LEADERSHIP SPECIAL...Make Leadership the Starting Point of Strategy

Make Leadership the Starting Point of Strategy 

Even the best-devised strategy can fail miserably if a corporation doesn’t have a cadre of leaders with the right capabilities at the right levels of the organisation

    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 recognise 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, far fewer companies recognise the leadership capacity that new strategies will require, let alone treat leadership as the starting point of strategy. This oversight condemns many such endeavours 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. Since bold strategies often require breakthroughs along a number of fronts, a firm needs stronger and more dominant leadership at all levels if strategies are to succeed.
Inattention Hurts
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.
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 organisation 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 newer geographies. 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. In the longer term, a persistent leadership gap will be responsible for an inexorable decline in the number and quality of leaders.
Leadership First
Given the severe consequences of a leadership gap, why do so many companies discover their leadership shortfall only when executing their strategies? This question raises another, more fundamental one regarding strategy and leadership: which is the chicken and which is the egg? Companies have taken a number of useful approaches to this puzzle. One successful US conglomerate with global operations routinely holds discussions that integrate both strategy and leadership. Any consideration of a strategic initiative invariably includes the question, ‘Who exactly will get this done?’ If the firm does not have a sufficient number of the right leaders, the plan does not proceed. Another approach is to weigh a corporation’s strategic options against its ability to launch new businesses, new approaches, and other forms of breakthrough performance—in other words, its leadership. Consider, for example, the global expansion strategy for a successful resource company. The effort included identifying the leadership required to drive breakthrough performance over five years in areas such as running and expanding existing businesses, developing new ones, renovating corporate processes such as risk management, and providing overall change leadership. The company then gauged its leadership gap by comparing these requirements with the qualities of its current leadership bench. It made a number of strategic decisions to determine, among other things, which path was best for realising the strategy, whether to revise its aspirations, and whether to develop leaders internally or hire them from outside. A third approach is to plan the path toward a predetermined strategic goal by taking into account the quantity, timing and mix of leaders that the various alternatives require. Companies using this framework may rule out some possibilities if developing the requisite depth of leadership is unrealistic in the time frame dictated by the marketplace. These three approaches illustrate how thinking about leadership up front can affect a strategy’s direction, path and outcome. But can a company bring leadership considerations into its strategic discussions even earlier, before it chooses a general direction? To do so, the company must think rigorously about its current leadership pool—the types of leaders and their mix of capabilities—and lay out the strategy accordingly. Taken to this level, leadership becomes the true starting point for strategy.
Filling the Gap
A clear picture of the leadership gap can help guide strategic thinking, but to retain as many options as possible, companies must also consider ways to fill that gap. To reduce the risk of strategic failure, they need to direct their approach to leadership with three time horizons in mind.
    Long Term: Position
Companies need to position themselves today to meet their strategic objectives during the next three to five years. In an 18-month period, for example, a South Korean consumer goods company successfully expanded its core business into Japan, where it diversified into non-core sectors such as low-cost lodging. It achieved such deep penetration of this closed and mature market so quickly by building its leadership bench in advance.
    Medium Term: Cultivate
Companies must also begin cultivating leaders for specific roles one to two years down the road. This effort requires recognising the skills, behaviour and mindset that leaders must possess to be prepared for future roles. Many executives spend years building their technical skills and industry knowledge but rarely develop expertise in areas such as managing stakeholders and building networks.
    Short Term: Match
Job experiences and stretch assignments are the primary development vehicles for leaders. Opportunities to achieve performance breakthroughs are critical not just for reaching a company’s performance goals but also for developing its best people. Unfortunately, corporations that are risk-averse often match their people to opportunities by looking at track records and job experiences, which they see as indicators of future performance. But such an approach is unlikely to succeed, since the experience and skills needed for earlier successes are not necessarily precursors for those required in subsequent opportunities. A better approach is to use corporate-performance objectives and personal-development goals to match current and potential leaders with opportunities. This multifaceted approach uncovers a better fit between the individual and the opportunity. For this process to be successful, top managers need to acquire a holistic understanding of each individual, including professional abilities, such as leadership qualities, track record and potential, as well as key personal traits, such as style and preferences, character and motivation and current attitudes and mindset. To help leaders develop throughout any of these three time horizons, a company must first accurately identify who its leaders are and then convince them of an opportunity’s potential. Strategy will not succeed in a void, and leadership often makes the difference between merely reaching for great opportunities and actually realising their potential. Top managers must assess the leadership gap and find ways to close it over the short, medium and long term. Better still, they should integrate leadership with strategy development and thoughtfully match their portfolio of leaders with opportunities.
This adapted article was published in McKinsey Quarterly, www.mckinseyquarterly.com.

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