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Turmoil

On many days, it seems as though the combined forces of technology and globalization are eating the known world from the bottom up. Industry by industry, the technology and “direct to everything” capabilities that make the Internet what it is roll on, flattening barriers to entry, transforming services and tearing the guts out of established industries, even as our markets are invaded by new, low-cost competitors from countries most Americans can’t find on a map.

One by one, high-energy upstarts overtake old-school stalwarts, which are quickly relegated to quaint “remember when” conversations: Remember when we developed film, called a cab and looked for the Union label? In a remarkably short period of time, all these have fallen easy prey to the relentless advance of technology and globalization. This central conundrum of how to cope with a different kind of competitor, coming at us from all sides with a different value proposition on a zero-marginal cost, ubiquitous platform like the smartphone, gives nightmares to entrenched leaders.

And it should.

Ultimately, the disruptive economics, capabilities and pervasive reach of globalization and the Internet give almost every industry a choice: Innovate or die. My experience shows that, given that choice, most businesses simply decide not to decide. It’s effectively a choice to waste away in a shrinking no-mans-land, to cling to a sinking lifeboat. That passive behavior is more than just paralysis in the face of shifting markets and advancing capabilities. It’s a failure of leadership that is just as entrenched as any complacent, un-evolved business model unable or unwilling to rise to the challenge. The ultimate corporate Monday morning quarterbacking for all of us in the bleachers is to wonder, “How could they not have seen it coming, and taken action before being humiliated in the market they once dominated?”

It’s a great question that we routinely ask of others, but rarely of ourselves. We notice ominous shifts in our markets, we know in our guts that transformative change must be made, but we somehow lack the courage or the vision to seize the initiative and do something about it. When we are presented with evidence that something’s going awry, that our assumptions are no longer valid or that forces we don’t understand are changing our world, why don’t we turn, face the challenge and pick a path through the minefield ahead?

It’s symptomatic of a larger trend that many of us see and experience. Our institutions are retreating under fire as our leaders focus on day-to-day challenges, pushing aside the job of creating a worthy vision for the future as irrelevant, unimportant or impractical. As the organization’s vision for the future shrinks, we are left without a flag to rally around, without a point on the horizon to guide our efforts.

As of late 2016, on the eve of an historic US presidential election, nationwide polling found that a full 70% of Americans could agree on only one thing – that the country was headed in the wrong direction. Combine that with the fact that Gallup’s annual study of workplace engagement shows the same percentage – 70% – self-described as “disengaged” at work. Consider also that US Department of Labor statistics show that an astounding 95 million Americans have opted out of the workforce entirely, and a picture begins to emerge. As a nation, we have rejected the vision presented to us, retreated to our chosen sides or safe spaces, and dug in.

Left to manage our list of short-term deliverables, we gradually disengage from the larger mission and, less confident in the future, become defensive of our value and cautious in our roles. Lack of personal commitment further weakens our organizations and institutions, feeding a downward spiral of myopic vision and active disengagement. Our belief that we work in organizations incapable of envisioning a future worthy of our engagement becomes a self-fulfilling prophecy.

An unfortunate example of this creeping mediocrity is the Metro light-rail system in Washington DC. It was conceived in the 1970s as a state-of-the-art mass transit system that would whisk the travelers of tomorrow to jobs and recreation throughout the capital city of the world’s most powerful nation.

Today, Metro is a reflection of the political dysfunction that metastasizes a hundred feet above its tunnels. It’s dirty and unreliable and has a problem with electrical arcing that’s driven the creation of a program called SafeTrack. SafeTrack’s goal isn’t excellence of any kind, but simply to reduce the likelihood that the transit system will kill its passengers by electrocution or smoke inhalation. And yet Metro expands, with new stations vacuuming up tax dollars, attempting to add more riders to an under-maintained, poorly understood system. Metro’s Vision has eroded from “Let’s build a transportation showcase” to “Let’s at least try not to kill anybody.” As of March 2017, the Washington Metro Area Transit Authority (WMATA) announced that ridership had declined by 12% in the past six months. Based on my personal experience with Metro, I'm not surprised. Another critical system in critical condition.

In the western movies of our youth, this is when the cavalry thunders to the rescue of the besieged pioneers, flags flying. This time, though, it’s apparent that no one is coming to rescue us. In the parlance of the 19^th century homesteaders left to fend for themselves, the cavalry isn’t coming. It’s up to us to lead, follow, or get out of the way.

Turnaround

Ford has been a household name since the company’s namesake, Henry Ford, revolutionized the world of transportation with the Model T more than a century ago. By 2006, Ford was down and on its way out, strangled by corporate fratricide and faced by ranks of relentless, deep-pocketed competitors from Japan and Germany. It generated more than $150 billion in revenue worldwide and somehow managed to lose $590 on every car built in the United States.

Ford had no central vision, with its resources diffused across a bewildering array of well-known brands, including Ford, Mercury, Lincoln, Aston Martin, Jaguar, Land Rover, Volvo and Mazda. This roster of brands, combined with Ford’s global reach, resulted in a total of 97 overlapping, confusing, go-to-market nameplates.

Engagement between management and labor, represented by the United Auto Workers (UAW), was characterized by deep distrust and open conflict. The central bargaining points had nothing to do with production efficiency, competitiveness, growth or profitability; in fact, the single biggest area of focus was retiree health care. There was even a suggestion that Ford should be reclassified from a “motor company” to an insurance company, since that was its primary financial liability.

Execution was an afterthought at Ford, the result of the lack of a coherent brand strategy, restrictive union work rules, and the absence of any sustained focus on manufacturing excellence. At the time, Toyota assembled a vehicle with 30 hours of non-union labor, while Ford required 36 hours to build a comparable model. That’s bad, but it was made far worse by the fact that Ford also used union labor that worked within the confines of narrowly defined jobs and corrosive practices such as the “job banks,” where laid-off auto workers literally sat in an office in high-paying, do-nothing roles for years, waiting for an opening on a manufacturing line that would never come.

Bill Ford, company CEO and great-grandson of Henry Ford, knew his namesake company was in serious, perhaps fatal, trouble. He decided it was time to step aside as CEO and recruit new talent from outside the company to drive the turnaround that Ford so desperately needed. After fruitless discussions with a number of classic “car guys” from inside the industry, he decided it was time for a bold move. Bill Ford decided to pursue Alan Mullally, a leader who had turned around Boeing Aircraft, a global manufacturing giant, as Ford's new CEO.

The detailed story of how Mulally turned the mess at Ford around is told in Bryce Hoffman’s 2012 opus American Icon: Alan Mulally and the Fight to Save Ford Motor Company. What’s important for our purposes is that the turnaround was built around three central principles: Vision, captured in Mulally’s “One Ford” initiative; Engagement, driven by the redefinition of the relationship between Ford, its management team, suppliers, dealers, and the UAW; and Execution, which Mulally frequently describes as “relentless implementation.”

At first glance, Alan Mulally seems an unlikely bearer of transformative change for the auto industry. He grew up in a small town in Kansas, graduated from the University of Kansas, and by all reports has a manner and bearing that are somewhere between down-home and aw-shucks. Dig deeper, however, and you find a person with impressive experience in the mind-boggling complexities of aviation, with advanced degrees in aeronautical engineering, astronautical engineering, and management, the latter from MIT. He combined this background and experience in a career at Boeing that lasted more than thirty years and included oversight of the launch of the revolutionary 777. He led the turnaround of Boeing’s aircraft business during the near-collapse of commercial aviation following the terrorist attacks of September 11, 2001, and was recognized by Air Week & Space Technology as the ”Person of the Year” for 2006.

That’s an incredible resume, but what kind of return could Ford expect from someone who was most definitely not a car guy? There is plenty of anecdotal evidence from those who worked with and for Mulally, but let’s start with the numbers. The single, most direct assessment of the value of an organization is its market capitalization – the price of the share of a company times the number of outstanding shares. Economists define this as the market’s view of the present value of the sum total of all the assets and future earnings of a company, based on the present opportunity, leadership and ability to execute.

Ford’s market capitalization bottomed out at just over $7 billion in 2009, during the depths of Ford’s multifaceted crisis, while Mulally’s plans were still being implemented. By 2010, with his plans beginning to bear fruit, Ford’s market capitalization skyrocketed to $45 billion, representing year over year growth of more than 600%. The following year, Ford’s market cap grew by an additional $16 billion, putting the total market cap over $61 billion for the first time in the company’s history.

The Return on Ford’s investment in Mulally’s leadership was staggering. Over the course of his Ford career, industry sources estimate that Mulally received roughly $200 million in total compensation. In contrast to General Motors and Chrysler, both of whom entered government-sponsored bankruptcy during this period, the wealth of Ford shareholders, measured purely in market capitalization, increased by roughly $54 billion. Divide the change in Ford’s market cap by Mulally’s compensation, and you arrive at the Return on Leadership. Here’s the math: $54b/$200m = 270x, for an ROL of 27,000%. Anybody want in on this deal?

With that being said, Ford’s turnaround highlights an important issue for all would-be leaders of organizations. As we consider our plans for the future, our thinking is bounded by the way in which our metrics-driven management culture makes investment decisions. Bill Ford had to buck this trend, set his own auto industry biases aside, and make a seemingly irrational decision to bring in an outsider who, by definition, did not know the industry. In this case, industry knowledge had to take a backseat to a leadership mindset that seemed right.

But that decision to ignore conventional wisdom and “go with the gut” is a problem in our numbers-driven, “prove it before it happens” corporate cultures. Rational management principles state that when businesses consider investment in new equipment and employees, the decision to commit resources is based on the expected Return on Investment, or ROI. In contrast, most organizations see leadership as an unquantifiable “soft skill’ with, at best, an indirect impact on key metrics such as growth, customer satisfaction and market share. We’ve got to know the Return on Investment, but there’s no analysis of the Return on Leadership, because that’s ridiculous, right?

As I explored this problem, I began to wonder: What if there was a single metric that could be used to forecast the success or failure of leadership, regardless of gender, culture or industry? What if we could use that metric to assess leadership effectiveness the same way we assess everything else in business, by the measurable returns we receive on the carefully planned investments we make? As business leaders, when we make investments by committing capital or hiring people, we typically require a business plan that tells us what we’ll get in return: more revenue, more profit, more market share. Why should the decision to choose a highly capable, strategically differentiating leader be based on gut feeling? Where’s the data?

What if, alongside our Return on Investment (ROI) calculations, we could assess, budget and plan to grow our Return on Leadership (ROL), and reap the rewards? What if we had a single metric that would enable us to identify transformative leaders who have the capacity and drive to lead Ford-like turnarounds, both large and small? When it comes to selecting leaders for our struggling organizations, wouldn’t that be kind of like owning a crystal ball?

Moneyball

If that idea sounds familiar, it might be because it’s essentially Moneyball logic. Moneyball, a monster bestseller written by Michael Lewis and a hit movie starring Brad Pitt, is the story of a professional baseball team built around one central piece of data. Rather than relying on highly subjective observations of the style and energy of a potential roster of players, Oakland Athletics manager Billy Beane and his number-crunching sidekick reduced their strategy to one key assumption.

In a world where small market teams are always outbid for talent by the New York Yankees and the Boston Red Sox, the only real path to success was to find a single predictor of success that a small market team could measure, quantify, leverage and exploit before the competition. For Billy Beane and the Oakland Athletics, the key assumption was that runners can’t score if they can’t get on base. Therefore, Beane and the A's would recruit guys who could get on base, as captured in a single, unimpeachable metric: On Base Percentage, or OBP.

But there’s one big problem with the concept of applying Moneyball logic to leadership; there are no statistics for leadership. There’s never been a universal leadership equivalent to Moneyball’s On Base Percentage.

That has now changed. Social scientists have cracked the code quantifying the linkage between leadership behaviors, good, bad or ugly, and their impact on organizational outcomes. Recent research conducted by social scientist and leadership guru Bob Anderson at his company, The Leadership Circle, has resulted in the ability to distill those apparently subjective assessments into a single, objectively predictive measure.

Just like the time-honored Intelligence Quotient (IQ) and the trendy Emotional Quotient (EQ), there is now a Leadership Quotient (LQ). It’s the Holy Grail of leadership: a single, universal predictor of leadership success that’s accurate to two decimal places and enables no-nonsense measurement of something new – the Return on Leadership, or ROL.

It turns out that, in a way that was unthinkable just a few years ago, the practice of leadership can be quantified, shaped and deliberately developed. It’s now been proven that leadership isn’t touchy-feely witchcraft; it's the visible, measurable manifestation of a leader's ability to identify and confront their own biases and fears in service to a larger cause.

The Leadership Quotient is measured on a graduated scale that starts at zero, pivots around 1.0, and, practically speaking, caps out around 10. If your LQ is below 1, you are a strategic drag on your business. If your LQ is 2 or above, you are almost certainly a significant contributor to the overall strength, vitality and competitiveness of your organization. If your LQ is greater than 4, you are your organization’s secret weapon, a catalyst for creative, resilient value creation that appears to be magic to the uninitiated. To close the loop on Alan Mulally one final time, based on his own statements and publicly available assessments of his priorities, practices, and mindset, he can be safely placed in a category identified in Leadership Circle research as the “Optimal Leader,” with an LQ approaching 6.0.

By painstakingly correlating behaviors to outcomes, the research behind the Leadership Quotient also has made it possible to arrive at a concrete, universally applicable definition of leadership. We’ll explore the statistical grounding of this in more depth in Part II, but for now it is enough to know that Leadership is the decision to accept the ultimate responsibility for the behaviors most highly correlated to success within an organization: Vision, Engagement and Execution. In other words, clearly stated,

Leadership is the ongoing decision to accept ultimate responsibility for the organization’s Vision, Engagement and Execution.

The Big Three of Leadership

Let’s dig deeper into that definition by further defining the constituent terms:

 Vision is the ability to define and communicate a desired future state of the organization,

 Engagement is the ability to help team members understand and commit to their role in achieving the shared Vision, and,

 Execution is the subsequent unleashing of the team’s independent thought and individual actions in ways that are aligned, both deliberately and spontaneously, in service to the Vision.

The challenge to leaders is that to be effective, they must do all three of these daunting tasks simultaneously, because:

 Vision alone is the stuff of futurists,

 Engagement alone is the power alley of extroverts, and

 Execution alone is the playground of technocrats.

It is only when all three elements are considered together and seen as essential elements in an interrelated system that this becomes the exclusive workspace of the leader. Success at the Big Three components of leadership in turn creates an environment that restores faith and confidence in the leader, the team, and the overarching vision. It’s tough to get started, but once it’s going, it fuels a virtuous, self-perpetuating cycle.

Invariably, the leader’s ability to pull this off is determined by the perspective or state of mind that he or she brings to their daily work. In this case, "state of mind" doesn’t refer to the psychologist’s buckets of happy, sad, glad or mad, but to five concrete measures of perspective that we will explore as we learn more about the Return on Leadership. Within the framework of a system called Universal Leadership, this specialized form of perspective measures the ways in which any given leader views themselves, the world around them, and their place in it.

Okay, you may say, that sounds fine in theory, but what does it mean in the real world?

Let’s take a look.