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Leadership: What We Know That Ain’t So and What It Requires

…relationship itself is the real thing. We used to think all the energy was in the particles of the atom; now it seems that energy is, in fact, in the space between the particles. Richard Rohr, Everything Belongs

Much of the focus on strategic leadership either ignores or looks too narrowly at the importance of key relationships.

The latest leadership maxim to take a hit is maximizing shareholder value which focuses narrowly on the shareholder relationship. Steve Dunning at Forbes has masterfully exposed this one-legged stool. He quotes the former king of shareholder value, Jack Welch: “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products.” Leaders who narrowly focus on shareholder value risk sub-optimizing long-term results.

By contrast competitive advantage championed by Michael Porter focuses on competitor relationships – defeating your rivals as the goal of strategy and the charge of leaders.

Denning points out that unrelenting focus on vanquishing the competition unwittingly goads leaders into doing wrong for its employees, customers and shareholders. Don Corleone of The Godfather fame said it only slightly differently: “Don’t hate your enemies because it is liable to affect your judgment.” Obsession with defeating enemies is not the same as winning customers by providing the most valuable products and services possible.

Peter Drucker advocated for customers as the defining, strategic relationship. For him, the purpose of business is to create a customer – who determines what a business is, what to pay for a good or service and whether that converts economic resources into wealth. Yet under-supported employees or shareholders over-time is damaging to customers.

The quest of leadership is to gain discretionary effort and results from four sets of stakeholder relationships: customer, workers, management and shareholders. Leadership is a high-wire juggling act of facilitating these four very different sets of relationships that have both shared and opposing interests. The aim of shared interests is linked and circular: shareholders create effective management, who create productive employees, who build profitable customers, who return shareholder value.

The opposing interests can pit one group against another: Customers want things cheaper, quicker, better; employees want higher pay, more freedom and time off; management wants more effort and productivity from employees and higher prices from customers; and, shareholders want greater return on investments and more predictable results. This creates pressure for getting these disparate pieces to fit, function, synergize and produce extraordinary results. It also creates pressures for innovation, breakthrough technology, cooler products, stronger brands, lower costs and growing relationships. As in physics, it is the space between individuals and groups – the relationships – that is the energy source for great results.

Great results most likely come from a mix of exceptional teams. The “one thing” is not shareholder value, competitive advantage or even customer relationships – rather it is orchestrating productive, sustaining relationships that yield discretionary effort and results. This juggling act increasingly requires three shifts:

From individual to team relationships: Productive relationships are to teams what water is to boats. Sallie Krawcheck describes the difficult shift from person to team: “If we can change our mindset from ‘Hey, our goal is simply to put the best person in the job’ to ‘Hey, our goal is simply to put the best team in place,’ we will have accomplished a great deal on improving company performance.” Her example is compelling: She reels off her choice of the five best basketball players ever at her alma mater UNC, but she questions whether they would be anywhere near the best “team.” Why? Because they are all point guards.

Differences as your new best friend: Brilliant teams are made up of purposefully different individuals who function less than friction-free. As Amy Edmondson (HBR) points out, “Conflict among collaborators can feel like a failure, but differences in perspective are a core reason for teamwork in the first place.” The energy is in the spaces between the different atoms – between the different team members and teams.

Discretionary commitment that comes by invitation only. Extraordinary effort, innovation, and results come from discretionary commitment which cannot be commanded. It must be invited, earned, led. Effective leadership unrelentingly seeks and invites commitment and attendant giftedness.

Leadership is not a popularity contest, an IQ test, an authority bake-off or a perseverance marathon. Leadership is a race for who can build the most productive relationships – the defining element of organizational effectiveness. It requires leadership – relationship leadership.

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