Leadership Choices: Prices and Payoffs

Leadership-and-Choices_2

Michael Porter, the Harvard professor best known for his pioneering work on competitive strategy believes that an effective strategy is mostly about choice.  What you choose to do to compete and what you choose not to do, especially since every company is constrained by limited resources, skills, and time.

In the same way, I believe that leadership is fundamentally about choices. What decisions leaders should take, what decisions they should delegate, what business and organizational decisions they should favour over others.

While Porter, in his many books on strategy, details numerous models to help guide competitive strategy choices, there are very few models on how leaders and leadership teams should make business and organization choices.

Here is a real life example that occurs at least once (or more) in a company’s life.  It goes like this:

the company is growing in sales but with long-cycle projects and companies delaying payment for services as long as they can, profits are thin and costs high. The influx of new projects has put significant pressure on already stretched workloads of those who have to deliver.

Choice time:

Does the leadership team decide to put a freeze on hiring in order to preserve margins and meet the forecasted budget, or do they increase hiring and ramp up so that delivery quality is not compromised?

This is what I call a leadership choice based on two basic principles.  The first is the degree to which the leadership “culture” and beliefs about how to run a business view employee engagement. Is employee engagement critical to business success and customer satisfaction or is delivering on budgets and predetermined margins critical to the business?

The second principle has to do with whether the leadership team is focused on long-term or short-term success.

And these are not trivial choices, since ramping up staff numbers to deliver on newly won business brings a real financial cost in hiring fees, training, payroll, benefits, extra space requirements, and numerous other business costs that often come before real productivity improves.

On the other hand, maintaining margins by freezing hiring may bring a short-term gain (meeting or beating financial expectations) but could very well lead to added stress on the current workforce and result in lowered employee engagement, lack of respect for management, and overall declines in productivity and quality. Even with an effective manpower forecasting system in place, the pressure is on the leadership team to make some hard choices.

I have seen this set of leadership choices (and similar ones) many times throughout my 30+ year consulting career. And while most company values statements talk about employee wellbeing and customer first, that may not be enough to swing the choice. In fact, a recent FT study of the FTSE100 companies found that 83 had written values statements and 17 did not.  What is interesting (and goes against the mantra of the “culture vultures” who focus on values) is how the performance plays out.

Values and performance

What we say we value and what choices are actually made by leaders may be entirely different.

Sometimes a simple risk assessment based on short-term vs long-term payoffs and prices can help more clearly focus the discussion and bring the entire situation into perspective.  In the example described above, here is a Prices and Payoffs articulation of the choice of opting for the hiring freeze to preserve margins.Slide1

A quick scan reveals that most of the payoffs for this choice are short-term while the majority of prices are long-term.

What would your leadership team choose, and why?

Written and Posted by: John R. Childress

Senior Executive Advisor on Leadership, Culture and Strategy Execution Issues,
Business Author and Advisor to CEOs
Visiting Professor, IE Business School, Madrid

e: john@johnrchildress.com
Twitter @bizjrchildress

Read John’s blog,  Business Books Website

On Amazon: LEVERAGE: The CEO’s Guide to Corporate Culture

Read  The Economist review of LEVERAGE
Also on Amazon:   FASTBREAK: The CEO’s Guide to Strategy Execution

John also writes thriller novels!

 

About johnrchildress

John Childress is currently Visiting Professor in Strategy and Culture at IE Business School in Madrid and a pioneer in the field of strategy execution, culture change, executive leadership and organization effectiveness, author of several books and numerous articles on leadership, an effective public speaker and workshop facilitator for Boards and senior executive teams. In 1978 John co-founded The Senn-Delaney Leadership Consulting Group, the first international consulting firm to focus exclusively on culture change, leadership development and senior team alignment. Between 1978 and 2000 he served as its President and CEO and guided the international expansion of the company. His work with senior leadership teams has included companies in crisis (GPU Nuclear – owner of the Three Mile Island Nuclear Plants following the accident), deregulated industries (natural gas pipelines, telecommunications and the breakup of The Bell Telephone Companies), mergers and acquisitions and classic business turnaround scenarios with global organizations from the Fortune 500 and FTSE 250 ranks. He has designed and conducted consulting engagements in the US, UK, Europe, Middle East, Africa, China and Asia. Currently John is an independent advisor to CEO’s, Boards, management teams and organisations on strategy execution, corporate culture, leadership team effectiveness, business performance and executive development. John was born in the Cascade Mountains of Oregon and eventually moved to Carmel Highlands, California during most of his business career. John is a Phi Beta Kappa scholar with a BA degree (Magna cum Laude) from the University of California, a Masters Degree from Harvard University and was a PhD candidate at the University of Hawaii before deciding on a career as a business entrepreneur in the mid-70s. In 1968-69 he attended the American University of Beirut and it was there that his interest in cultures, leadership and group dynamics began to take shape. John Childress resides in London and the south of France with his family and is an avid flyfisherman, with recent trips to Alaska, the Amazon River, Tierra del Fuego, and Kamchatka in the far east of Russia. He is a trustee for Young Virtuosi, a foundation to support talented young musicians. You can reach John at john@johnrchildress.com or john.childress@theprincipiagroup.com
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