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Y MF E T PARTNERING tttttuttttt The New Face of Leadership EDITED BY Larraine Segil Marshall Goldsmith James Belasco A MACOM AMERICAN MANAGEMENT ASSOCIATION New York | Atlanta | Brussels | Buenos Aires | Chicago | London | Mexico City San Francisco | Shanghai | Tokyo | Toronto | Washington, D.C. Special discounts on bulk quantities of AMACOM books are available to co -r porations, professional associations, and other organizations. For detai ls, contact Special Sales Department, AMACOM, a division of American Man - agement Association, 1601 Broadway, New York, NY 10019. Tel.: 212-903-8316. Fax: 212-903-8083. Web site: www.amacombooks.org This publication is designed to provide accurate and authoritative infor ma- tion in regard to the subject matter covered. It is sold with the unders tand- ing that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Library of Congress Cataoging-in-Publication Data Partnering : the new face of leadership / edited by Larraine Segil, Marshall Goldsmith, James Belasco. p. cm. Includes bibliographical references and index. ISBN 0-8144-0757-9 1. Strategic alliances (Business) 2. Leadership. I. Segil, Larraine. II. Goldsmith, Marshall. III. Belasco, James A. HD69.S8 P37 2002 658—dc21 2002011116 ' 2003 Larraine Segil, Marshall Goldsmith, James Belasco All rights reserved. Printed in the United States of America. This publication may not be reproduced, stored in a retrieval system, or tra-ns mitted in whole or in part, in any form or by any means, electronic, me - chanical, photocopying, recording, or other wise, without the prior written permission of AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019. Printing number 10 9 8 7 6 5 4 3 2 1 ttttutttt DEDICA TION This book is dedicated to the true heroes of Septem- ber 11, 2001—those people who spent what they knew were the last moments of their lives in dedicated and urgent work focused on helping others. The long list of “lifesaving partners” includes firefighters, police, Port Authority workers, passengers on United flight 93, workers who stayed with disabled fellow employees, and the countless, nameless people who put others first in the race down the stairs to possible safety . These people, with their actions, redefined the concept of “partnership” we write about in this book. They sacri- ficed their lives so that e honor theirve. W sacrifice by donating our profits from this book to charities supporting the families of September 11 victims. ttttutttt This Page Intentionally Left Blank tttttuttttt CONTENTS Preface............................................... i....................... .....................................x Acknowledgments...................................... vii.............................. ................x PART ONE Building Successful Organizations Through Partnerships 1. THE CHANGING ROLE OF LEADERSHIP Building Partnerships Inside and Outside the Organization .....................3 MARSHALL GOLDSMITH 2. USE THE BALANCED SCORECARD TO PARTNER WITH STRATEGIC CONSTITUENTS Employees, Customers, Suppliers, and Communities..................................9 ROBERT S. KAPLAN AND DAVID P. NORTON 3. THE DEMISE OF THE CELEBRITY-LEADER AND THE RISE OF PARTNERSHIP NODES...............................................24 SALLY HELGESEN 4. LEADERSHIP PARTNERS: SEPTEMBER 11, 2001......................................31 MAJOR GENERAL (USAF, RET.) DONALD W. SHEPPERD 5. LEADING ORGANIZATIONS INTO PARTNERSHIP.................................41 ELIZABETH PINCHOT AND GIFFORD PINCHOT [v] [vi] Contents PART TWO Partnerships and Teambuilding: Emerging Dimensions for the Leader as Partner 6. LEADERSHIP PARTNERING FOR PERFORMANCE Using Situational Leadership II to Bring Out the Magnificence in People ....................................................59 KEN BLANCHARD 7. LEADERSHIP-AS-PARTNERSHIP.................................................................73 RUSS S. MOXLEY AND JOHN R. ALEXANDER 8. WHERE TEAM PERFORMANCE FITS IN A BALANCED LEADERSHIP APPROACH......................................................82 JON KATZENBACH 9. LEADERS MUST BUILD CULTURES OF COLLABORATION.................88 JAMES M. KOUZES AND BARRY Z. POSNER 10. THE LEARNING LEADER AS PARTNER ....................................................96 JUDY ROSENBLUM AND CHERYL OATES 11. THE MULTIPLICITY OF ROLES AND DEMANDS FOR THE LEADER AS PARTNER ..........................................110 DEBRA A. NOUMAIR AND W. WARNER BURKE 12. THE ACCIDENTAL PARTNER...................................................................119 HARVEY ROBBINS 13. RUB SOMEBODY THE RIGHT WAY..........................................................127 BOB NELSON 14. LEADERSHIP, MANAGEMENT, PARTNERSHIP, AND DIVERSITY...............................................................145 R. ROOSEVELT THOMAS, JR. PART THREE Becoming a Global Leader Through Partnerships 15. LEADERSHIP AND ALLIANCES................................................................157 LARRAINE SEGIL Contents [vii] 16. BECOMING A CULTURALLY LITERATE LEADER IN A GLOBAL WORLD...............................................................169 ROBERT ROSEN 17. THE LEADER AS PARTNER: A CONTRAST OF EUROPEAN AND AMERICAN LEADERSHIP STYLES............................177 STEPHAN A. FRIEDRICH, HANS H. HINTERHUBER, D. QUINN MILLS, AND DIRK SEIFERT 18. THE GLOBAL LEADER AS PARTNER ......................................................187 MAYA HU-CHAN AND BRIAN O. UNDERHILL 19. LEADERSHIP AND THE RAPIDLY CHANGING GLOBAL ENVIRONMENT....................................................... 98.............. .................1 FARIBORZ GHADAR 20. DILEMMAS OF MULTICULTURAL LEADERS The Need for Transcultural Competence................................................207 FONS TROMPENAARS AND PETER WOOLLIAMS 21. THE LEADER AS PARTNER: THE REALITY OF POLITICAL POWER....................................................217 THE RT. HON. KIM CAMPBELL 22. GLOBAL COMPANIES, GLOBAL SOCIETY: THERE IS A BETTER WAY............................................. 23........................ .2 NANCY J. ADLER PART FOUR The Leader as Partner: Succeeding in a Complex World 23. THE LEADER AS PARTNER—COACH AND PEOPLE DEVELOPER .......................................................................233 JAMES BELASCO 24. THE POWER OF FOCUS ............................................... 41...................... ...2 BRIAN TRACY 25. FIVE TOUCHSTONES TO AUTHENTIC PARTNERING AS A LEADER......................................................................257 KEVIN CASHMAN [viii] Contents 26. HOW HIGH-IMPACT LEADERS USE THE POWER OF CONVERSATION TO BUILD PARTNERSHIPS...................265 PHIL HARKINS 27. THE LEADER IN THE DIGITAL AGE.......................................................274 ELLIOTT MASIE 28. LEGACY CONSCIOUSNESS: AN ESSENTIAL LEADERSHIP ROLE........................................................281 BEVERLY KAYE AND BETSY JACOBSON 29. CONNECTING WHO WE ARE WITH WHAT WE DO.............................288 RICHARD J. LEIDER 30. THE HIGH SELF-ESTEEM LEADER..........................................................292 NATHANIEL BRANDEN About the Authors......................................................... 05............ ...............3 Notes..................................................................... 23 .....................................3 Index .................................................................... 31. ....................................3 tttttuttttt PREFACE Why did some of the most important visionaries in management ) science join forces to produce this book? Because this is a ver y special moment in time, the cause the book supports is worthy and valid, and the idea of partnering as a leadership and management mandate is appropriate and important. THE MOMENT IN TIME The early years of the decade 2000—2010 have already brought major shifts in global and domestic awareness. Not since W orld War II has there been such an urgent need to link people, thoughts, knowledge, and information. During the Great War, world populations came to- gether to overcome the threat to the ver y principles on which many religions, societies, and communities were based, including the free- dom to live life without destroying the rights of others; the defense of beliefs and a way of life that protected those who were different; and the opportunities for self-actualization that Abraham Maslow wrote and taught. Out of that war came economic opportunities, as well as moments of great courage as individuals and countries fought against evil. The world of business rose to the occasion, and then the postwa,r baby boomer population exploded the macro- and microeconomic scene as corporations grew and fed the huge consumer demand that still drives growth worldwide. [ix] [x] Preface September 11, 2001, epitomized the change in global dynamics. Worlds of difference imploded as conflicting beliefs, suicidal bombers, corporations, communities, individuals, and government converged will business consider its employees “people for hire.” Now they s ee them as their community . No longer will employees consider their place of work as just the place they earn a living. Now they see it as possibly the last place they may go that day. Everyone says goodbye to their loved ones as they leave home in the morning with a different in a community—a world community, in which the actions of those we live far away from us can quickly become our loss, our tragedy. THE CAUSE THIS BOOK SUPPORTS The moment in time descrYbed in the-preceding paragraphs im pacted the three of us Ls we sat together one day in the middle of September 2001, talkiFg about how we could do something to make a difference for those affected by the tragedy of September 11. W e tions in the world . We realized that the best thingts, and our posi- we could do would be to call upon our colleagues in the Financial Times Knowledge Dialogue group, in which we participate as Thought Leaders,* asTwell as others with whom we have worked, including cal-l ing in some favore started to doe con-ly that. W tacted each one of the authors who have contributed to this amazing gardless of their own new and existing book schedules, teaching andRe- student responsibilities, onerous keynote and speaking schedules, conference commitments, even fa, familydings and sadly *Two hundred individuals have been selected to be part of this group, FTKD , organized by The Financial T imes, UK (part of Pearson Publishing); each field, and has been asked to be available as a resource to CEOs and mana ging directors of global organizations through this group. For more informati on, see wwwnancialtimesknowledgedialogue.com Preface [xi] funerals, not one of our author-friends declined. They lent their per- sonal brands to this book, in the hope that you, our readers, would gain from our insights, and in buying the book, would contribute your money to the thousands of people who were touched, damaged, de - stroyed, and forever changed by the events of September 11, 2001. People from around the world are affected by this tragedy , thus we have included in this book our friends and colleagues from many countries; we are one people and our contribution is neither nation- alistic nor patriotic—it is our human obligation. PARTNERING AS A LEADERSHIP AND MANAGEMENT MANDATE Partnering is an overused term. So is leadership. When connected to - gether, the meanings of these two terms change, and it becomes clear that there are many interpretations and applications of partnering and leadership. The various contributors to this book have eac lhoked at the subject from their own perspectives. The diversity of angles and richness of interpretation is the competitive edge that this book brings to you. Partnering is a corporate term, but it is also a personal term. Leadership is a challenge whether in the entry level, middle or top of an organization, or, indeed, as part of a family or community. The first part of our book,Building Successful Organizations Through Partnerships, looks at the organizational application of these two con- cepts. Marshall Goldsmith begins the section with a discussion of the changing role of leadership; in particular he focuses on the increas - ing importance of developing partnerships both inside and outside the organization. Robert Kaplan and David Norton offer a strategy- focused portrayal of how the Balanced Scorecard measurement and management system can be used to facilitate partnerships inside and outside organizations. In her chapter, Sally Helgesen describes how the celebrity-style leadership of the past will give way to a new era of leaders as partners. Through an account of militar y actions on September 11, Major General (USAF, Ret.) Donald W. Shepperd il- lustrates how an instilled management philosophy will be tested dur- ing crises. Elizabeth and Gifford Pinchot complete this section with a [xii] Preface comparison of the various ways of creating order within organizations and a discussion of how leaders can implement productive partner - ships within and across the boundaries of formal organizations. Part Two delves into the subject of Partnerships and Teambuilding: Emerging Dimensions for the Leader as Par tner with contributions from visionaries in the field. Ken Blanchard begins this section with a de - ¤ scription of how leaders can use Situational Leadership II to lead their people to magnificence. John Alexander and Russ Moxley con- tinue with a new definition of leadership:personal power. The purpose of Jon Katzenbach’s chapter is to describe where and how team per - formance fits into an overall leadership approach. Jim Kouzes and Barry Posner explain the mutual dependence and need for partner - ing between the leader and the led. In their chapte,rJudy Rosenblum and Cheryl Oates explain their framework of successful partnerships for learning leaders and they also put forth some common obstacles to successful partnerships. Debra Noumair and Warner Burke clarify four theories of how leaders can handle partnerships and relation - ships with those in positions both above and below them in the orga- nizational hierarchy. In his fresh account of the importance of part - nering, Harvey Robbins depicts four leadership styles with which the “accidental leader” can approach partnerships. Bob Nelson gives a step-by-step guide to partnering with employees to promote commit- ment and excitement within organizations. The last chapter in this section is by R. Roosevelt Thomas, Jr. Roosevelt uses his “The Giraffe and Elephant Fable” to illustrate obstacles to partnerships and the characteristics of a partner—leader. Part Three addresses the critical issues of Becoming a Global Leader Through Partnerships. Larraine Segil begins this section with an exam- ination of leadership and alliances and describes Dynamic Leadership and the Ten Essential Traits of Dynamic Managers and Leaders. Robert Rosen continues the section with intriguing insights into the issue of cultural literacy and its importance to leaders who partner globally . The next chapter, a collaborative effort by Stephan A. Friedrich, Hans H. Hinterhuber, D. Quinn Mills, and Dirk Seifert, discusses global leadership and the many different styles of leadership around the world; it also compares Europe’ s standard of partnering leadership Preface [xiii] with America’s “celebrity” leadership style. Maya Hu-Chan and Brian Underhill continue the section with an exploration of cross-cultural partnering and give some specific actions leaders should take on the path to global success. In his chapter , Fariborz Ghadar parallels a leader’s role as partner in the global environment to that of the leader of a NASCAR pit crew. Fons Trompenaars and Peter Wooliams discuss seven dilemmas of leadership for global leaders and give examples of leaders and companies that have been successful at working through each dilemma. The Rt. Hon. Kim Campbell provides us with a politi- cal bent on the subject of the leader as partner by giving personal examples of how partnering enabled her to succeed in passing legis- lation. Concluding this section is Nancy Adler, who illustrates the im- portance of working together for global success with an account of the leaders at Norske Skog’s successful attempt to tr y something totally different in their efforts to enhance leadership and promote peace. Part Four moves into the ver y personal issues and the role of the leader as partner as we look aStucceeding in a Complex World.Jim Belasco opens this section with a description of the leader’s responsibility to focus on coaching and partnerships and examples to that effect. In his chapter, Brian Tracy explains five key areas of focus important to leading and partnering effectively. Kevin Cashman depicts five touch- stones of partnering and gives five specific skills the leader will need to partner successfully. Phil Harkins offers us the “dos” and “don’ ts” of leadership; he explains how to use communication to build part - nerships and thus be a better leader. Elliott Masie continues this sec- tion by illustrating how we can use technology to communicate and build partnerships throughout our organizations. Beverly Kaye and Betsy Jacobson explore the crucial component of legacy (leaving som - e thing of enduring quality to the organization and its people) to lead- ership and to partnering with others now and into the future. In his chapter, Richard Leider encourages us to hear our inner calling and follow it, thus partnering who we are with what we do. Nathaniel Branden concludes this section, and our book, with a look at two es- sential qualities of successful leaders, self-esteem and integrity. We thank you for buying this book. We thank you on behalf of the many families who cannot thank you personally themselves, but who [xiv] Preface will benefit from the proceeds of your generosity. And it is our fervent hope that there is great and lasting value for you in our thoughts and teachings. Our E-mail and website addresses are listed within our bios at the end of the book. W e hope you will contact us with your comments and thoughts. Larraine Segil Marshall Goldsmith James Belasco tttttuttttt ACKNOWLEDGMENTS Many people help convert the sketchy dreams of a book into the ) hard reality of the pages you hold in your hand. The single most important “dream converter” was Sarah McArthur . She took the ill- formed idea and midwifed, nursed, mothered, raised, dressed, and clothed it, and created what you see here today. In all the myriad of “things to do done” to make a book a book, Sarah exyeeded ever expectation. Whether it was dealing with publishers or authors, edit- ing the authors’ sometimes turgid words or gently reminding us that we had a deadline to meet, she always delivered more than we even knew to ask. Moreover, Sarah is a joy to work with. She possesses an unerring sense of what it takes to make words and ideas into a successful book. Her pleasantness and positive attitude shone like a lighthouse on a dark night and helped us through the often difficult and trying times inevitable in any book preparation. She magically converted the most difficult problems into solvable, rewarding activities. This book now sees the light of day thanks to Sarah McArthur’ s magic. We, and all the readers of this text, are forever indebted to her for her efforts. We are also deeply indebted to our contributing authors. All of these individuals are busy professionals, with more on their plates than they can swa. Client calls, presentations, and peandnal research writing commitments fill their calendars. Yet, in the midst of all that [xv] [xvi] Acknowledgments busyness, these 41 individuals, giants in their fields, took the time to support our cause and share their gems of wisdom with us all. The chapters that follow are gems of wisdom produced by wise and caring people, giants in their profession and giants in life. As editors, we ar e humbled by the privilege of working with these giants in our cause to commemorate the heroes and support the victims of September 11, 2001. In the end, we owe the most acknowledgment to our families, those most important people in our lives that the events of September 11 reminded us so forcibly about. We thank Clive, Lyda, and Candy for their support. You are the wind beneath our wings. PART ONE tttttuttttt Building Successful Organizations Through Partnerships This Page Intentionally Left Blank CHAPTER 1 tttttuttttt THE CHANGING ROLE OF LEADERSHIP Building Partnerships Inside and Outside the Organization MARSHALL GOLDSMITH In a recent study (sponsored by Accenture), we completed ) in-depth interviews with more than 200 specially chosen, high- potential leaders from around the world. When compared to col- leagues at their level in their organizations, all of these participants were seen as being at the very top. They were asked to describe how the ideal leader of the future would differ from the leader of the past. The results clearly portrayed this individual as someone skilled at building partnerships inside and outside the organization. Although these skills were seen as having been somewhat important in the past, they were viewed as critically important for the future. Much has been written how leaders can build partnerships (including several chapters in this book). This section builds on our research and focuses onwhy the leader of the future will need to be a builder of partnerships. Six different types of partnerships are ex- plored: three inside the organization (direct reports, co-workers, and managers) and three outside the organization (customers, suppliers, and competitors). BUILDING PARTNERSHIPS INSIDE THE ORGANIZATION Partnering with Direct Reports The traditional assumptions that have “bonded” employees with or- ganizations are changing rapidly. Employees no longer expect that   Building Successful Organizations Through Partnerships their organizations will provide them with job security. As the expec- tation of security has diminished, so has the blind loyalty that was im- we interviewed saw themselves as “free agents,” not “employees” in t he traditional sense. They saw the leader of the future as a person who could build “win—win” relationships and who could be sensitive to their needs for professional growth and development. They then felt not only a desire but also a responsibility to deliver value in return, to leader of the future as their partner, not their boss!hey saw the As Peter Drucker has noted on many occasions, one of the great challenges for leadership in the future will be the management of knowledge workers. Knowledge3workers are people who know more potential people we inter viewed painted a ver y clear picture. The managers of the best knowledge workers of the future will have to be good partners. They won’t have a choice! If they are not great partners, they won’t have great people. M Partnering with Co-Workers Another great challenge for the leader of the future is breaking down boundaries. The successful leader of the future will be able to share people, capital, and ideas across the organization. As the world be - comes more complex, this ty4e of integration becomes more impor- rewarded by the success of the entire organization, not just that of any one unit. The CEO can understand that people need to be shared so that they can develop the expertise and breadth needed to manage the entire organization. Capital needs to be shared so that mature to be shared so that everyone in the organization can learn from both successes and mistakes in the most efficient way possible. The high- potential leaders we inter viewed saw themselves as potential CEOs and recognized the value of this perspective. The Changing Role of Leadership  Although these advantages are easy to see from the vantage point of the CEO, they can be more difficult to execute from the position of the lower level manager. Leaders at all levels will need to develop the skills to negotiate and build “win—win” relationships with col - leagues. In some cases they must choose to experience a short-term loss so that the organization can achieve a long-term gain. In the past, many leaders were taught to compete with colleagues for people, re- sources, and ideas. They had been rewarded for “winning” this com- petition. In the future, leaders will need to learn to collaborate and share with colleagues across the organization. The success of the larger organization will depend on the leaders’ abilities to become great partners with their co-workers. In many cases, the participants in our research believed that developing partnerships with co-workers was an even greater challenge for leaders than developing partner - ships with direct reports. Partnering with Managers Other than the CEO, every leader in the organization has a manager. The changing role of leadership will mean that the relationship between managers and direct reports will have to change in both directions. Not only managers, but also direct reports (who also may be leaders), will need to change. Many leaders of the future will be operating more like the managing director of an office in a consult - ing firm than the operator of an independent small business. This is true not only in business, but also in the human ser vices sector. The new leader of the United W ay, Brian Gallagher, recently described the ideal future leaders of this organization as partners leading in a 5 network, not managers leading in a hierarchy. A consulting firm that could be a benchmark in partnering between junior and senior people is McKinsey and Company . At McKinsey, a director may often have less detailed knowledge about a client than a more junior principal. Leaders at all levels are trained in the fol - lowing philosophy: “When you believe that the direction you are be- ing given is not in the best interest of our client, you do not have the  Building Successful Organizations Through Partnerships opportunity to challenge, you do not have the right to challenge, you have the obligation to challenge.” This philosophy teaches leaders at all levels to have ver y adult and responsible relationships with their managers. Our high-potential participants saw the leaders of the future as working with their managers in a team approach that combined the leader’s knowledge of the unit operation with their managers’ un - derstanding of the larger needs of the organization. Such a relation- ship requires taking responsibility, sharing information, and striving to see both the micro- and macro-perspective. While partnering with management can be much more complex than “taking orders,” it is becoming a requirement, not an option. When direct reports know more than their managers, they have to learn how to influence “up” as well as “down” and “across.” BUILDING PARTNERSHIPS OUTSIDE THE ORGANIZATION Partnering with Customers As companies have become larger and more global, there has been a 6 shift from buying stand-alone products to buying integrated solutions. One reason for this shift is economy of scale. Huge retail corpora - tions, such as Home Depot or W al-Mart, do not want to deal with thou - sands of vendors. They would prefer to work with fewer vendors who can deliver not only products but also systems for deliver y that are customized to meet their needs. A second reason is the convergence of technology. Many customers now want “network solutions,” not just hardware and software. As the suppliers’ relationships with their customers continue to change, leaders from supply organizations will need to become more like partners and act less like salespeople. Our participants noticed a shift toward building long-term customer relationships, not just achieving short-term sales. This change means that suppliers need to develop a much deeper understanding of the customer’ s total busi- ness. They will need to be willing to look at the “big picture” in terms of delivery and reliability and to make many small sacrifices to achieve a large gain. The Changing Role of Leadership  Partnering with Suppliers As the shift toward integrated solutions advances, leaders will have to change their relationships with suppliers. A great example is IBM. “A growing percentage of IBM’s business now involves customized solu- tions incorporating non-IBM products and services. While the idea of IBM selling non-IBM products was almost unheard of in the past, it is now becoming commonplace—to the benefit of customers and, in 7 the long run, IBM itself.” The same trend is occurring in the phar - maceutical and telecommunications industries. In a world in which a company sold stand-alone products, partner - ing with suppliers was viewed not only as unnecessayr, but also perhaps as unethical! The company’s job was to “get the supplier down” to the lowest possible price to increase margins and profitabili.tLeaders who partnered with suppliers may well have been seen as “helping the enemy” or having a “conflict of interest.” Today, many leaders realize that their success is directly related to that of their suppliers. North rop Grumman, one of America’s leading defense contractors, actually in- cludes commitment to suppliers as one of their core values. The leaders in our study saw suppliers as key partners. They real - ized that the leaders of the future would be able to transcend differ - ences and focus on a common good—ser ving the ultimate end user of the product or service. Partnering with Competitors The most radical change in the role of leader as partner has come in the area of partnering with competitors. This previously unthinkable concept has now become commonplace. Most of the high-potential leaders who we interviewed saw competitors as potential customers, suppliers, and partners with few clear lines of demarcation. While there are still some noted exceptions to this trend (e.g., Coca-Cola and Pepsi), the direction of the curve is very clear. Most organizations that rely on knowledge workers have varied and complex relationships with competitors. When today’s competitors may become tomorrow’ s customers, the definition of “winning” changes. As people have memories, f uairly  Building Successful Organizations Through Partnerships “bashing” competitors or striving to ruin their business could hav e harmful long-term consequences. While competitors should not expect collusion or unfair practices, they should expect integrity, re- spectful treatment, and fair dealing. CONCLUSION It becomes obvious in reading this chapter that the six trends toward more partnering reinforces each other . For example, as employees sense less job securit, they begin to see suppliers, customers, and com- petitors as potential employers. The fact that leaders need to learn more about these other organizations, build long-term relationships, and develop “win—win” partnerships means that the other organiz a- tions are even more likely to hire the leaders. In many cases, this is s een as a positive, not a negative by both organizations. As the trend toward outsourcing increases, it becomes increasingly difficult to determine who is a customer, supplier, direct report, manager, or partner. Almost every high-potential leader we inter viewed believed that the leader of the future would need to be far more skilled than the leader of the past. In many ways the “old world” was simpler . Telling direct reports (who know less than we do) what to do is much simpler than developing relationships with partners (who know more than we do). Being able to work in a “silo” is much simpler than having to buil d partnerships with peers across the organization. “T aking orders” from managers is much simpler than having to challenge ideas that are not going to meet customer needs. Selling a product to customers is much simpler than providing an integrated solution. Getting the lowest price from suppliers is a lot simpler than understanding their complex bu-si ness needs. V ying with competitors is a lot simpler than having to develop complex customer—supplier—competitor relationships. The challenge of leadership is growing. The high-potential lead - ers of the future who we studied believe that many of the qualities considered important in the past, such as integrity , vision, and self- confidence, will be required in the future as well. They believe that in addition, building partnerships inside and outside the organization will become a requirement, not an option, for future leaders. CHAPTER 2 tttttuttttt USE THE BALANCED SCORECARD TO PARTNER WITH STRATEGIC CONSTITUENTS Employees, Customers, Suppliers, and Communities ROBERT S. KAPLAN AND DAVID P. NORTON Often overlooked in essays on leadership is the role of the or- ) ganization’s measurement and management system. Effective leaders, however, know that measurement and management systems play a critical role in communication; in establishing the culture and values of the organization; and in aligning diverse units, em- ployees, and constituencies. In this chapter, we describe how effective leaders customize their organization’s measurement and manage- ment system to partner with their employees for strategy implemen- tation. We also discuss how the new measurement and management system goes beyond intraorganizational partnerships, facilitating align- ment and partnership with external constituents: customers, suppliers, and communities. THE BALANCED SCORECARD: FROM MEASUREMENT TO MANAGEMENT 1 We introduced the Balanced Scorecard (BSC) iThe BSC measures organizational performance using financial and nonfi- nancial measurements in four perspectives: financial, customer, in- ternal process, and learning and growth. The approach quickly evolved into a new system for describing and managing strategy. Many of the organizations that adopted this new approach soon en- joyed breakthrough improvements in performance.   Building Successful Organizations Through Partnerships We created the Balanced Scorecard because financial measurements had become insufficient for contemporayrorganizations. Strategies for creating value had shifted from managing tangible assets to knowledge- based strategies that created and deployed an organizatios n’intangible assets, including customer relationships; innovative products and sevr- ices; high-quality and responsive operating processes; skills and knolw - edge of the workforce; the information technology that supports the workforce and links the firm to its customers and suppliers; and the organizational climate that encourages innovation, problem-solving, and improvement. Y et, words were insufficient for describing and com - municating such strategies. Statements such as “Delight the custom,e”r “Offer superior service,” or “Invest in our people” had very different meanings to different people. The power of measurement was to take the ambiguity out of words so that everyone had a clear, coherent pic- ture of exactly what the strategy is. PARTNERING WITH EMPLOYEES Several forces highlight the importance of partnering with employ - ees. Employees want to know that they are working for an organiza - tion that is contributing value to the world, that society benefits from the mission and strategy of their organization and its products and services. They need to understand how the success of the organi - zation benefits not only its shareholders, but also its customers, sup - pliers, and the communities in which it operates. Employees also want to know where they fit within the organization and how they can con - tribute to helping it achieve its mission and objectives. Furthermore, leaders now recognize that their strategies, however brilliantly they may be formulated, will be successful only if ever yone in the organi- zation understands the strategy and helps to implement it. The Balanced Scorecard provides a simple, clear message about organizational strategy that all employees can understand and inter- nalize in their ever yday operations. With such understanding, em - ployees can link improvements in their daily processes to achievemetn of high-level strategic objectives. Use the Balanced Scorecard to Partner with Strategic Constituents  The Balanced Scorecard framework describes strategy with strate- gic objectives, measures, targets, and initiatives. (See Figure 2-1.) ttr-a gic objectives and measures can be imbedded in a general framework or template, which we call a “strategy map,” that complements the Balanced Scorecard with a simple, succinct visualization of the hy - 4 potheses and interrelationships that are at the heart of strategy . (See Figure 2-2.) The strategy map enables leaders to communicate clearly to em - ployees the nature of the organization’s business and how the organ- ization intends to succeed and outperform competitors. It articulates 5 the critical elements for a company’s growth strategy: äObjectives for growth in shareholder value äTargeted customers through whom profitable growth would occur äValue propositions that lead customers to do more business and at higher margins with the company äInnovation and excellence in products, services, and processes äThe capabilities and alignment of employees and systems that en - hance important internal processes and customer relationships to generate and sustain growth The strategy map and accompanying scorecard provide a power ful communication vehicle about the organization’s vision and strategy. Rather than use measurement to control employees, leaders use strat- egy maps and Balanced Scorecards to communicate a vision for the future, often embodying new ideas and approaches that promote growth. Employees can become inspired with their understanding of how their organization creates value and intends to be a health ,grow- ing entity. For example, at Duke Children’s Hospital, Dr. Jon Meliones had to cope with the open war fare between administrators on the one hand and caregivers—physicians and nurses—on the other. Adminis- trators kept emphasizing, “Cut costs, save money .” Caregivers replied, “We’re not good at cutting costs; we cure children and save lives. That Initiatives Objectives Measures Targets INTERNAL BUSINESS PROCESS TEGY INTO FOUR PERSPECTIVES itiatives “Tosshaatarisnefcumeesel auts?t”e,scssemsw Strategy Vision and Objectives Measures Targets In Objectives Measures Targets Initiatives FINANCIAL LEARNING AND GROWTH “Tofisnuacsnchhaetohooludrers?”,ew “Tovaioinee,vhainoilgolpeuroravned?” Initiatives Objectives Measures Targets CUSTOMER a word statement of what the quantitata program designed to help the the value for each strategic measure “Tovaisohineoeuarsertotomoeursr?” ObtjheectroasTuirtritn:iicgovFIGURE 2-1. THE BALANCED SCORECARD: TRANSLATING VISION AND STRA n t l t y & e s onmental Improve Asset ocesses) “Be a GoodPr Action (REnulator Climate for i e s y a e a i S a it e Productivity SUratege L I n e r r c e l a t M d m c I ocesses) Struoture r ts E ImproveCCost P C a o Exel(Operations & n a t e ons Brand“Achieve Operational alue e O i V e s r o Strategic m l Technologies s e OCE u R Shareholder t C i i ement r g Improve ShareholderValue ocesses) A Motivated and PreparedWorkforce Value “Incre(CManamer t Function ServicetomeRelati” u n c Increase Custtmer s i t a q b r A CustomerValue Proposition e A t o i u c u e C u C t Strategic S u vtion Competencies Revenue GrowthuStrategy o e P ocesses) e (Inno R e “Build the Franchise” Build Nhe Franchise Price Quality Time e e e e nal ninwth erspecitv erspecitv erspecitv erspectiv Financial Customer Inter LeaGro FIGURE 2-2. THE BALANCED SCORECARD STRATEGY MAP  Building Successful Organizations Through Partnerships is our mission.” Staff members were demoralized, financial perform- ance was terrible, and improvement programs kept failing. Meliones employee groups to redefine the mission and to develop a Balancedhree Scorecard that incorporated two apparently conflicting objectives— lower costs, improve patient care. Meliones, the leader, continued to encounter conflict and resistance, but he kept repeating the balanced mantra, “No money, no mission,” emphasizing the need to achieve next three years, employees worked constructively together; theye transformed large operating losses into positive operating margins, while achieving levels of patient care and satisfaction that were ranked best in their category. leaders cascade the strategy down to decentralized divisions, business units, and support functions. Rather than dictating the company-level measures down to the operating units, leaders encourage the operat- ing units to define their own strategy—based on local market condi- tions, competitionM operating technologies, and resources—to deliver local measures that influence, but are not necessarily identical to the corporate scorecard measures. The most remarkable transformations and partnerships occur in support functions and shared services, such as human resources, in- formation technology, finance, and purchasing departments. The strategic partners with the line-operating units and the company. This alignment is often accomplished with a ser vice agreement that de - fines the menu of ser vices to be provided—including functionality , quality level, and cost—between each support department and the bWhen this process is complete, the employees in all organizational units, whether a line-business unit or a staff function, understand how their unit contributes to overall organizational success. This process aligns the decentralized units ttherstrategic partnership with eaco and the corporate parent to deliver an integrated strateg.yCorporate- Use the Balanced Scorecard to Partner with Strategic Constituents  level synergies emerge in which the whole exceeds the sum of the individual parts. For these scorecards to be effective, however , ever yone in the organization must understand the strategies for their unit, division, and the overall corporation. CEOs understand that they cannot im - plement strategies by themselves. They need contributions—actions and ideas—from ever yone. Individuals far from corporate and re - gional headquarters create considerable value by finding new and improved ways of doing business. This is not top-down direction. This is top-down communication, helping employees to learn how they can contribute to successful strategy implementation. Leaders use many different channels to communicate the strategic message. The strategy map and Balanced Scorecard are communi - cated in newsletters, brochures, bulletin boards, speeches, videos, tr-i n ing, education programs, and the company intranet. The personal behavior of executives reinforces the message. Employees become truly empowered by understanding what the organization wishes to accomplish, and how they can contribute to these accomplishments. This understanding generates intrinsic mo - tivation. People now know that their work can make a difference to the organization. Employees come to work with energy , creativity, and initiative, searching to find new and better ways by which they can help the organization succeed. New information, ideas, and actions, aligned with organizational objectives, emanate from the organiza - tion’s frontlines and back offices. This new partnership with employees is reinforced with personal and team objectives linked to unit and corporate achievement, and, typically, with a new incentive plan that enables all employees to ben- efit financially as targets for strategic measures are achieved and eco- nomic value is created. A final component occurs when the company implements the learning and growth objectives to upgrade the skills and capabilities of its employees. Employee skills and capabilities enhance internal processes and customer value propositions that are at the heart of the strategy. The strategy map reveals the strategic chain of cause-and- effect relationships that eventually links investment in employee skills  Building Successful Organizations Through Partnerships to improved financial performance. As the senior executive of a majo r 7 bank declared : In the past, we found it hard to get and maintain focus on our employee training and skills. We talked about their importance but when financial pressure was applied, these were among the first spending programs to go. Now with the Balanced Score - card, people can see the linkages between improving these ca - pabilities and achieving our long-term financial goals. A focus on these infrastructure investments could be sustained even in a highly constrained environment for corporate spending. PARTNERING WITH CUSTOMERS The customer perspective is at the heart of the organization s’strategy. Almost all companies want to grow revenues and reduce costs, so the objectives in the Balanced Scorecard’s financial perspective are fairly generic across organizations. What differentiates the companies is how they define their customers and the value proposition for targeted customers. Often, this process leads to new strategic partnerships with targeted customers. For example, Rockwater , an undersea construction company in the Halliburton organization, competed mainly on price, a typical practice in the construction industr y. As it began to build its initial Balanced Scorecard, Rockwater managers took the somewhat un - usual step of actually going out to talk to its existing and potential - s tomers, the large integrated oil and gas companies. Rockwater learned that most of its customers did choose the lowest price bidder from among their qualified suppliers. Rockwater identified several impor- tant customers, however , who actually preferred suppliers capable of establishing a long-term relationship based on value added, rather than offering the lowest price on individual projects. Rockwater de - cided to implement a new strategy—to become the number one sup- plier to customers wanting a value-adding relationship. For Rockwater to become a strategic partner with its targeted customers required the development of several entirely new processes. The nature of the Use the Balanced Scorecard to Partner with Strategic Constituents  partnership was captured and communicated with measures in its Balanced Scorecard customer perspective (see Figure 2-3) and several new internal business objectives. Mobil U.S. Marketing and Refining, like Rockwater , moved to a new “customer intimacy” strategy that would offer a superior buyin g experience for consumers. Mobil’s market research had revealed that only 20 percent of consumers purchased gasoline on the basis of price alone. About 60 percent of consumers would be willing to pay a pre- mium price if offered a superior buying experience, including im - mediate access to a gasoline pump, a convenient and rapid payment mechanism, a superior onsite convenience store, clean restrooms, and friendly employees. Mobil decided to focus its marketing efforts on building long-term relationships with such consumers. It devel - oped loyalty programs, based on a new Speedpass“ payment mecha- nism (an employee innovation stimulated by communicating the customer value proposition to all employees through the Balanced Scorecard). Customer measures for the strategy included share of market among consumers in the targeted segments and a myster y shopper score to capture whether the desired value proposition was being consistently delivered in Mobil’s 6,500 retail outlets. Yet, Mobil had to forge a partnership with another set of customers. Like companies in many industries, Mobil’ s immediate customers were independent wholesalers and retailers. Franchised retailers pur- chased gasoline and lubricant products from Mobil and sold these products to consumers in Mobil-branded stations. If end-use con - sumers were to receive a great buying experience, then the inde - pendent dealers had to deliver that experience. Dealers were clearly a critical part of Mobil’s new strategy. In the past, Mobil did not consider their retailers or distributors as components of its strategy . Relationships could even be adversarial because for ever y cent that Mobil reduced the price of gasoline to the dealer, to reduce the dealer’s cost of goods sold, one cent would be subtracted from Mobil’s top line (revenues). This old strategic view put Mobil and its dealers in a zero-sum game situation. Mobil real - ized that its new customer-intimacy strategy could not possibly succeed ARGETED, TIER I, CUSTOMERS MeasuremMaMrkart/tshorIrvcreantsnsleercromi:ciinnoIaTdeviIcasloroerc’tsbasis • H•igH•pHrgeiredrvtrliofsrmpsnfeosachelss Strategic ObjectivelIcssptmtesotarurdbledtovetertisfying the Tier I: Customer FIGURE 2-3. STRATEGIC OBJECTIVES AND MEASUREMENTS FOR T Use the Balanced Scorecard to Partner with Strategic Constituents  unless it stopped treating dealers as rivals. Dealers had to become pa-rt ners in the strategy to deliver on the superior buying experience to millions of consumers each day. In a sharp departure from the past, Mobil adopted an objective and measure to increase dealers’ profitability. Mobil set a stretch target to have its dealers become the most profitable franchise operators in the country, so that it could attract and retain the best talent. The new strategy created a positive-sum game, increasing the size of the reward that could be shared between Mobil and its dealers; thus, the rela - tionship would be win—win. The higher reward came from several sources. First, the premium prices that Mobil hoped to sustain at its stations would generate higher revenues. Second, by increasing the market share in the tar - geted segments, a higher quantity of gasoline would be sold and a higher percentage of the purchases would be for premium grades. Third, the dealer would have an enhanced revenue stream from the sale of nongasoline products and sev rices, convenience store, and aux - iliary car services, a portion of which would also flow back to Mobil. In summary, the Balanced Scorecard provided the language, and sub - sequently the measurement and management system, to communicate the value from forging strategic partnerships with targeted customers: dealers and end-use consumers. PARTNERING WITH SUPPLIERS The success of many companies—retailers such as Sears, The Limited, and Wal-Mart; electronic companies such as Hewlett-Packard, Cisco, and Sun Microsystems; and automotive companies—depends on having outstanding suppliers and great relationships with their sup - pliers. When strong supplier relationships are part of the strategy leading to breakthrough customer an d/or financial per formance, then outcome and per formance driver measures for supplier rela - tionships become incorporated on the Balanced Scorecard. Supplier objectives and measures are typically incorporated within the “Achieve Operational Excellence” theme in the Internal Process per- spective. (See Figure 2-2.)  Building Successful Organizations Through Partnerships For example, a major fashion retailer , which we will call Kenyon Stores, knew that the excellence of its own performance was critically dependent on the ability of its key suppliers to manufacture goods quickly, responsively, and at low cost. Kenyon developed a sourcing leadership theme on its strategy map that stressed development and management of the supplier base, so that desired volumes and mix of merchandise could be rapidly produced and delivered at high stan - dards of quality. Kenyon’s in-store personnel examined merchandise from all incoming shipments. One measure recorded the percentage of items that could not be offered to customers because of quality- related defects. The scorecard measured the overall percentage of quality-related returns, and also the specific percentages for individua l vendors. A second sourcing leadership measure came from a newly created vendor scorecard that evaluated suppliers along dimensions of quality, price, lead-time, and input into fashion decisions. Strategic partnerships with suppliers arise when companies wish to select suppliers that offer not low prices, but low costs. Low-price sup- pliers may turn out to be extremely high-cost if they deliver in large quantities that require extensive storage space, receiving and handlign resources, as well as tying up capital from buying and paying for ma- terials and merchandise well in advance of when they are used. The quality of incoming items supplied by low-price suppliers may not be guaranteed to conform to buyer specifications, so the company must inspect incoming items, return those found to be defective, and arrange for replacement parts to arrive (which themselves have to inspected). The low-price supplier may also not have a stellar on-time delivery capability. Its failure to deliver reliably at scheduled times causes the buying company to order well in advance of need and hold protective stock in case delivery is not when expected. Late deliveries cause higher costs for expediting orders and rescheduling the plant around the missing items. Also, low-price suppliers may not be elec - tronically connected to their customers, thereby imposing higher costs on customers when they order and pay for the purchased parts. In contrast, a low-cost supplier may have slightly higher purchase prices, but it delivers defect-free products, directly to the end-use lo - cation, just in time, as they are needed, and uses electronic channels Use the Balanced Scorecard to Partner with Strategic Constituents  for ordering and payment. The buying company incurs virtually no costs for ordering, receiving, inspecting, storing, handling, expedit - ing, rescheduling, rework, and paying for parts purchased from this low-cost supplier. A strategic partnership, therefore, can be defined by a cost measure (activity based) that motivates total cost reduction s across the supply chain. It would also use measures related to the quality, lead-time, and on-time delivery performance for suppliers. By elevating strategic objectives and measures for superior supplier relationships to the company’s Balanced Scorecard, employees come to understand the value of forging strategic relationships with their key suppliers. This recognition and understanding provides the con- text for initiatives, resources, and performance feedback on the most critical elements of the supplier relationship. PARTNERING WITH THE COMMUNITY Companies, such as telecommunications and utilities, whose prices and operations are regulated to some extent by governmental au - thorities, must have excellent relationships with these authorities and legislatures. Companies whose operations entail environmental, health, and safety (EHS) risks need to comply with regulations in the nations and communities in which they operate. Beyond compliance, they may seek to achieve a reputation as a leader in EHS pefrormance to enhance their ability to recruit and retain valuable employees and to maintain and expand their physical presence in communities. When such regulatory and EHS considerations are vital for a success- ful strategy, companies include several objectives in a “good corporate citizen” strategic theme in the internal perspective. (See Figure 2- 2.) For example, Mobil, in its Balanced Scorecard, included measures on environmental and safety per formance, stressing the importance of being a good employer and a good citizen in ever y community in which it conducted business. 9 One chemicals company created a fifth perspective solely to reflect environmental considerations. They argued : 10 Our franchise is under severe pressure in many of the commu- nities where we operate. Our strategy is to go well beyond what  Building Successful Organizations Through Partnerships current laws and regulations require so that we can be seen in every community as not only a law-abiding corporate citizen but as the outstanding corporate citizen, measured both environ - mentally and by creating well-paying, safe, and productive jobs. If regulations get tightened, some of our competitors may lose their franchise, but we expect to have earned the right to con - tinue operations. For them, the environmental perspective highlighted how out - standing environmental and community per formance was a central part of its strategy and had to be an integral part of their scorecard. It communicated the priority to be the outstanding employer in ever y community in which it operated. Thus, even though suppliers and the community are not explicitly one of the four perspectives of the Balanced Scorecard, their inter - ests, when they are vital for the success of the business unit’s strategy, are incorporated on strategy maps and Balanced Scorecards. These stakeholder objectives, howeve,rshould not be appended to the Score - card via an isolated set of measures that managers must keep “in con - trol.” Their measures appear only when partnerships with suppliers and the community are critical to the success of the strategy and fully integrated into the chain of causal event linkages on a strategy map that define and tell the story of the business unit’s strategy. SUMMARY Traditionally, competitive advantage came from access to low-cost raw materials, energy sources, or financial capital and an ability to invest in physical capital to achieve economies of scale and scope. 11 Today, value creation comes from mobilizing and managing the organiza - tion’s intangible resources, especially loyal and profitable customer relationships; high-quality and responsive operating and supply-chain processes; information systems and knowledge; and motivated, skille,d and empowered employees. Leaders need new measurement and ma -n agement systems to align their tangible and intangible assets to deliver a coherent and integrated strategy. Use the Balanced Scorecard to Partner with Strategic Constituents  Strategy maps and Balanced Scorecards help leaders communicate the strategy to critical constituents—employees, suppliers, customers , and the community—and focus their entire organization on enhanc- ing the strategic partnering relationships with these constituents that drive and sustain long-term value creation. CHAPTER 3 tttttuttttt THE DEMISE OF THE CELEBRITY-LEADER AND THE RISE OF PARTNERSHIP NODES SALLY HELGESEN How we think about leadership will undergo a subtle but sig- ) nificant evoluLion over the next few years. This change has already begun tF manifest itself, though by means of confusing and fluence of ecMnomic, technological, social, and
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