for some of the decline, but there are other factors at workincluding value destruc-tion as a result of misguided management. In particular, one pernicious trend is at work: the tendency to manage companies for the short term in order to boost the share price, to the detriment of the companys long-term position.

Value is being unsuccessfully delivered in other areas. We will come to a variety of examples of this later. First, to better understand how compa-nies have failed to deliver value, which defines success, let us look at value propositions. They are the starting point of value. Modern management theory dictates that all organizations should have a clear and compelling value proposition. In simple terms, a value proposition


is a positioning statement that explains what benefits (value) the organ-ization provides for whom and how it does it uniquely well. The value proposition is derived from the competitive advantage enjoyed by the organization.

In his highly influential work prior to his championing of shared value, Michael Porter argued that there are three generic strategies that companies can pursue based on their market positioning and competi-tive advantages. They are either low cost, or differentiation, or focus. In this view, a company chooses between one of two competitive advantag-eseither it competes via lower costs than its competitors or it competes by differentiating itself along dimensions valued by customers to command a higher price. A company also chooses one of two types of scopeeither focus, offering its products and services to selected segments of the market, or industry-wide, offering its products and services to many segments. Which generic strategy a company adopts reflects these choices.

As useful as Porters model still is, an organizations strategy should follow from its value proposition rather than vice versa. This often does not happen.

Failure to define the value proposition properly is one of the most common problems in organizations. But there is another, potentially even more insidious, danger. Too many senior management teamsled by ambitious CEOscreate a strategy to support a flawed value propo-sition, or for reasons that have little to do with value creation. Business history is replete with examples of CEOs who went on an acquisition spreebuying companies not because they were adding value but because they were empire building. Value propositions can be left behind in a headlong rush to pursue imaginary or elusive alternative sources of value.

Interestingly, too, the very same traits or behaviors that made leaders successful earlier in their career can derail them. Indeed, what has been a highly successful strategy for a CEO over many years can unwind in spectacular fashion if the context changes. The evidence shows that a CEO who was widely admired for his or her strategy and value proposi-tion thinking can become infamous for the very same strategy and value proposition at a later time.


Banking without valueWhen the Royal Bank of Scotland (RBS) acquired NatWest Bank, a bank three times its size, for 23.6 billion in 2000, for example, its newly appointed CEO Fred Goodwin was the toast of Londons Square Mile.

Goodwin had joined RBS in 1998 as deputy CEO to Sir George Mathewson, who had ambitions to develop it from a regional bank into an international player. Mathewson led the NatWest deal, but it was Goodwins diligence and sharp mind that impressed investors and won them over to cement the deal in the face of fierce competition from its rival the Bank of Scotland. In January 2001, Goodwin was promoted to CEO and cut 18,000 jobs by merging parts of RBS and NatWest.

Nicknamed Fred the Shred for his ruthless ability to acquire and absorb banks, over the next seven years Goodwin presided over RBSs rise to global prominence as the worlds largest company by assets (1.9 trillion) and fifth largest bank by stock market valuation. But if RBSs rise was meteoric, its fall was even more precipitous. In 2008, during the banking crisis, it was forced into nationalizationbailed out by the UK tax-payer.

In October 2008, Goodwin officially resigned as CEO. Shortly after-ward, RBS announced that its 2008 loss totaled 24.1 billion, the larg-est annual loss in UK corporate history. Goodwins lack of humility, reluctance to give up his undeserved bonuses, and failure to show contrition over his handling of the crisis led to his becoming the United Kingdoms poster boy for the excesses of the banking industry. His unpopularity contributed to his knighthoodawarded in 2004 for services to bankingbeing canceled and annulled in February 2012.

Goodwins rise (and eventual fall) should not really have come as a great surprise. He was simply replicating a previously successful strategy that had worked for him as RBS expanded. The trouble was that the context had changed. The same high-risk, aggressive strategy that had made the RBS Group into a global banking powerhouse, creating massive increases in shareholder value, led to its failure some eight years later. Yet, with one or two notable exceptions, how many voices warned of the dangers?


This is a story repeated many times in corporate history. As contexts change, highly successful companies and leaders can find themselves high and dry, stranded, clutching an outdated business model and a value proposition that makes no sense in the new world order. A predis-position for a perceived value proposition (it has worked before, so it will work again) blinds the leader to the evidence needed to deliver value. The success of the past poisons the individuals capacity to be adaptive to todays circumstances and, as everyone in business knows, today is always different. Always.

Flaws of the value jungleAt least Fred Goodwin and the like have a track record of delivering value. Less obvious but more common are CEOs who believe in a flawed value proposition. In other words, they believe that their strategy will create value for stakeholders even though their value hypothesis is untested and there has been no systematic gathering of evidence. These leaders formulate a value proposition and then move to create a strat-egy to deliver it. Rather than test the hypothesis and open it up to debate with stakeholders, they forge on with their unproven value proposition. Typically, they are selective in soliciting opinions, listening only to those who agree with them or support their worldview. The results are usually disastrous.

You might think this sounds highly unusual. But, the reality is that CEOs and organizations regularly pursue strategies that even if perfectly executed are misguided because the value proposition is flawed. Over time, a gap develops between the reality of whats happen-ing on the ground and what the CEO believes is happening. The CEO goes into denial, choosing to ignore information that does not fit with his or her value hypothesis. The organization creates capabilities and delivers products and services that are out of kilter with what custom-ers value. The last person to know is often the CEO, who increasingly adopts a bunker mentality, refusing to listen to the evidence from the market.

One senior manager described his experience on being parachuted into a problem area of a company that had been ignored for many years.


An untested strategy had been failing but until he arrived no one had done anything about it:

When I arrived at my office there was about a quarter of an inch of dust on my desk. And that dust was reminiscent of the dust that was on the company. The people walked around with their heads down. There was a culture of fear. In my first hour I felt gripped by this no-can-do culture. I walked around as if I was a ghost. Not a single person knew who I was or came to say hello. My first interaction was with the company lawyer, who said: Are you the new guy in charge of China? You better read this because were about to get sued big time and I need to brief you. So this was nine oclock. It was a terri-ble place. I walked around for a while and then went back to my seat and said, what am I going to do?6

What this manager was experiencing was the result of a strategy that had not been evidence-tested. Everyone in that part of the business knew it was failing but the fear culture meant that the message had not reached the CEO at corporate headquarters.

Indeed, one of the most daunting facts of a CEOs life is how little real information he or she receives. Peoples default setting is to give the CEO good news. Bad news rarely percolates through the hierarchy. It needs to be sought out. If you have ever watched the TV series Undercover Boss you will have seen this in practice. In each episode a business leader comes face to face with the day-to-day reality of his or her business on the front line. In virtually every instance, he or she is dismayed to find poor processes, inadequate resources, demoralized people, and unhappy customers. The staggering thing is that it requires a TV program for business leaders to confront reality.

Testing, testingMore enlightened CEOs, on the other hand, are always testing their value propositions and value hypotheses with their stakeholders. They are endlessly curious to understand what stakeholders really value. They are constantly testing their perceptions against reality. So, they visit their companys stores, they talk to customers, they mingle on the factory floor, they call people to thank them, and much more.


Leaders have to constantly hunt down the truth by pursuing evidence. As Ed Rapp, president of Caterpillars Construction Industries group headquartered in Singapore, explains:

The biggest risk in this joband I would say any job of leadershipis isolation and filters. Every time I look at a presentation the question I ask myself is how many filters has it been through before it got to me? If you maintain access throughout all levels of the organization it really does give you the ability to bypass the filters that develop in a large company.

The worry is if people dont always put reality on the table. What I keep trying to help people understand is weve got a lot of talented people and if we put reality on the table Im convinced as a group we can fix it. If we dont have reality on the table we cant fix what we cant see. So thats the one challenge I continue to work, getting people to feel comfortable delivering bad news, feel comfortable putting tough issues on the table. However, when they put real-ity on the table, they also need to come with suggested solutions. Leadership is not just about identifying issues, its also all about fixing them.

The truth is elusive. Organizations are made up of human beings with their usual array of concerns, worries, fears, prejudices, and much more. Understanding and capturing the range of realities and percep-tions that people hold in any organization is fraught with difficulties, but essential if the power of the success formula is to be understood and exploited. Evidence must be the mechanism to surface these reali-ties and to act as the platform for constructive and continual dialogue.

Listen to how Mick Davis explained his role as CEO of the global mining company Xstrata:

In the case of Xstrata, we have 35 to 40 people in our head office and none of us aspires toor probably has the skills torun any of our individual operations. We can identify risk, we can interrogate information, we can ask the right questions and we know how to evaluate performance. What we dont do is attempt to take on any of the individual operations management decisions, which means we find no need to build a bureaucracy.


The trick to managing numerous operations successfully is to nar-row down who does what. We have a clearly defined and proscribed role of the center. In most organizations, there is a blurring of who takes responsibility and accountability; but, if you want to be an organization in which your executives have freedom to act, you ac-tually have to give them this freedom. And that means a very, very small head office in which you dont have people at headquarters second-guessing what the people who run the various components of the whole enterprise are doing.7

Note the importance attached by Davis to asking questions, interrogat-ing reality, seeking out the evidence. Get to the truth and then give people the freedom to execute.

In an interview, Richard Laxer, president and CEO of GE Capital Europe, Middle East and Africa, explained his approach. My job is to create a strategy for the business. I spend a lot of time on that and the only way I can do it is by staying close to whats happening externally and internally. It cant be a strategy thats developed in a vacuum; it has to be something that reflects the real world.8 It is perhaps no surprise that vacuum-packed strategies tend to be vacuous.

The ability of an individual or organization to deliver value can never be taken for granted. At every stage it needs to be tested and tested again.

Value creationTo better understand the dynamics at work here, lets take a step back. If value is the route to success, how do you create value?

This was something I put to all the leaders I interviewed. Their responses were revealing. Over time, it became clear to me that there are two differ-ent approaches to creating value as a leader. One is about perceived value; the other is about delivered value.

In the course of my research, I noticed that these different ways of going about creating value indicated two different types, or styles, of leaders. The creator of perceived value is more likely to be a big picture thinker who elevates strategy above all else, while the creator of delivered value


is characterized by his or her closeness to customers and other stake-holders. Most leaders have a default setting, leaning toward one or the other mindset.

Lets take a look at what I mean by perceived value.

Leaders with a predisposition for perceived value start by formulating a value proposition (actually it is probably best described as a value hypothesis) and then look for evidence to support their strategy. They have a preconceived notion of how the organization can create value and enact a strategy to achieve it. Usually, the strategy emanates from inside the boardroom and is informed by a value hypothesis that deter-mines the strategy.

Consider the recent history of one of the great success stories of the first flush of the technology age, Hewlett-Packard. In early 2005, news emerged of an imminent boardroom reshuffle at HP. The move marked the beginning of the end for Carly Fiorina, the companys high-profile and controversial CEO. On February 9, Fiorina stepped down from her position at the helm of the $80 billion company. In a press statement, Fiorina declared that her exit was related to differences with the board over how to execute HPs strategy.

Prior to becoming CEO, Fiorina had been a highly successful executive. Much of her success had come from her keen intellect, charismatic charm, and strategic boldness. Yet, the very same attributes that had brought her success earlier in her career contributed to a lack of judg-ment that led to her downfall. Her talents blinded Fiorina to the evidence that her chosen strategy was destined to fail. She didnt listen to the people around her. The ultimate thing that derailed her career at HP was her inability to achieve alignment among HP managers in order to engage the companys workforce with her vision.

A big contributing factor was the companys poor performance in the months prior to her departure. But underpinning that performance and creating tension within the company was Fiorinas controversial merger with Compaq, starting in 2002, which she saw as the key to the companys future. Fiorina was so convinced that her strategy would create value for the company and its customers that she forced it through despite the concerns of board members including Walter Hewlett, son of the companys cofounder, who strongly opposed the deal.


The claims of synergy failed to materialize and the company lost considerable value.

Analyzing the case in Fortune at the time, Carol Loomis asked: Did the famed merger that Fiorina engineered between HP and Compaq produce value for HPs shareholders? Second, with that merger almost three years past, is HP in shape to thrive in its brutally competitive world? The answers are no and doubtful.9

This was a classic case of a CEO with a very clear idea of what she thought would create value for the company, who failed to truly inter-rogate the evidence and to take her board with her. More than that, Fiorina made her perceived value the centerpiece and make-or-break move of her tenure.

Belief limitedFiorinas time at HP exemplifies a pattern among CEOs with this mindset. This type of leader justifies his or her strategy with perceived valuea belief. This may be no more than an unproven value hypothesis supported by analysisthat the prescribed value proposition is attractive and can be achieved in the future. This type of leadership approach is to formulate a value proposition and then act on an unproven belief. The process of engagement is to win support from other key managers and board members, while over-riding the views of those who question the efficacy of the strategy. As a result, a damaging whirl of organizational politics is usually unleashed.

One senior manager in Australia confided that his CEOs attempts to achieve a major change of structure and practice in the organization were pursued without any trial run. The CEOs friends in the top team and on the board supported his idea and those who attempted to challenge were browbeaten into submission. The line managers did not dare say a word and yet they all knew that a new service offering to the market was going to fail. In this case, it was a vigilant press and media in Asia and Australia that brought the failing strategy to the attention of the board. What happened? We, the general managers, got the blame.


With the perceived value approach, there is a real danger that strategy will become dogma as senior management will seek to justify its preconceived view of the world and value creation. Once a bandwagon is moving, it takes a brave man or woman to stand in its way. In one case, for example, I encountered a legal services firm which had decided it should go into employee development. The head partner was convinced that this was what the market wanted but didnt check with customers or service deliverers whether that would create value. It didnt and is a good example of how a strategy-driven approach can backfire.

What happens next is an all-too-familiar pattern: value creation becomes uncoupled from reality and from the evidence. Routine and denial take over and the organization may run on preexisting compe-tence for some time rather than on excellence. But ultimately it is doomed to failure.

In recent years, no idea has done more damage in this regard than the slavish pursuit of shareholder value. Even Jack Welch, the celebrated former CEO of General Electric who consistently delivered on it during his tenure, described shareholder value as the dumbest idea in the world.

The preoccupation with shareholder value has contributed to a grow-ing gap between the real market and the expectations market. One of the most outspoken critics of this process over recent years is Professor Roger Martin, the former dean of the Rotman School of Management in Toronto. In his book Fixing the Game, Martin points out that CEOs and their top teams are often incentivized to focus more on expectations of success and value than on creating real value through the goods and services their companies produce.

The real market, Martin explains, is the world in which factories are built, products are designed and produced, real products and services are bought and sold, revenues are earned, expenses are paid, and real dollars of profit show up on the bottom line.

The expectations market is the world in which shares in companies are traded between investorsin other words, the stock market. In this market, investors assess the real-market activities of a company today and, on the basis of that assessment, form expectations as to how the


company is likely to perform in the future. The consensus view of all investors and potential investors with regard to expectations of future performance shapes the stock price of the company.

What would lead [a CEO], asks Martin, to do the hard, long-term work of substantially improving real performance when she can choose to work on simply raising expectations instead? Even if she has a performance bonus tied to real-market metrics, the size of that bonus now typically pales in comparison with the size of her stock-based incentives. Expectations are where the money is. And of course, improv-ing real-market performance is the hardest and slowest way to increase expectations from the existing level.10

Delivered valueWhile some leaders play the expectations markets, others gather evidence from stakeholders inside and outside to determine the value the organization is delivering today and can deliver in the future. A strategy is then put in place to support those findingsand is deliber-ately exposed to challenges from stakeholders to create engagement. These are value delivery-driven organizations.

Connecting the dots of reality on a daily and dynamic basis is the foun-dation to truly delivering value. Alexey Marey, chief executive of Alfa Bank, one of Russias largest private commercial banks, operating in the turbulent and rapidly changing Russian and Ukrainian banking markets, explains:

Historically, we said we would try to create value in peoples lives. This means different things to various groups of people. We are the best in internet banking and mobile banking. We are the best in customer experience, so we care. And thats what we try to promote. We compete on speed and professionalism. We aim to be smarter because we give people more freedom. One of our core values is en-trepreneurship because we are privately owned and therefore it al-lows people to not only work by the rules but actually create the rules. It drives a certain culture within the bank. And the core of the relationship is your current accountthe account that is used every day.


Looked at this way, value is not an abstract notion but an inescapable and common touch point. Companies that are successful over a number of years find ways to inculcate their values and approach into the acts of value creation and delivery.

This point was powerfully brought home to me when I was talking with John Neill, chairman and group chief executive of the Unipart Group of companies:

The Unipart Way is a philosophy of working underpinned by tools and techniques which form part of our knowledge management systems. But to grasp it you generally have to see it in action and so weve created an experience here in our company including our company university, a teaching distribution center, factory, and of-fice, which enables employees, current and new ones as well as our potential clients, to see the Unipart Way in action and that generally enables them to grasp the power of it. Many then say could you im-plement the Unipart Way for us? And often the answer is yes.

Gathering and reviewing evidence is central to the Unipart Way. In particular, this includes:

embedding the Unipart Way, tools, techniques, culture in the offices, the distribution centers, factories, and in fact anything and every-thing that is Unipart

promoting a problem-solving philosophy that engages all emphasizing an evidence-based approach through pertinent data

gathering to improve quality, cost, and waste issues from top to bottom of the organization

becoming self-reliant, self-confident, and self-sufficient in the tasks and techniques, in fact, the knowledge base of the Unipart Way, and

acting as a coach to others.

In this way, Unipart combines the hard side of evidence with the soft side of engagement.

Leaders like John Neill strive to create a culture that constantly inter-rogates the evidence to test the strategy. These sorts of leaders are driven by value creation among stakeholders outside of the boardroom and are focused on proving their strategy every day with the evidence gathered. This is delivered value.


Equating successAs these two worldviews became clearer from my interviews, I created a shorthand way to denote each approach. It uses the three elements described earlierstrategy, engagement, and alignment. What I found was that the three elements were important to both approaches, but the way they were combined was significantly different. In some organiza-tions strategy came first and was used to drive engagement and align-ment. I denote this as:

STRATEGY (ENGAGEMENT + ALIGNMENT)

In organizations driven by S (E + A), the leadership focus is on creat-ing and then implementing the strategy. Unfortunately, the two other elements that make up the contextengagement and alignmentare not factored into the strategy. If their sum is not a positive number, then strategy alone will not create value as it is simply a multiplier of their combined values. (This is strategy multiplied.)

What emerged from the research is that strategy is important, but its not the most important factor. The key to long-term success is getting the balance between the reality of engagement and the reality of struc-ture and systems alignment, and the very delicate relationship between engagement and alignment to make things happen now versus strate-gic thinking, which aims to shape the future.

The research provided surprising results, challenging some key parts of traditional business school thinking. Since the 1920s, the way business schools teach has been heavily influenced by the approach of the Chicago School of Economics, which emphasized the importance of getting the strategy right to realize competitive advantage.

Such thinking was based on the rationalist philosophy of Sir Francis Bacon. The essence of rationalism is that once it is clear to all what is the right strategy then all will fall in line. Yet, my research found that such rationalism is not the mindset of those leaders who create and deliver best practice. Getting the strategy right is step one. Step two is holding the tensions and contextual reality of each organization between alignment and engagement. What this research shows is a fundamental shift in leadership emphasis.


We have moved from a world where leadership was about formulating a value proposition, creating a strategy to support it and then executing on that strategy, to a world where leadership is about testing a value proposi-tion with stakeholders to create the right balance between alignment and engagement in order to develop a strategy that can be implemented.

The old leadership model was driven by the belief of the leader. The new model is driven by evidence, which fosters the belief of the organization in what the leader and the strategy is trying to do.

To make better sense of this in my interviews I developed a formulanot in the scientific sense, but more as an aide memoire, a handy reminder; a constant and simple means of making sense of these organizational phenomena I was being exposed to.

The predominant success formula described earlierthink of the HP exampleis when an organization is being led by perceived value. This is the corporate equivalent of putting the cart before the horse. Strategy is used to drive engagement and alignment. In other words, strategy comes first and then the stakeholders are expected to execute on iteven if they dont agree with it or have not been consulted. The leadership focus is to get the strategy right. The result is usually resistance, leading to a reluctant and highly politicized organization that is likely to even-tually fracture.

The leadership focus of this poor but commonplace practice can be summarized as:

STRATEGY (ENGAGEMENT + ALIGNMENT) = VALUE PROPOSITION

Worse still is a situation where the organization pursues a strategy based on an unproven value hypothesis and the organization is aligned behind it. This is the corporate equivalent of lemmings marching off a cliff in step. It is summarized as:

(STRATEGY ALIGNMENT) + ENGAGEMENT = VALUE PROPOSITION

When the only objective is to drive cost out of the business, this formula can work in the short-term, but at a human and cultural cost. (This could be described as engagement plus.)


One executive confided how the efficiency with which his CEO drove cost out of the business eventually led to the CEO losing his job and much more:

He got the strategy right and then we as a team sorted out our roles and who was responsible for what and then just drove the new struc-ture hard through the organization. Many were traumatized. They had been there for many years, good and loyal and in many ways well able to contribute. But they did not fit the new cost conscious-ness that was needed. Cost was really driven out of the business and quickly. Many left but we also brought in new hires that had nothing to do with our history and old culture and the new organization was built on them. We then faced the very awkward situation of having to have the CEO leave. He certainly was not the one to build the new entity. He was just hated even though what he was doing was right. It took a lot of courage and hard conversations with the chairman and the board to persuade the CEO to leave. When he went we were all relieved. Had he stayed he would have destroyed the very entity he had created.

Best formulaThe organizations I encountered that had sustained success over many years had a different success formula. They were focused around value delivery. The onus was on achieving engagement and alignment of view. These two elements, together with the market conditions, constituted the context within which the organization had to operate and therefore within which the strategy had to be effective. The strategy was then added to support and serve the proven value proposition.

In other words, in the best performing companies, the strategy is a good fit with the context, not the other way round. Rather than attempting to shape the context to fit the strategy, these organizations place great store in collecting evidence to understand the context. This open-mindedness and willingness to consider multiple points of view, in effect a mindset of diversity of thinking, allows them to maximize alignment and engagement. Seen in this light, the purpose of collect-ing evidence is to optimize these two components (alignment and


engagement). The evidence gathered may support or challenge the value proposition underpinning the strategy. Either way, senior management should listen to it. If the evidence contradicts the value proposition, then the strategy has to change. Collecting evidence becomes the safety catch that prevents an organization from embark-ing on a disastrous strategy. Fully understanding the context sharpens the strategy.

The leadership focus of this delivery-based approach can be distilled down to:

STRATEGY + (ENGAGEMENT ALIGNMENT) = VALUE DELIVERY

The logic of S + (E A) is this: First achieve consensus about where value lies, and the organizations capability to deliver it. Then, and only then, formulate a strategy to deliver that value, and constantly test that strategy and the assumptions that underpin it with stakeholders and reality. This is Strategy plus.

Understanding the success formulaS + (E A) = Vand the disciplines it involves, is the subject of the rest of the book.

Understanding value: In summary Success is the delivery of value. Our understanding of what constitutes value is constantly evolving

and differs from organization to organization and from individual to individual.

There are two general approaches to creating value as a leader: perceived value and delivered value.

Delivered value demands constant questioning of reality and the gathering of evidence.

There has been a shift in the best performing companies from getting strategy right and structure following to a two-step approach of getting the strategy right and then paying attention to the unique balance of alignment and engagement in this context.


Best performing companies have a structure preceding strategy to initiate change.

Strategy + (Engagement Alignment) = Value Delivery

Key questions In your organization, what really constitutes success? Is value really delivered? Are you a leader who pursues your own ideas and convinces others of

their merit? Are you a leader who is willing to test your ideas through evidence

and see which will survive scrutiny? What do those around you really think of you? If you are the chairman, what criteria do you use to evaluate the

strategy and value proposition that emanates from the CEO and the management team?

If you are the CEO, do you harness the opinions of general manage-ment on the strategies you wish to pursue?

If you are a general manager, what do you do when the strategy given to you from above is unlikely to work?

Chapter 2Diversity of thinkingThe starting point for this book was sustainable success. How can and how do some organizations repeatedly achieve success? As we have seen, success is about delivering value. This led to an examination of value in all its many guises. Creating valueand thereby achieving successmeans different things to different people at different times and in different situations.

The more I talked to managers and leaders, the more I began to see that this simple observation about success had profound implications. Stakeholders view the organization through different lenses depending on where they are. If success has multiple meanings and interpretations depending on where you view the organization from, then how it can best be pursued will also look different from different angles. Think about trying to create a three-dimensional map of a landscape that you wish to navigate. It may not be obvious from the top of a hill that an area below is covered by marshland, or that there is a deep ravine in the way. The same is true for an organization trying to create a strategy.

It is only through an understanding of the diversity of viewpoints that the leadership can hope to see the full picture. By surveying the area from multiple positions, it is possible to build up a composite view that combines knowledge on the ground with the view from the hill. Diversity of viewpointswhat I call diversity of thinkingbecomes a competitive advantage. Success demands both value delivery and diver-sity of thinking.

Much of the recent debate about diversity has centered on the best way to allow different voices to be hearda wholly laudable and important goal. Typically this is characterized along the lines of gender, race, and religion. These are useful but limited ways to describe how the world looks from where an individual is standing. As we shall see later in this chapter, recent study shows that gender and nationality are at the bottom of the list of priorities when it comes to diversity. What really adds value to the conversation is the ability to seek out different


perspectives and points of view, to see the world through the eyes of others. This is the really critical aspect of diversity in organizational life. It provides a way of fostering the alignment and engagement necessary to achieve the success equation.

Clearly, diversity of people is important. But, diversity of thinking is the essential element. Without it there will be no true diversity. In the same way as there are people who have one years experience twenty times, there are culturally diverse teams that look at the world through blink-ers. Diversity of thinking is what we need to build in organizations.

The road to diversityThis became clear as my interviews progressed. I began to notice a pattern. Senior managers talked about the difficulties of aligning the multiple meanings of success and operational perspectives in a way that engaged the enthusiasm of their people to execute on the strategy. Many of these senior managers understood that without the necessary coalitions and support in place further down the organization, espe-cially at general manager level, they could not deliver the value proposition.

Managers in the front line, however, had a different concern. Time and time again they explained how, by overlooking the obstacles they faced in their part of the business (the marshland or ravines), their strategy was doomed to fail.

The general managers in particular had important information and evidence that senior management needed to know about to avoid making bad decisions. The general managers had a unique point of view within the organization and they wanted to be heard. They wanted to have a voice in the conversation.

This diversity of opinion and viewpoint within any organization is the essence of diversity of thinking and I have come to the conclusion that it is absolutely vital to the sustained success of any organization. Indeed, my research suggests that the leaders who achieve sustained success apply broad interpretations of value, and emphasize the importance of creating value for stakeholder groups. They encourage and reward diversity of thinking.

Diversity of thinking 25

Robert Swannell, chairman of the UK retailer Marks and Spencer, is among the senior business leaders who promotes diversity of thinking. You have to bring calm and clarity to some really quite intractable problems. What I have always tried to do is build around me groups of people who enjoy working with me and each other and that means giving them the freedom and the acknowledgement of their part in the success of anything I do. You need a style of leadership that helps people to be a part of that. This sort of inclusivity is a key component of diver-sity of thinking.

A way of workingIn Shanghai I asked a group of executives what a leader newly appointed to China needed to know about the Chinese. Some said it was knowl-edge of the history of China, the Chinese culture, Chinese people, and the particulars of Shanghai. However, one opinion stood out against the others. Yes, knowledge of China and the Chinese is interesting for the dinner table, but to do business here you need to have a mindset of diversity of thinking. Why? Because understanding your and others competitive advantage is going to create the critical advantage. Through embracing diversity, the enterprise is differentiated from others.

These words were repeated across the world by some of the highest performing leaders I met. It is not knowledge of national culture but more a positive attitude to diversity of thinking that contributes to the success formula. A collection of people from across the world can still offer a blinkered view. Equally, a mono cultural team can offer diversity of thinking.

Diversity of thinking emerges as much a vital concept as that of align-ment and engagement. Indeed, engagement and diversity of thinking are two sides of the same coin. One cannot function without the other.

The organizations that impressed me most were the ones that had truly and powerfully embraced diversity of thinking. The more I studied them, the more I came to realize that diversity of thinking is not just rhetoric in these organizations, it is a modus operandi. They are success-ful because they listen to and show respect for diverse points of view. They use the diversity of thinking as a platform to gather evidence


about external market forces and internal capabilities and adjust the strategy accordingly.

Truth be told, my research highlights unexpected findings concerning diversity. Attending to cultural, national, regional, and faith-based differences does not add a great deal of value to the effective function-ing of the organization. This suggests that a great deal of corporate money is wasted. An initiative to have more women in the senior eche-lons of a company is meaningless if fundamentally the companys culture does not embrace diversity of thinking. An open-minded approach does not work in a narrow-minded organization.

Developing a culture of diversity of thinking enables the organization to better engage with a wide variety of agendas and interests and inte-grate them in order to enable the pursuit of the mission of the enterprise.

Diversity of thinking allows these organizations to see the world through the eyes of their stakeholdersemployees, customers, suppli-ers, shareholders, local communitiesand to respond to its ever-chang-ing nature. Diversity of thinking provides them with the eyes and ears to comprehend and capitalize on their business universe. It is, I believe, an approach that allows organizations to execute on a global strategy.

Global thinkingThe word global is key to any modern understanding of diversity of thinking. The context for the success formula to be delivered is now truly global. Organizations are global. Leaders now have to be global in outlook and experience. In her book, The Culture Map, Inseads Erin Meyer makes the interesting point that being a global executive was once the preserve of the chosen few who traveled the world, but now it is much more generally experiencedglobal managers may never leave their desks but can be emailing, Skyping, conference calling, and communicating with people from other cultures. We are all globalists.

Many of the leaders I interviewed had riveting stories about how their international assignments, projects, and experiencesnot to mention the challengeshad shaped their leadership. It is from their diversity of


background and experience that people develop a unique viewpoint, which fosters diversity of thinking. It is diversity of thinking rather than gender, race, or faith that is the most powerful and beneficial element in an organizations ability to sustain success. Through pene-trating diversity of thinking, gender, race, and faith are harnessed to their full potential.

Take Jeff Fettig, chairman and CEO of Whirlpool:

I grew up in a small town in Indiana, and I jokingly tell people that for 18 years Im not sure I ever left the county! Certainly, I was never out-side of a two-state radius. And then my first ten years at Whirlpool I was really travelling, living all over the US and as we began to execute our globalization strategy, I was in the opening wave of US expats. It certainly helped me and shaped my thinking, but it also helped the company as a whole.

Weve always, even way back then, talked about diversity. But, once you travel and, particularly, live abroad, you are immersed in differ-ent cultures and learn that the US is pretty insulated, and doesnt necessarily always have a good perspective of what happens outside our country.

So, what did Jeff Fettig learn?

You learn that there are different ways of thinking about thingssome you may agree with, some you may not agree with, but nevertheless, they arent necessarily right or wrong, theyre just different. And thats when you start really understanding diversity. So, for all those reasons, it was great for me in my career, as a person. It forced me to demonstrate, without leaving companies, that you could operate in very different businesses, because our businesses outside the US were completely different than the businesses inside the US. So, you get, in a way, multi-company experience, within the company. And it just so happened that was a critical part of our strategy, so I was fortu-nate to be where our strategy was being enacted live.

I think theres a great myth that there are all these cultural differenc-es between people. And my view is that there are cultural differences, but not with peopletheres just cultural differences with cultures, and people are peopleand that a best practice that works in one


part of the world, will likely work in other parts of the world. Weve got 25 years of demonstrating that thats true. If you respect cultures and respect people, then you will do well anywhere in the world.

Diversity plusGiven such role models at the top of most large organizations, it is surprising that encouraging and enabling diversity is still an issue of discussion. Even in the second decade of the twenty-first century, many corporate boards remain astonishingly lacking in diversity.

The debate about diversity tends, inevitably, to become bogged down in how manyor how fewwomen now sit on boards. This is undeni-ably important. But, despite all the publicity this issue attracts and the introduction of quotas in some countries, the figures remain low. According to research by Heidrick & Struggles in Europe, the propor-tion of women on European boards is 17 percent. This figure is higher the further north you move. The lowest proportions are in Portugal (7 percent) and Poland (8 percent). The more positive news is that the trend is upward. The proportion of women on European boards has increased by nearly 70 percent over the last four years. It is also notable that women are more likely to fill the roles of non executive directors.1

Age is another area of debate explored by the Heidrick & Struggles European research. The reality is that the people on company boards tend to be those who have accumulated years of relevant and useful experience. In Italy and Spain, around one in six board members are over seventy. The Heidrick & Struggles research shows that the overall average age of board directors is 58.3. Chairmen tend to be in their sixties and CEOs in their early fifties. Over a third of European board members have some form of CEO experience.

Boards are also becoming more international in their make-up. The proportion of non national directors on boards is 30 percentup from 23 percent in 2009. Companies are increasingly eager to add board members with experience and expertise in Asia.

The will to change appears real. In its European research, Heidrick & Struggles found that a total of 63 percent of its survey respondents

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