HR Leadership and Strategy Formation: Walking the Tightrope - by Patrick Wright

HR Leadership and Strategy Formation: Walking the Tightrope

PATRICK M. WRIGHTWilliam J. Conaty/GE Professor of Strategic Human Resources

School of Industrial and Labor Relations

Questions:

Why do bad strategic decisions get made?

What is HR’s role in strategy?

What is HR’s Role in Strategy?

Delta Airlines Story

Core Competence

Profits

Costs

Revenues

OutstandingCustomer

Service

Valued Customer Outcome

Skilled,Experienced,CommittedEmployees

Delivered by?

Internal PromotionExtensive Training

High PayNon-Union

Flexible work rulesFamily Culture

Driven by?

Pre 1994 Business Model:

Delta Airlines: 1994

• Delta faces a number of challenges:– Deregulation leads to low-cost competition– Gulf War I leads to rising fuel prices

– Recession leads to decreased air travel

• The result is that they are losing $10/share in 1992 and 1993 (approximately $500 million)

• What should Delta do and what is HR’s responsibility?

The Solution: Leadership 7.5

• Based on premise of getting CASM (cost per available seat mile) to 7.5 cents from 9.2 cents

• Entailed:– Layoffs (from 75,000 to 58,000)

• Fewer flight attendants• Fewer mechanics• Fewer check-in agents• Lower skilled cleaners (from college educated)

– Lower maintenance spending

Profits

Costs

Revenues

Competitive(Low) Cost

Travel


CommodityWorkforce:ContingentTemporaryLow Tenure

Delivered by?

LayoffsLow Wage

Low TrainingContractors

Driven by?

Post 1994 Business Model (Leadership 7.5):

Question:

If Leadership 7.5 was the strategy, how well did the HR function execute that strategy?

HR Leader

Key Responsibilities• Facilitating Strategy

Execution

Key Roles• Building the firm’s Human

Capabilities

Influencing the Organization

Question:

• Do you think Leadership 7.5 is the right strategy?

• What do you think are the outcomes of this new strategy? If you were sitting at the table, what would you predict would happen?

• How would you influence Ron Allen?

Outcomes: What do you think will happen?

• On Time Performance• Baggage Handling• Safety• Customer Experience

– Cleanliness of planes

– Lines at check in

– Customer service

• Customer Complaints

Bottom of IndustryBottom of Industry

Problems

298 to 358 to 634

Yech!LongNot my job!

Profits

Costs

Revenues

Competitive(Low) Cost

Travel


CommodityWorkforce:ContingentTemporaryLow Tenure

Delivered by?

LayoffsLow Wage

Low TrainingContractors

Driven by?

Post 1994 Business Model (Leadership 7.5):

Unintended Consequences:Unions

Customer ServiceBaggage Handling

Safety

http://www.delta.com/home/index.jsp

HR Leader


Execution


Capabilities

• Providing Critical Data;, Asking Hard Questions


Influencing Decisions

• Guiding Strategy Formulation

Delta Airlines: 2 years later

• Wall Street Journal reports that despite record profits the board fired Ron Allen “before the airline lost its soul.”

• What was really driving the strategy?

• What would you have done if you were the EVP HR?

Delta Airlines: 2 years later

• Ron Allen promoted to CEO over the employees’ choice because of his powerful mentor

• Makes bold strategic move• Move has gone bad• Has to make sure the move looks good…

His Father-in-lawPan Am routes

Losing $1 million/day

Strategy Formulation

• The common view of HR’s role in strategy assumes that the decision making process is:

Linear – it takes place in a set of formal steps

Rational – it entails gathering, synthesizing information to come to the optimal decision

Goal-Oriented – the decision maximizes the outcomes for the firm

Managing Strategy Formation

• Strategic decision making is often neither planned, nor rational

• Emergent– Reactive, Uncoordinated

• Political– A function of pride, ambition, power, differing goals and

assumptions

• Driven by Human Frailties

Leader Assessment

• On the following items do a quick assessment of your business leader (CEO, President, etc.).

• 0 = Not at all descriptive• 1 = Somewhat descriptive• 2 = Very descriptive

Rate your leader: 0, 1, or 2

• 1. GLIB and SUPERFICIAL CHARM -- the tendency to be smooth, engaging, charming, slick, and verbally facile.


• 2. GRANDIOSE SELF-WORTH -- a grossly inflated view of one's abilities and self-worth, self-assured, opinionated, cocky, a braggart.


• 3. NEED FOR STIMULATION or PRONENESS TO BOREDOM -- an excessive need for novel, thrilling, and exciting stimulation; taking chances and doing things that are risky.


• 4. PATHOLOGICAL LYING -- can be moderate or high; in moderate form, they will be shrewd, crafty, cunning, sly, and clever; in extreme form, they will be deceptive, deceitful, underhanded, unscrupulous, manipulative, and dishonest.


• 5. CONNING AND MANIPULATIVENESS- the use of deceit and deception to cheat, con, or defraud others for personal gain; distinguished from Item #4 in the degree to which exploitation and callous ruthlessness is present, as reflected in a lack of concern for the feelings and suffering of one's victims.


• 6. LACK OF REMORSE OR GUILT -- a lack of feelings or concern for the losses, pain, and suffering of victims; a tendency to be unconcerned, dispassionate, coldhearted, and unempathic. This item is usually demonstrated by a disdain for one's victims.


• 7. SHALLOW AFFECT -- emotional poverty or a limited range or depth of feelings; interpersonal coldness in spite of signs of open gregariousness.


• 8. CALLOUSNESS and LACK OF EMPATHY -- a lack of feelings toward people in general; cold, contemptuous, inconsiderate, and tactless.


• 9. PARASITIC LIFESTYLE -- an intentional, manipulative, selfish, and exploitative financial dependence on others as reflected in a lack of motivation, low self-discipline, and inability to begin or complete responsibilities.


• 10. POOR BEHAVIORAL CONTROLS -- expressions of irritability, annoyance, impatience, threats, aggression, and verbal abuse; inadequate control of anger and temper; acting hastily.


• 11. PROMISCUOUS SEXUAL BEHAVIOR -- a variety of brief, superficial relations, numerous affairs, and an indiscriminate selection of sexual partners; the maintenance of several relationships at the same time; a history of attempts to sexually coerce others into sexual activity or taking great pride at discussing sexual exploits or conquests.


• 12. EARLY BEHAVIOR PROBLEMS -- a variety of behaviors prior to age 13, including lying, theft, cheating, vandalism, bullying, sexual activity, fire-setting, glue-sniffing, alcohol use, and running away from home.


• 13. LACK OF REALISTIC, LONG-TERM GOALS -- an inability or persistent failure to develop and execute long-term plans and goals; a nomadic existence, aimless, lacking direction in life.


• 14. IMPULSIVITY -- the occurrence of behaviors that are unpremeditated and lack reflection or planning; inability to resist temptation, frustrations, and urges; a lack of deliberation without considering the consequences; foolhardy, rash, unpredictable, erratic, and reckless.


• 15. IRRESPONSIBILITY -- repeated failure to fulfill or honor obligations and commitments; such as not paying bills, defaulting on loans, performing sloppy work, being absent or late to work, failing to honor contractual agreements.


• 16. FAILURE TO ACCEPT RESPONSIBILITY FOR OWN ACTIONS -- a failure to accept responsibility for one's actions reflected in low conscientiousness, an absence of dutifulness, antagonistic manipulation, denial of responsibility, and an effort to manipulate others through this denial.


• 17. MANY SHORT-TERM MARITAL RELATIONSHIPS -- a lack of commitment to a long-term relationship reflected in inconsistent, undependable, and unreliable commitments in life, including marital.


• 18. JUVENILE DELINQUENCY -- behavior problems between the ages of 13-18; mostly behaviors that are crimes or clearly involve aspects of antagonism, exploitation, aggression, manipulation, or a callous, ruthless tough-mindedness.


• 19. REVOCATION OF CONDITION RELEASE -- a revocation of probation or other conditional release due to technical violations, such as carelessness, low deliberation, or failing to appear.


• 20. CRIMINAL VERSATILITY -- a diversity of types of criminal offenses, regardless if the person has been arrested or convicted for them; taking great pride at getting away with crimes.

Is your leader a Psychopath?

• Score 20-30 – Probably just a narcissist• Above 30 – Qualifies as a Psychopath

Just a narcissist

• Most business leaders are not psychopaths (although the estimate is about 4%)

• However, narcissism runs rampant, and that can negatively impact firms– Acquisitions/Acquisition Premiums– Decision-making without full information– Dysfunctional ELT dynamics– Lack of Successors

HR Leader


Execution


Capabilities

• Providing Critical Data; Asking Hard Questions

• Guarding Against Human Frailties

This is an HR Leader…influencing organizations, decisions and people


Influencing Decisions

Influencing People

• Guiding Strategy Formulation

• Managing Strategy Formation

Managing Human Frailties

Managing Human Frailties requires understanding the kinds of human frailties that impact decisions, and providing guardrails to minimize their impact

“The line separating good from evil passes not through states, nor between classes, nor between parties either – but right through every human heart – through all human hearts”

~ Alexander Solzhenitsyn

Ego“Concerned or

Overly Concerned with the Self”

Pride“Justifiable Self

Respect”

Opportunism

“Self Interest Seeking with

Guile”

Opportunism and Tyco

The oddest aspect of Kozlowski’s conduct, for those of us naïve enough to think that people take money because they somehow need it, is that he began availing himself of what became hundreds of millions of dollars in company loans…precisely at the moment that his pay was exploding…

Kozlowski began regularly taking loans in 1996 and 1997 – just as his board-approved compensation leaped from $8.8 million to $52.8. It wasn’t until ’98 and ’99 though, that he really went hog-wild on the borrowing. Apparently his approved compensation of $136.1 million in 1999 left him in a cash squeeze.

~ “The Big Kozlowski”, Fortune, Nov. 18, 2002

Ego“Concerned or



Respect”

Opportunism


Guile”

Hubris“Excessive Pride or

Arrogance”

Sir Fred Goodwin and Hubris

“He was an obsessive micro-manager and was even known to watch the casting videos for new adverts.

He went down to the point of minutiae that was nonsensical,” said another former RBS insider. “But the central problem to all of these issues was that Fred thought he was an expert on everything, whether it was choosing the right blue from a colour wheel or taking over ABN Amro.”

Source: How Fred Shredded RBS http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5683436.ece

Sir Fred Goodwin• :…a top analyst warned that many saw Goodwin as "a megalomaniac

who cares more about size than shareholder value." A chastened Goodwin finally promised to put a stop to the big acquisitions. His ego was coming under threat from other quarters, as well. The construction of a vast new headquarters outside Edinburgh saw the Sunday Times run a series of stories that alleged, among other claims, that Goodwin had ordered the construction of a special kitchen for preparing scallops close to his office. An abortive libel action betrayed Goodwin's tendency to take himself unusually seriously – a trait well known to those familiar with the executive meetings known as "morning prayers," and Goodwin's "five-second rule," which dictated that his first response to a given situation was nearly always right.”

Source: RBS's Fred Goodwin: the world's worst banker? (The Edinburgh Journal)

Signs of Human Frailties

What are the behavioral signs or signals that might lead you to believe an executive is moving from pride to hubris or ego to opportunism?

What are the Signs of Moving to the Dark Side?

• Stops Listening to Others

• Surrounded by “yes” people

• Lays blame for failures

• Takes credit for successes

• Talks “I” instead of “we”

• Treats others disrespectfully/abusively

• Rules don’t apply to him/her

• Trophy Wife?

Sir Fred Goodwin and Signs of Frailties

• Although Goodwin had inherited the meeting from Mathewson, under Goodwin they soon became known as the “morning beatings”. They could last for anything from 15 minutes to an hour – but rarely longer. Some former executives say they were an efficient way of resolving serious issues. The mood, however, was never pleasant. “Those meetings were never about enlightening anyone about anything,” said one former senior RBS executive who attended the meetings for many years. “It was all about humiliation. It seemed that Fred was never happy until he’d found someone to humiliate, particularly in the early days.” Waffling was unacceptable. Answering back was dangerous. Knowing the right answer to his questions was often impossible.

Source: How Fred Shredded RBS http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5683436.ece

Steve Jobs and signs of Hubris

“Jobs' personal abuses are also legend: He parks his Mercedes in

handicapped spaces, periodically reduces subordinates to tears, and fires

employees in angry tantrums.”

~ Elkind (2008) “The Trouble with Steve Jobs” Fortune

Ego“Concerned or



Respect”

Opportunism


Guile”


Arrogance”

Enablers of Human Frailties

What are the situational factors that might lead an executive to move from pride to hubris or ego to opportunism?

What are some of the Enablers?

• Past success• Fast promotions• Sudden Increases in Wealth/fame• Constant great press (executive fan club)• Surrounded by praise/challenge disappears• The “Edifice Complex” (isolation and status)• Excessive Pay/Perq’s

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Executive Pay and Opportunism

“The strange part is, the more I made, the more I got preoccupied with money. When suddenly I didn’t have to think about money as much, I found myself starting to think increasingly about it. Money corrupts the mind”

~ Daniel Vasella, CEO, Novartis

For the love of money is the root of all kinds of evil.

~ I Timothy, 5:24

So, What do we do about it?

Ego“Concerned or



Respect”

Opportunism


Guile”


Arrogance”

Guardrails for Human Frailties• Contract with Senior leader to play Mirror/Coach role• Relationship-building…feedback depth grows with deepening relationship• 360 degree feedback• Foil/ego-check identifier• External assessments/derailer tools• Clear policies and culture that discourages exceptions• Real time feedback with a plan-Having impact/demonstrating courage• Identify others to influence/leveraging others• Performance management tied to compensation (business and behaviors)• Executive Coaching to provide honest and candid feedback• Defining and communicating guidelines and procedures• Create/leverage clearly articulated values that apply to the entire organization• Skip-level meetings• Ensure executive compensation is aligned to desired outcomes and behaviors

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Two Models of Leadership

Ego“Concerned or



Respect”

Opportunism


Guile”


Arrogance”

Altruism“Placing Others’ Interests above

one’s own”

Humility“Thinking More of

Others”

“Go toward the light…”

Edifiers

• Work Days -> Undercover Boss• Missions/Charity experiences• Servant Leadership Development• Minimization of Status Barriers

Summary

• Executives are human, and subject to human frailties, which, if unchecked, can lead to dysfunctional strategic decisions

• HR Leaders can impact strategy by preventing, identifying, and managing these frailties.

Takeaway:

HR Leaders “conscience” role is bigger than just ethics. It is keeping executives from entering the dark side, and ensuring that human frailties don’t

negatively impact strategic decisions.

HR Leadership and Strategy Formation: Walking the Tightrope - by Patrick Wright

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