Leadership as the Starting Point of Corporate Strategy

Even the best strategy can fail if a corporation doesn’t have a cadre of leaders with the right capabilities at the right levels of the organization.

February 2005 | by John Corrigan

When it comes time to implement a strategy, many companies find themselves stymied at the point of execution. Having identified the opportunities within their reach, they watch as the results fall short of their aspirations. Too few companies recognize the reason.

Mismatched capabilities, poor asset configurations, and inadequate execution can all play their part in undermining a company's strategic objectives. Although well-regarded corporations tend to keep these pitfalls squarely in their sights, in our experience far fewer companies recognize the leadership capacity that new strategies will require, let alone treat leadership as the starting point of strategy. This oversight condemns many such endeavors to disappointment.

What do we mean by "leadership"? Whereas good managers deliver predictable results as promised, as well as occasional incremental improvements, leaders generate breakthroughs in performance. They create something that wasn't there before by launching a new product, by entering a new market, or by more quickly attaining better operational performance at lower cost, for example. A company's leadership reaches well beyond a few good men and women at the top. It typically includes the three to eight percent of employees throughout the organization who can deliver breakthroughs in performance.

Since bold strategies often require breakthroughs along a number of fronts, a company needs stronger and more dominant leadership at all levels if these strategies are to succeed. A defining corporate transaction, for example, requires leadership throughout an organization's business units and functions in order to piece together best practices and wring out synergies while striving to carry on business as usual. In addition, leaders throughout both companies must transcend the technical tasks of the merger to rally the spirits of employees and to communicate a higher purpose.

As the number of strategic dimensions and corresponding initiatives increases, so does the pressure on leadership. Not surprisingly, our work in many industries with companies of all sizes has shown that high-performers, especially those with lofty aspirations, have the most difficulty meeting their leadership needs. Of course, companies that perform poorly are also lacking in leadership capacity. The higher a company's aspirations or the more radical its shift in strategic direction, the larger the leadership gap. This rule holds true for high performers and laggards alike.

The Consequences of Inattention

Most CEOs will agree that leadership is important, yet few assess their leadership gap precisely. Fewer still build an engine to develop the right quantity of leaders with the right mix of capabilities, at the right time, to match opportunities.

If the number of leaders needed to achieve a strategic goal—for example, expanding current operations or developing new businesses—were set against the number of existing leaders, a company could uncover the numeric leadership gap it must address. Even if an organization has enough leaders, it may discover a shortfall in their capabilities. A company expanding internationally, for example, could find that its current leaders lacked the cultural sensitivity to operate in unfamiliar geographies. Or a corporation entering new markets could find it had too many engineers and not enough business builders.

The failure to assess leadership capacity systematically before launching strategic initiatives can leave top executives scrambling to fill gaps at the last minute—with significant consequences.

In the short term, companies that undertake new strategies without the right leaders in place are forced to burden their existing ones with additional responsibilities. As such leaders take on the new challenges, the demands from day-to-day operations invariably increase, leaving less time for other tasks. Often these leaders drop the activities with less tangible outcomes, such as staff development, for which the effects are not immediately evident. If a company stretches its existing leaders too far, their overall effectiveness takes a nosedive. From the start, this trade-off compromises strategic objectives. Companies executing strategies under these circumstances assume either that they can get by with suboptimal leadership or that achieving just part of their initial objectives will capture a corresponding percentage of the strategy's net present value. We know from experience that these assumptions can be fatally wrong: one critical misstep can jeopardize the entire investment.

In the longer term, a persistent leadership gap will be responsible for an inexorable decline in the number and quality of leaders. Companies create a vicious cycle in which good leaders become overextended or are moved haphazardly and thus have less time to develop younger talent. The day will come when they hand over the reins to a less experienced, ill-prepared group of successors. Left unchecked, this cycle can ultimately put the company's core operations and strategic growth at risk.

 

Executive Editor

Ms Anna Sullivan

Ms Anna Sullivan