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On Leadership

by Phil Dourado March 21, 2012
Book Author: 
On Leadership

A book from the Chairman of the UK's Royal Mail, who was in charge of Wal-Mart Europe (formerly ASDA, which he turned around with Archie Norman) before launching what he famously called 'a portfolio career' as Chairman of a clutch of high profile companies, from Bhs to Cannons Health Clubs to the Royal Mail.

Leighton has a no-nonsense focus on execution and being in touch with the front line that I find very attractve, and is particularly timely, as organizations the world over focus on execution and getting things done (prompted by books such as Larry Bossidy and Ram Charan's 'Execution', which have helped shape this shift in leadership emphasis).

When he started at the Royal Mail, and when his CEO started, too, the first thing they did was not set up a series of top level meetings. The first thing they each did was get up at 4am and spend the day working in a Royal Mail sorting office, with the postal workers, and going out on rounds with them, asking their opinion on how to improve the organisation.

A couple of years in, Leighton still shows up unexpectedly at Royal Mail sorting offices and helps out. He says it's vital to keeping in touch with what's really going on and picking up practical ideas to drive the business forward.

Leighton says leaders typically rely too much on what Harvard Professor Michael Beer calls 'Theory E' leadership - Economic - and not enough on Theory O - organisational. As a result, they fail to achieve sustainable performance. I've summarised from the book the two theories, below, for you, as an adapted excerpt, so you can get a flavour of the book.

Leighton has a liking for short aphorisms and no-nonsense writing that sometimes comes across as 'stating the bleedin' obvious' and that some find annoying. But, in amongst that is a wealth of down to earth leadership wisdom that makes this book worth reading. I'll drop some bits of inspiration and insight from the book into other areas of The Leadership Hub, such as the 'Inspire Me' Group. Here's the adapted excerpt to help you decide if you want to buy it:

Theory ‘E ‘versus Theory ‘O’
Why leading without a balance between the two will lead you to fail

Harvard Professor Michael Beer says leaders lean towards either Theory E or Theory O in running an organization. Theory E, or the ‘Economic’ approach to improving a firm, focuses on the numbers. Rather than seeing numbers as the outcome of the organization’s purpose and activity, the numbers become the business. And leading becomes controlling the numbers.

Theory E is an essential part of strategy, but does not work on its own, says Beer. It presumes change is always top down and that controlling profit and loss, particularly by cost-cutting, makes the organization thrive. It is the thinking behind the hollowing out and cost cutting that Business Process Re-engineering became a by-word for in the 1980s and early 1990s.

The numbers can be controlled and produce short-term improvement through cuts with less imagination, less risk-taking, less leadership skill, less sustainable effect, than through attempting to grow organically. But, as the business guru Tom Peters says, the limits of cost-cutting as a sole strategy are that “You can’t cut your way to greatness.”

Financial markets drive business leaders towards a reliance on Theory E strategy as the City’s view is essentially short-term. Professor Beer argues, however, that an exclusive focus on Theory E assumptions about organisational change will not improve your firm’s performance without a balanced reliance on Theory ‘O’, or Organisational approaches to change.

Beer says Theory O assumptions about how to improve firm performance focus on people, culture and organisational arrangements as a priority. CEOs who employ Theory O approaches to change, says Beer, believe in the development of the organisation’s human potential. Rather than driving change from the top, Theory O strategies for change involve employees in identifying barriers and creating better ways to run the business.

Companies in crisis often feel they need a Theory E CEO to cost cut their way out of it. And, they may be right. But, says Beer, it takes an exceptional leader to transition from using Theory E to fight your way out of a crisis and achieve a turnaround, and Theory O, as the human outcome of laying staff off and closing units is a loss of talent capital and expertise, and a demoralised remaining cadre of employees. “To return the company to high performance, you have to persuade the employees who are left behind to give their all, despite the fact they’re probably feeling resentful and scared,” he says.

An exclusive reliance on Theory E even in a crisis situation is a dangerous strategy, too, says Beer, because the ‘cutting’ CEO will approach the restructuring job in a way that doesn’t link effectively to the next stage.

“It takes a leader who can embrace the paradox, who understands the different dimensions of management that are required for sustainable performance.”

So, are you a Theory E or a Theory O leader? Which dimension do you veer towards? And do you need to achieve a better balance in your approach to change in order to achieve sustained high performance?

Source: Extracted adapted from Allan Leighton’s new book, Allan Leighton on Leadership. Recommended.