Terminal Value

Doug on the Duality of Leadership

Doug Utberg

Business Growth Authority | Technology Strategy & Resourcing | Cost Optimization Expert | Business Process Architect | Financial Strategist | Founder - Terminal Value Podcast

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So for today’s episode, this is actually going to just be me. What we’ve been learning about this week has been leadership. And leadership is always something that I have mixed feelings about, because on the one hand, leadership, I would say, is the most important part of success for a company. Any company that is going to grow from an idea to something that has something that produces exceptional results is going to require top notch leadership. With that said, leadership is also probably the area where there is the most BS floating around throughout the environment. And I think the reason is because since there’s not a formula for leadership, there’s not A plus B plus C plus the formula to be successful as a leader.

What essentially happens is pretty much anybody who has been somewhere while something good happened has a claim that they are a successful leader. And many of them publish books, however, and in a lot of cases, they were successful leaders. It was their leadership that really drove them to the next level. But in some cases, it wasn’t necessarily because of them, or in some cases, it was just because of luck, or in a lot of cases, what will happen is the type of leadership that was successful at one time period won’t be successful in the current era because there are certain types of leadership and certain types of company structures that have a shelf life that need to evolve. And so I think that’s actually kind of one of the things, at least that I’m thinking about right now in terms of leadership is the need to evolve. For example, I spent much of my early career at Intel and Intel Corporation was, of course, very large, over 100,000 headcount. And it adopted the General Electric model of management, rating and ranking. And for people who aren’t familiar with this, the way that it works is Jack Welch in the late 1980s, principally in the 1990s, led a big turnaround in General Electric, and a lot of how that was based was essentially in rating, ranking, grooming, and elevating leaders. There were a number of people who came out of General Electric, like Larry Bassa, who went on to be very successful executives. And so the idea is that when you have a group of people in a team or group of leaders, managers, senior managers, etc. That they are rated and ranked against one another. Because what you want to do is you want to figure out who are your top performers, who are your middle, and then who are your poor performers, with the idea being that your top performers get moved up and your poor performers either get put on a corrective action plan or they get moved out. In certain contexts, this works really well. I think the boundary condition for a philosophy like that to really be effective is that it has to be a situation where you’re in businesses that a lot of headcount is truly necessary. And I think this is where the Turn point has come from, say, the 1990s to the current era, which is that many businesses that kind of are artifacts of that era are still carrying a lot of headcount that truthfully they could probably replace with technology, automation, standardization, et cetera, because the problem that General Electric was addressing is the problem that there were a whole lot of people running around, and you didn’t really know who the top performers were. And there wasn’t a systematic way to elevate the higher performance of people who were really legitimately outstanding to greater and greater levels of responsibility so that they can lead the company to the next level. And that was the problem that Jack Welch figured out how to fix. And the General Electric method worked very well for GE and companies like it in its era.

I think the situation that you’re running into now is that the number of companies have tried to mimic that philosophy and has resulted in a very large layer of middle management and a lot of companies that in some cases have started to make them uncompetitive. And the reason for this is because in order to have a career path, generally speaking, what happens is you’ll start as an individual contributor, and then there may be a couple of layers. You can move up there, and then you’ll become a manager, and then you might become a second level manager or director, and then you might become a senior director, and then maybe a vice President, and then maybe an executive vice President. Then maybe a corporate vice President. Then you might be in one of the Cleveland rules well, what this does is this creates a very large population of management whose principal responsibility is to either oversee other managers or oversee people. And, of course, this adds a lot of cost to the company’s cost structure. But the problem is that unless your processes and people are very finely tuned, you may not get commensurate value for the cost that you add into the structure, particularly because the problem that unfolds in a lot of companies is where these people who are in these management layers, what they will end up doing is they’ll end up spending a lot of time essentially essentially trying to either pitch their team, pitch their own accomplishments, essentially working the internal managerial politics. And this type of thing is inevitable whenever you have larger companies.

Now, I spent a lot of my own career fighting against that just because, again, I am a value obsessed leader. That’s who this show is for. That is how you know that’s the mindset that I take into everything I do, that kind of thing drove me nuts. However, if you are in that position right, if you are leading a team within a company, in order to do the best for your team, you have to play the managerial politics. It is the game that people are in. And in order to be successful, they have to play it. And that’s not necessarily any kind of dig on the people who are in that type of situation. They are responding to the incentives that are present where they are. And I think that’s one of the things that’s really important to think of, especially as a leader, is that the incentives you put in place by what you measure, what you do, et cetera, will influence people’s behavior. And so, for example, I would say if you incentivize people to make sure that emails from customers are responded to in, say, an hour or less, what you will get is you will get a lot of people who are very closely monitoring their email and who are very closely monitoring email to be able to hit their service level agreement. At the same time, they may be ignoring other things that are actually more important to the company’s strategic priorities. And that’s the thing that you really have to think about as a leader is what are the things that I’m measuring? What are the things that I’m rewarding, and are those the right things? Because you cannot prioritize everything, you have to make hard decisions, you have to make trade offs. And I think that the way that I view the leadership transition from, say, the 1990s General Electric paradigm to the current era is that I think that the question is not necessarily the problem to solve, is not necessarily so much of how do you make sure that you identify who the high performance are within your cohort of people. The question is more going to be how do you make sure that you are getting the highest and best use of your people’s time and that you are automating and or outsourcing the things that are not the highest and best use of your internal people’s efforts? And that’s, frankly, a different type of problem to solve, and particularly because workforce mobility is much higher than it has been in the past, there are many people who will switch companies and switch careers multiple times throughout their life. And in this type of situation, a paradigm that’s built around the assumption that people are going to spend multiple decades ascending the career ladder within a single company are probably outdated. And so I think what needs to happen is that the leadership concept needs to really update so that it’s inclusive of the way that the world currently operates.

Now, again, just speaking for myself, one thing that I think would be really interesting to see would be that instead of the assumption that a job that someone goes into is indefinite or is permanent, what if there were a vesting period of something like two to three years whereby at that point their stock shares would be vested? If that’s applicable, there would be some kind of bonus payout or there will be a certain amount of time of paid vacation. And then if people wanted to, they could reapply for that same job and it could be externally posted or they could apply for another job with more responsibility. Because one of the things that I saw that in my corporate career that can be a source of difficulty is that you can have people who are essentially in the same job for years to decades. And as time goes by through the annual performance review process, they eventually get paid progressively more for doing the exact same work. And generally speaking, the right model to advance people is for them to continue taking on more responsibility. And so I think that if you put a structure in place whereby every two to three years or so after people have had a chance to realize success in their current role, to learn if they can move on to ascend to something that has more responsibility, that would justify greater compensation. Alternatively, if somebody is in a position where they’re very interested in staying in the same role, what you want to do is you want to test, to make sure that the people who are in that role are still competitive against others who are in the marketplace. And because I think that this type of paradigm, actually it addresses another sticky situation in a lot of companies, which is that it’s really difficult to move out poor performers in a number of corporate environments just because the amount of managerial Hoops you have to jump through can be very expensive. And so by having a natural expiration period on your jobs, one of the things that could let you do is it can give you an Avenue to move people along who are not the right fit for your company. Because this is another thing to remember too, is that

Just because somebody is not the right fit for a certain job or a certain company doesn’t necessarily mean that they’re not a valuable person, they couldn’t be exceptionally valuable somewhere else.

This is a very common sports analogy where you can have some player that gets cut by one team and then can go to another team and help them become Champions. Well, that person didn’t miraculously get better. What happened was they went to a place where they were a better fit for the rest of the team. And that’s one of the things that you’re ultimately looking for when you were leading people is to find people who are the right fit for what you need. And in a lot of cases, those will be people who had been someplace else and were not the right fit there. So anyway, those are the sweet spots for leadership.

Next week what we are going to be doing is we are going to be focusing on marketing, specifically marketing and branding, and how you tell a story for your product, brand and company. Because I think this is another really important part of running a business because of course leading people is of course exceptionally important. But you have to sell products or services in order to have a business. Otherwise you’ll go bankrupt very rapidly. So, anyway, I really appreciate you listening and I hope you have a wonderful day and I’ll talk to you next week. Bye you.

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