Leadership is Not Just for the Extroverts

My Financial Times Column 11/29/10

One of the paradoxes of leadership is that the people who most want to lead are often the last people we would want given the responsibility. The pushy hack, the selfish careerist and the ruthless opportunist are just some of the unpleasant types who tend to force their way to the top. They thrive in hyper-competitive environments. Decent people, who might actually make better leaders, seem to have a harder time scrambling upwards. They may have exactly what it takes to lead, but lack what it takes to get the chance.

My smell test for business leaders is if they talk about the importance of humility. The moment the word leaves their mouth, I assume they are the worst kind of corporate hypocrite, on the very simple basis that truly humble people don’t boast about being humble.

One way academics have sought to categorise the character traits required to succeed has been to divide us into extroverts and introverts, and much research has found that it is the extroverts who do best.

Extroverts like to be the centre of attention, seek status and approval and talk a lot in social settings. They are good at motivating employees and leading change. Consequently, they earn more and get more promotions. Larry Ellison of Oracle and Jamie Dimon of JPMorgan Chase are prominent extrovert leaders, thrusting themselves forward in their company’s interests.

So what hope is there for introverts? Are they simply to bask in the sun of the extroverts? Or can they lead too? Absolutely, say Adam Grant, Francesca Gino and David Hoffman, business school professors and authors of an intriguing new paper, “Reversing the Extroverted Leadership Advantage: The Role of Employee Proactivity”, published in the Academy of Management Journal. They argue that one key variable has been underestimated in the argument over which character-type does best in business. And that is the degree to which a manager’s employees are proactive.

If employees are passive, they found, an extrovert thrives by giving a clear lead. If employees are more proactive, the introvert does better because he actually listens and incorporates their advice into his decision-making.

What is novel here is that up to now, the advice for introverts in business has generally been to be more extroverted, to follow the old salesman’s mantra, “act enthusiastic to be enthusiastic”. But many forced grins later, is this really the best way for them to succeed?

It is clearly not necessary to be the life and soul of a party in order to run a great business. Bill Gates, Steve Jobs and Mark Zuckerberg are neither natural glad-handers nor extroverts, but all have the bullheadedness and genius that drags others along. Anna Wintour at Vogue and Giorgio Armani are frosty characters who are nonetheless accomplished managers in a highly creative industry. Sir Richard Branson has turned himself into an extrovert for the public but is said to be an introvert in private.

The academics drew on two sets of data. The first was from a chain of pizza restaurants, where they analysed financial performance and the nature of the managers and employees. The second came from a lab experiment, where they asked people to act either extroverted or introverted in managing a group folding T-shirts. The evidence showed that a proactive group either butted heads or felt underappreciated working for an extrovert leader and performed better under an introvert. The passive groups worked best for an extrovert and felt lost under an introvert.

Prof Grant told me that introverts do especially well at engineering and accounting companies, which tend to emphasise technical skills over personality. But other industries, especially those “with a lot of velocity and environmental turbulence”, could benefit from hiring, valuing and promoting more introverts.

Extrovert leaders might succeed in these environments, but it’s rather like putting all your money on a single number on the roulette wheel. Far better to have an introvert leader ready to absorb a lot of input in order to discover the best processes or business models.

To get to be leaders, introverts must still prove themselves terrific individual contributors. Without the noise and flash of the extrovert, they will have to find subtler ways to show they can lead. But once in a leadership or managerial position, they no longer need to worry about loosening up at parties and becoming more extroverted.

Instead, they can succeed by surrounding themselves with proactive employees, and giving them the autonomy and responsibility they require to perform at their best. They can focus on encouraging behaviour that complements their existing style rather than trying to acquire an awkward new one.



Open Innovation Thoughts

A feature I wrote for The Financial Times, 11/17,10, taking the pulse of Open Innovation


It resonates with the barrierless world of internet-based communication and information sharing. For some, it im plies Wikipedia and Linux, the open-source software platform, vast bodies of knowledge assembled by armies of distributed innovators and creators – all driven by their own particular set of incentives.



Last year, Netflix of fered $1m to anyone who could im prove the quality of its film recommendations to users. The X Prize Foundation is running similar contests to stimulate advances in genomics, private space travel and alternative energy. Both contests try to draw the best minds in the world to problems they might otherwise ignore.


The most glaring challenge to the open innovation model has been the development of Boeing’s Dreamliner 787 passenger aircraft. To cut costs, Boeing syndicated much of the design to outside companies, whose R&D spending would be recoup ed as they became subcontractors to Boeing.











Ms Jones admits that managing open innovation remains a work in pro gress, a balancing act between the rigour required in any big corporation and the looseness inherent in open innovation.










Keep it Simple to Understand Value

My Financial Times column 11/15/10

Value is one of those terms better understood outside business than inside. Any household bill payer knows the difference between good and bad value. Most of us have a keen sense of whether goods are priced fairly or not. But step into the corporate world, and suddenly the term goes wobbly.

There is shareholder value, but also stakeholder value; there is not one bottom line but multiple ones; there is intangible value and the value of potential synergies, which bump up acquisition prices before frequently turning to dust. When Warren Buffett talks of “value investing” he is talking about buying great companies at good prices, rather than investing on the basis of all the other mind-bending signals and stimuli in the markets.

What managers need to do is block out the noise and return to a simpler, less confusing idea of value. At its most basic, the value of a business is the sum of the present value of its future expected cash flows. But as anyone who has ever tried to build a discounted cash flow model can attest, bankers and corporate finance professors could dance on the head of this one intellectual pin for eternity. How do you price risk? Do different cash flows carry different levels of risk? How do you know what the future really holds?

So, managing for value has to mean something more specific. Three management consultants at McKinsey – Tim Koller, Richard Dobbs and Bill Huyett – grapple with this in a new bookValue: The Four Cornerstones of Corporate Finance. This is definitely one best read in a hard chair with a sharp pencil as it marches the reader through the very practical issues that affect value: from the nature of owners and investors to the behaviour of the stock market, good and bad ways to divest and acquire, all the way to risk management and investor communications.

The four cornerstones are uncontroversial. The first is “the core of value”, the fact that companies create value by investing capital to generate future cash flows at higher rates of return than the cost of capital. The second is the “conservation of value” – companies create value by generating higher cash flows, not by rejigging the capital structure. The third is “the expectations treadmill”. Expectations drive a company’s stock price as well as its actual performance, so the higher your expectations, the faster you must run to keep up. The fourth is that the value of a business depends on who is managing it and the strategy they pursue, the “best owner” cornerstone.

I asked Mr Koller why these points even need to be made. Surely, the prospective audience of this book – senior managers, chief executives and chief financial officers – know all this? “CEOs and CFOs are often influenced by noise rather than reason,” he says. The book serves as a helpful reminder of what matters and is intended to “convince companies to be more thoughtful when they listen to investors”. It is also a prop for those who think they understand value when they are asked to explain what they mean.

There are, Mr Koller continues, good and bad investors. The good ones are focused on long-term value. They do not twitch in response to every crumb of news flashing by on their Bloomberg terminal. Instead, they think about value in terms of the four cornerstones. Do we have the best managers and owners in place? Are they pursuing the right strategy? And are they producing returns that exceed our cost of capital and will they continue to do so? If so, over time the value of our investment will be properly priced, regardless of any fleeting swoons and spasms exhibited by the markets.

But it is not just investors who need to understand value. A manager whose performance is being measured by his company’s share price needs to know what makes that share price move and whether it is a fair measure. Peter Löscher, chief executive of Siemens, is now in the process of unlocking the value of his company after 10 years in which managers have been trying to turn the company round. After a decade in which Siemens’ share price barely moved, investors are now bubbling with expectation and the price is rising accordingly. Mr Löscher and his predecessors were not rewarded by the markets while their overhaul of the company was going on. It is only happening now that Siemens is fixed and ready to grow. Recognition of value is not a linear process. The manager sees it one day, everyone else the next.

Mr Koller says a misunderstanding of value is leading many companies to be “recklessly cautious”. They are so focused on today’s earnings per share, and frozen by the fear of punishment by the stock market if that number drops, they are passing up terrific opportunities to create long-term value. It is not just individual managers and companies that suffer when this condition takes hold, but entire economies now hankering for growth.

Find a Way into the hearts of customers

My Financial Times column 11/8/10

Imagine a couple goes in to see a doctor who tells them their child will be born with a genetic disorder. It is mid-morning and when they emerge from their consultation, they see a row of parents bouncing their healthy children on their laps. The emotional shock they have just experienced with the doctor will now be compounded by feelings of appalling unfairness. Why us?

While the genetic test results cannot be changed, the process by which prospective parents are informed could be. The couple could be asked in to the clinic in the early morning or evening, when there are no other patients around. They could be shown out through a side door, so they don’t have to see babies right after they receive their bad news.

It is not just doctors’ offices that could find ways to improve the process by which they handle emotions. Airlines dealing with delayed passengers, insurance companies dealing with traumatised claimants, management consultants explaining their bill could all benefit from a better understanding of the emotional peaks and troughs experienced by their customers.

In Designing the Soft Side of Customer Service, a paper recently published in the MIT Sloan Management Review, Sriram Dasu and Richard Chase of the Marshall School of Business at the University of Southern California argue that emotions are too rarely included in operations design.

Operations managers, Prof Dasu told me, regard emotions as too soft an issue to be integrated into the blinking lights and spinning discs of their world. “They don’t realise that emotions are very process driven.”

Let’s say you have bought a laptop and within the first month of owning it, it fails three times. Your third call will be a more emotionally intense call than your first. But will the laptop manufacturer assign a more seasoned service agent to deal with you? Or will you simply be led through the same complaint process you experienced with your first call? In the paper, the profs say that companies should design “emotion prints” of the customer experience and tailor their processes accordingly. Emotions are far more predictable and manageable than many operations managers believe. You do not need heroic individuals with extraordinary levels of emotional intelligence to make dramatic interventions. Rather, the process can be designed more like a factory line, with variables that can be managed and measured.

One advantage of this approach is that it takes broad intentions such as improving customer service and makes the process detailed and actionable. You do not need to train all employees in the same way. Rather you can identify the emotions they most frequently deal with and train them to deal with those.

For example, explains Prof Dasu, bellboys and concierges are trained to display an “attitude of invitation”. This is what matters most when guests arrive. Similarly, a few US sports teams are now training everyone from the ticket-taker to the hot dog vendor to welcome customers as if they were welcoming them into their home. Fans come to games excited and stadium employees should find ways to deliver service that recognises that mood.

The professors focus on designing for emotions, trust and control. The first step means crafting that emotion print and allocating resources to deal with customers at the emotional high and low points of their interaction with you.

Designing for trust is about trying to create the best environment for doing business. This is the silver bullet for managing customer relationships. A trusting customer believes you have their best interests at heart. One who mistrusts you will constantly be demanding explanations and price reductions and making life a misery. Trust evens out the emotional volatility in any relationship.

Designing for control is closely linked to designing for trust. People will accept less control over a process if they trust you. But you can also manage those feelings of control. FedEx does it by allowing you to track your packages. You cannot make it move faster, but by letting you know where the parcel is, FedEx is assuring you it is delivering on its promise. Setting and then meeting deadline expectations is a simple way to create feelings of trust and control.

Designing for control also lets people manage their own emotions. When the stock market is down, you can decide whether to look at your investment portfolio. Imagine how different it would be if every week, your investment manager had to call you and explain his performance.

“Companies already do a lot of this, but operations managers still treat emotions as outside their bailiwick,” says Prof Dasu. “They get queasy when you bring them up.”

But they will wish someone had the moment customers gravitate to competitors that treat them as emotional rather than purely rational or financial beings.


New models of innovation











Listen to the interpreters

















Why Boardrooms are not all Rock ‘n’ Roll

My Financial Times column 11/1/10

In his autobiography, Life, Keith Richards describes three phases in the management of the Rolling Stones. The first was when the band was struggling to escape the scrum of other boy bands that sprang up in the wake of The Beatles in the early 1960s. For this, they hired Andrew Oldham, an oddity of the London music scene, who lived with his mother and was driven around town in a Chevrolet Impala by a thuggish East Ender called Ray. Ray was not above extreme physical violence towards those who crossed Oldham or his clients.

Oldham had worked for The Beatles but had been fired after a disagreement with their manager, Brian Epstein. The Stones were his revenge. At first, he tried to make them Beatles copycats, dressing them in matching jackets and giving them similar floppy haircuts. But when the Stones chafed, Oldham, in Richards’ words, “suddenly saw the beauty of opposites”. He realised his opportunity lay in making them the anti-Beatles. While The Beatles were clean cut, respectable and cute, the Stones were dirty, snarling and mean. They were the boys that parents didn’t want their daughters bringing home.

Oldham also told the Stones that if they kept on just performing covers of American songs, their popularity would be limited. So one weekend, he locked Mick Jagger and Richards up in a kitchen in Willesden and said: “Come out with a song.” After a sleepless night, they emerged with “As Tears Go By”, which became a hit for Marianne Faithfull. Jagger and Richards had discovered that they were capable of writing their own songs and, more importantly, that they enjoyed it.

To reach the next level, however, the Stones hired Allen Klein, a wily lawyer who took their fight to the record companies. In 1965, Klein renegotiated the Stones’ contract with Decca Records. He advised the band to come to the meeting wearing sunglasses and stand at the back of the room saying nothing. He would do the talking. The result was a deal bigger than The Beatles’.

Richards writes that Klein was “patrician in his dealings with us and with money. You could always get some from him. If you wanted a gold-plated Cadillac, he’d give it to you. When I rang and asked him for £80,000 to buy a house on Chelsea Embankment near to Mick’s, so that we could wander back and forth and write songs, it came the next day.”

The Stones discovered the real cost of this years later when they found that, for all their success, they were broke and Klein owned the rights to most of their music. Salvation came from the most unlikely quarter: Prince Rupert Lowenstein, a European aristocrat and private banker. Unlike Oldham and Klein, Lowenstein had no roots in the music business. He was also a devout Roman Catholic, with no interest in sharing the Stones’ arch-bohemian life. But he rescued the Stones from financial ruin.



Lowenstein’s first suggestion was that in 1971, the Stones leave the UK and its punitive tax rates and take up residence in France. When the band was busted for drugs at Richards’ rented mansion on Cap Ferrat, Lowenstein did not waste time with music industry lawyers. He hired Jean Michard-Pelissier, the best friend and adviser to Jacques Chaban-Delmas, then French prime minister and a personal friend of the prefect of the Antibes region. As Richards puts it: “Nice one, Rupert.” 

Lowenstein professionalised the management of the band. He established separate companies in the Netherlands to manage its various businesses, such as publishing, merchandising, touring and so on. He arranged for a global network of lawyers to manage the personal and business affairs of the band’s members. He was the antithesis of the rock ’n’ roll manager but, under his stewardship, the band became one of the richest in history.

Managing creative people is difficult, not just because creativity is rare and the people who possess it chafe at being managed but because establishing a market for creative work is one of the hardest things to do in business. Venture capitalists know this when they install seasoned executives to guide young founders; Eric Schmidt at Google, for example, and Sheryl Sandberg at Facebook. Similarly, Hollywood will often pair a hard-headed business type with a creative genius. Steven Spielberg’s career took off under the guidance of Sid Sheinberg, a fierce lawyer who ran MCA/Universal. And book publishing’s best-known agent, Andrew Wylie, is nicknamed “the Jackal” for his aggression and tenacity on behalf of clients.

The Stones required three very different kinds of manager: the first to validate them within a highly competitive industry, and then to establish them in the public eye; the second to usher them into the big time; and the third to build a protective fort around their steady-state operations and ensure their long-term survival and profitability. It is a lesson with resonance far beyond music