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.
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.
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.
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
John also writes thriller novels!