Seven Steps to Better Leadership

Posted by Steve Kawaja on 3 May 2019

A practical approach

I missed my first real leadership opportunities during college, as my motivation in those days was beer.  But that missed opportunity planted the seeds for my growing interest in and passion for leadership.  When I started my MBA, the regret of missed college opportunities inspired me to take on every leadership role I could.  I quickly found myself in a jam.  I thought leaders derived their power from, well, being the leader.  I was wrong.  Leadership does not come with power; and trying to “lead” a group of my peers without power was going to be a challenge. 

I had to find a few answers: What is leadership? What makes a leader great? Becoming a better leader begins with answering these questions.  

What is leadership?
Leadership is one of those words that means different things to different people.  My journey to an answer led me to two definitions (both by renowned business leaders and best-selling authors) that I believe capture the essence of leadership:

“(Leadership is) a process of social influence, which maximizes the efforts of others, towards the achievement of a goal.”  - Keven Kruse

“A great leader helps a group of people identify what they want and how to get it, and then influences that group, free of coercion, to take coordinated action to achieve the desired outcomes. “  – Geoff Smart

A great leader inspires a person or a group of people to accomplish more than they ever thought possible (or more than they could have done without that leader).  The greater the results, the greater the leader...and vice versa.

Before starting the Seven Steps to Better leadership, I have a few provisos:

1. Just because you are the boss, doesn’t mean you are a leader.  Having defined authority or power does not make you a leader. Leadership has nothing to do with your place in a hierarchy or having (or not having) direct reports. Using power and authority to force action makes you a “boss”, not a “leader”. Inspiring leaders, regardless of their place in an organization, motivate others to achieve goals and outcomes they would not achieve in the leaders’ absence. An essential element of leadership is empowerment of others, and empowerment is about getting people to take personal ownership of a goal and the means to achieve it. This is why true leaders achieve great things - they empower others to heights they would not achieve alone.
2. Leadership is not style specific. You can be quiet or loud, you can be funny or serious, you can be tall, short, purple... you get the drift.
3. Leaders need resolve and humility (Jim Collins)

The Seven Steps to Better Leadership

Step 1: Leaders define a clear mission and vision (and how it is measured)

"Management has a lot to do with answers. Leadership is a function of questions. And the first question for a leader always is: 'Who do we intend to be?' Not 'What are we going to do?' but 'Who do we intend to be?' - Max DePree

If you don’t know who you intend to be, then how can you ever determine if you are being successful?  We human beings have a fundamental need to know WHY we are doing things.  A leader helps an organization define or carry out a mission and vision for others to rally around.  A mission answers the question of why - why are we here trying to accomplish this goal?  Missions provide clarity and allow every other question to be answered. 

“Get the mission right, and the money will come.”  - Luis von Ahn (co-founder of Captcha)

Quick sidebar: making money is not a mission.  Making money is what defines being in business.  A business needs the answer to “why?” for its specific approach or position.

Consider Nike and Starbucks, two amazing companies and brands that have done a great job of getting me to part with my money:

Nike’s mission is “To bring inspiration and innovation to every athlete in the world.”

Starbucks mission defined by Howard Schultz after he purchased the company in 1987 - “to inspire and nurture the human spirit — one person, one cup and one neighborhood at a time.”

These missions are broad enough that they allow both companies to offer an enormous range of products.  Yet at the same time, their missions make it very clear how these companies are different and what they and their teams should focus on every day. 

“Be yourself.  Everyone else is taken.” Oscar Wilde
Leaders, and the organizations they lead, must be unique, authentic and different. 

“What gets measured gets done.” W. Edwards Deming

Once you have defined your mission, you need to translate it into specific success metrics.  For example, Nike could measure their innovation by what portion of their revenue comes from new products.  Starbucks could measure their mission by repeat customers. Once corporate level metrics are determined, these need to be pushed down to each role in the organization with very clear performance metrics (KPIs).

Step 2: Leaders know how to assess people

I used to roll my eyes when I watched CEO after CEO being interviewed saying “We are the best because of our people.” Turns out all those CEO’s were right, and I was wrong. A business is the sum of its people and how they work together. Without the best people, you lose. As my father, an extremely successful entrepreneur and avid boxing fan says, “If I have Muhammad Ali on my team, what good does it do you to have George Foreman on your team? Even if he is second best - you still lose.” But how do you get “a Muhammad Ali” on your team? You must be excellent at recognizing, recruiting and keeping the best of the best.

Peter Thiel, the billionaire first investor in Facebook and co-founder of the multi-billion dollar unicorn Palentir, gives us an incomparable example of the possibilities that are achievable by a leader who knows how to assess people and build a great team. Thiel first gained fame as the co-founder of Confinity in 1998, which most of us know as PayPal (its milestone product which eventually became the company’s name). The PayPal team which he, together with Max Levchin, created multiple billionaires and a slate of hugely successful companies. This team, which came to be known as the “PayPal Mafia”, includes Elon Musk (founder of Tesla Motors and SpaceX, and Chairman of SolarCity), Steve Chen and Chad Hurley (co-founders of Youtube.com), Reid Hoffman (founder of Linkedin.com), David Sacks (founder Geni.com and Yammer), and a long list of others. As the “PayPal Mafia” example so aptly illustrates, a leader who surrounds himself with extraordinary people sets the stage to accomplish extraordinary things.

The lesson – take the time and make the effort to learn how to identify and recruit the best people to accomplish your mission.

Step 3: Leaders identify and implement incentives that encourage intrinsic behavior
“If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” - Antoine de Saint-Exupery

Once you have a mission and the team to implement it, a sound strategy to motivate the team is essential.  Incentives drive behavior. However, structuring the right incentives is difficult and requires substantial forethought. As my former boss and mentor Michael Mauboussin highlights in his January 12, 2011 piece “Blaming the Rat”, the difficulty in giving incentives in this day and age is that most jobs are no longer defined by a series of clear steps (“algorithmic tasks”) like assembling a product on a manufacturing line.

In contrast to algorithmic work, employees must now be equipped to experiment to solve the issues they face (“heuristic tasks”) – consider for an example an employee whose job is to introduce new products to a market, or develop the right market messaging.  Almost all of us face a combination of both types of tasks in our daily jobs - some tasks that are simply process follow-throughs and others that are creative, experimental undertakings. To be comprehensive, a motivational strategy must today reach beyond algorithmic compliance, to focus on the effectiveness of heuristic behaviors in alignment with the mission.

How do you motivate and incentivize employees to succeed in this iterative process? Dan Pink’s work is key in understanding this. The key incentives in the modern age are autonomy and intrinsic motivation. In my experience, the best way to foster this is through the “Four T’s”: task, time, technique and team.

Tasks: Employees must be free to choose their tasks. Pink cites the famous examples of 3M’s post-it notes being discovered in the 15% of time a week employees were given to work on a task of their choosing, and that half of Google’s offerings over time (including Gmail) were discovered in the 20% of time Google’s employees are allowed to work on their own tasks.

Time: Employees must be rewarded for their results (output) rather than time (input). What gets done is what matters, not how much time is worked.  Make 300 parts versus 8 hours

Technique: Tell employees what needs to get done, not how to do it.

Team: Give employees as much flexibility in possible in choosing teammates.

In addition to the above, I would add that clear metrics are essential. In the context of their roles, people need to have a solid understanding of what “success” means.

Step 4: Leaders execute on the ground, all the time

“Execution is a specific set of behaviors and techniques that companies need to master in order to have competitive advantage. It’s a discipline of its own.” —Ram Charan and Larry Bossidy, Execution

“Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” —Sun Tzu

A leader not only knows why something needs to be done, and what needs to be done, but has the ability to put in place the appropriate processes, tools and culture to fuel execution.  The act of implementing the vision through appropriate tactics is essential to being a great leader.

“A good plan violently executed now is better than a perfect plan executed next week.”

– George S. Patton

In a period of only 10 months, against all expectations (except for his own), George Patton led his troops to great victories in North Africa, Sicily and on the Western Front. In that historic campaign, Patton moved his armor and infantry at an inconceivable pace through six countries--France, Belgium, Luxembourg, Germany, Czechoslovakia and Austria. Patton’s crossed 6 major rivers and a number of smaller rivers, and killed or disabled over 500,000 Nazis and captured over 750,000.  In battle or in business, this is the kind of execution that creates success.

Step 5: Leaders must know how to allocate capital
The market rewards companies that deliver outstanding returns on capital.  In 1990, McKinsey published “Valuation: Measuring and Managing the Value of Companies,” which showed that a company’s stock price was driven by its return on capital.  In his 1994 annual meeting, Warren Buffett stated capital allocation is one of the 2nd or 3rd most important jobs of a CEO.

Will Thorndike’s book “The Outsiders” outlines 8 CEOs who generated returns 20 x that of the S&P by focusing on 4 things, 3 of which were related to capital allocation (per share value, allocating capital, cash flow over earnings).  The decisions around capital allocation are even more important – internal financing represented more than 90 percent of the source of total capital for U.S. companies from 1980-2014 (Mauboussin). The evidence is clear - returns on capital and managing capital efficiency are critical to driving value; therefore, it is essential to be able to allocate capital in order to be a successful leader.

I would add to this that it is useful to substitute the word “time” in place of “capital” (what you yield from your investment in time is at least as essential). Leaders must allocate time (their own as well as that of others) appropriately.

Step 6: Leaders must avoid catastrophic risk
I define risk management very simply - keeping a company out of fatal trouble.  A leader can successfully execute on the other five steps but they won’t matter if you take a catastrophic risk.  We are all enamored by the various leadership stories around successful leaders who persevered in the face of failure - from Abraham Lincoln going bankrupt twice, to Thomas Edison’s famous 10,000 attempts at the light bulb, to Michael Jordan being cut from his high school basketball team, to Bill Gates dropping out of Harvard, to Stephen King’s Carrie being rejected by 30 publishers – the list goes on and on.  This is not the risk I speak of. Instead, the great leader is more like a ship’s captain who must ensure you don’t beach the ship on rocks. To be a great leader in business, your business must survive.

Step 7: Leaders must be role models that can connect with everyone on their team

“Your actions speak so loudly, I can not hear what you are saying.”
― Ralph Waldo Emerson

Leaders must be authentic and inspire the teams they work with.  Leaders set the tone of an organization. Where they focus, the team focuses.  How they talk often leads to how the team talks. What they care about is what others want to care about.   Leaders must be able to connect with and inspire through their organization, and be able to transition from visionary, to coach, to navigator, to pilot, to buddy, to boss, from counselor to disciplinarian to consoler, and even from leader to follower- whatever the situation calls for.

“A leader is a dealer in hope” – Napoleon Bonaparte.   

But does leadership matter?

My basic measure of success is the return a business has on capital and how much capital can be deployed at those returns.  More simply - what do I get on the money I put in the company, and how much money can I invest at those returns?

The most accessible way to compare one company to the next is to look at the returns.  We all know there are a number external factors may influence returns.  Given this for context, we might reasonably assume that companies operating in the same industries/environments will produce similar results. However, given that it is in reality unremarkable to find that such companies produce dramatically different results, it follows that we should put aside such an assumption.  

McKinsey has studied the returns of companies operating within industry segments since 1963 and we can see the huge range by industry (for brevity, I include 6 examples below which illustrate the point, but the same phenomena is true across-the-board):  

Given the disparity of results produced by companies in different industries, it becomes clear that there are strong and weak performers (as measured by results) within every industry. What do these numbers tell us? In short, regardless of the challenges an industry may face, some will thrive and some will wither… the difference is leadership.

Closing Thoughts

Following these 7 steps has made me a better leader, and if you’ll give it a try, I’m confident that you’ll enjoy similar fruits. You can do these steps.  Where ever you may be in your journey, becoming a better leader begins with a decision to take a few steps in the right direction. You can do this.  

 “Never give in. Be willing to kill failed business ideas, even to shutter big operations you've been in for a long time, but never give up on the idea of building a great company. Be willing to evolve into an entirely different portfolio of activities, even to the point of zero overlap with what you do today, but never give up on the principles that define your culture. Be willing to embrace loss, to endure pain, to temporarily lose freedoms, but never give up faith in your ability to prevail. Be willing to form alliances with former adversaries, to accept necessary compromise, but never—ever—give up on your core values.”

- Jim Collins