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Wednesday, October 26, 2011

Positive Leadership: Leading in a VUCA World

How do you lead successfully in a VUCA (volatile, uncertain, complex, ambiguous), disruptive, even chaotic world?

In their new book Great by Choice, Jim Collins and Morten Hansen pondered that question. To get some empirically derived answers, they studied leaders of companies that grew to become great in highly uncertain, even chaotic, industries. They include the biotech, semiconductor, personal computer, and airline industries. Over the years, the CEOs of these companies faced massive technology disruptions, deep industry recessions, sudden collapses in demand, price wars, oil shocks — you name it. But even so, they led their companies to great long-term financial performance. Their experience can guide leaders who now must lead in today's disruptive world.

Some of these leaders have become legends, such as Andy Grove of Intel and Herb Kelleher of Southwest Airlines. Others remain fairly unknown outside their industry, such as John Brown of Stryker and George Rathmann of Amgen. What then were the leadership characteristics that separated the winning leaders from their industry peers?

Surprisingly, they were not more visionary (they did not stand out for their ability to "see" the future), and they were generally not more charismatic (yes, a few were, like Herb Kelleher, but not all, and so were some industry peers).

Instead, the researchers found three other characteristics:

Productive Paranoia. Bill Gates was hyper-vigilant about what could hit and damage Microsoft. "Fear should guide you," he said in 1994. "I consider failure on a regular basis." Herb Kelleher predicted eleven of the last three recessions. Andy Grove ran around "looking for the black cloud in the silver lining." Productive paranoia is the ability to be hyper-vigilant about potentially bad events that can hit your company and then turn that fear into preparation and clearheaded action. You can't sit around being fearful; you must act, like Herb Kelleher, who insisted on cutting costs and running lean operations in good times, so that they would be prepared for the next storm, imagined or real.

Empirical Creativity. Well, just staying alive does not produce greatness. You must also create. So we should expect these leaders to be highly creative — to create new, wonderful products. Yes, but here's the rub. The leaders of the average industry peers also displayed lots of creativity. The researchers found that the differentiating leadership principle was a certain approach to creativity, what we call empirical creativity — the ability to empirically validate your creative instincts. This means using direct observation, conducting practical experiments, and engaging directly with evidence, rather than relying on opinion, whim, and analysis alone. When Peter Lewis of Progressive, the car insurance company, had the idea of expanding into the safe-driver market, he did not move in one big swoop. Rather, he started with trials in Texas and Florida, then added more experiments in other states, and finally, three years later, when the concept was validated, he bet big on the new business. His idea was rooted in empiricism, not analysis alone.

Fanatic Discipline. Discipline can mean many things — working hard, following rules, being obedient, and so on. However, the researchers mean something else: The best-performing leaders in the study exhibited discipline as consistency of action — consistency with values, long-term goals, and performance standards; consistency of method; and consistency over time. It involves rejecting conventional wisdom, hype, and the madness of crowds — essentially being a nonconformist. When John Brown of Stryker set the long-term goal of 20% annual net income growth, year in and year out (he hit it in more than 90% during 21 years), he was so committed to this quest that it could only be described as, well, fanatical. Markets down? Competition severe? Recession? Market hype? He did not care. He built a system of fanatic discipline to achieve the quest, no matter what. He was highly disciplined by showing consistency between his words (the goal) and his behaviours (everything he did to make it happen).

You need all three leadership skills in an uncertain world: Fanatic discipline keeps you on track; empirical creativity keeps you vibrant; and productive paranoia keeps you alive.

When we speak to leaders, we find it helpful to ask: When you consider these three leadership skills, which do you perceive as your weakest one, and how can you turn that into a strength?