Thursday, October 21, 2010

Case Study Level 5 Leadership

The Idea in Brief Level 5 Leadership

Renowned management researcher Jim Collins studied 1,435 Fortune 500 companies and found that only 11 achieved and sustained greatness garnering stock returns at least three times the market’s for 15 years after a major transition period.

What did these 11 companies have in common? Each had a “Level 5” leader at the helm.

Ingredient for Level 5 Leadership

Level 5 leaders blend the paradoxical combination of deep personal humility with intense professional will. This rare combination also defies our assumptions about what makes a great leader.

Celebrities like Lee Lacocca may make headlines. But mild-mannered, steely leaders like Darwin Smith of Kimberly Clark boost their companies to greatness and keep them there.

Who are they?

Lido Anthony "Lee" Iacocca is an American businessman known for his revival of the Chrysler Corporation in the 1980s. He was CEO from 1978 till 1992

Darwin Smith – CEO at paper products maker Kimberly Clark from 1971 to 1991. Shy, awkward, shunning attention, but he also showed iron will, determinedly redefining the firm’s core business despite wall streets skepticism.

The formerly lackluster Kimberly Clark became the worldwide leader in its industry, generating stock returns 4.1 times greater than the general market’s.

Rule – 1 First who, Then What

Level 5 leaders instead of promoting their own visions, they get their best people together and grill them with penetrating questions to draw new strategies out of them.

Because Chief Executives can't decide what to do alone, they need the input of a team of smart associates.

They get the best "who" into a room and together decide the best "what." This makes them participative leaders.

Rule – 2 Confront the Brutal Facts - Sense the Change in surrounding

Four-step process adopted by level 5 Leaders to promote awareness of emerging trends and potential problems:

1) Lead with questions, not answers;

2) Engage in dialogue and debate, not coercion;

3) Conduct autopsies without blame; and

4) Build red flag mechanisms that turn information into information that cannot be ignored.

E.g. Kroger (Success in grocery Ind),

A&P (Failed to transform)

Rule – 3 The Hedgehog Concept - Simplicity Within the Three Circles

The way to make the transformation from Good to Great is often not doing many things well, but instead, doing one thing better than anyone else in the world.

Three criteria of Hedgehog Concept :

Determine what you can be best in the world at and what you cannot be best in the world at;

Determine what drives your economic engine; and

Determine what you are deeply passionate about.

E.g. Reliance Ind - Integrated Approach

Mafatlal Ind - Unrelated Diversification

Rule – 4 Culture of Discipline

Level 5 companies display three forms of discipline:

Rule – 5 Technology Accelerators

Technology should not be regarded as a potential panacea for all that ails a company.

Level 5 Leaders tend to apply technology in a manner that is reflective of their "hedgehog concepts" -- typically by selecting and focusing solely upon the development of a few technologies that are fundamentally compatible with their established strengths and objectives.

The ideal approach to technology is characterized by following cycle:

"Pause -- Think -- Crawl -- Walk -- Run."

Rule – 6 The flywheel and the Doom Loop

Two cycles that demonstrate the way that business decisions tend to accumulate incrementally in either an advantageous or a disadvantageous manner are :

1. Fly wheel

Positive momentum is created when decision to reinforce company’s competencies are executed. This energizes investment and loyalty of the staff.

2. Doom Loop

An over extension into too many diverse areas of concentration. This leads to short lived trends, frequent changes in leadership and personnel, loss of moral and disappointing results.

Apply the Flywheel and not the Doom Loops

Rule – 7 Not the Level 5 Leaders Alone

For sustaining in the long run besides level 5 leader Company should have :

A set of core values in order to achieve the kind of long-term, sustainable success that may lead to greatness

A higher purpose than mere profit generation in order to transcend the category of merely good.

Disciplined People :
When you have disciplined people, you don't need hierarchy.

Disciplined Thought
When you have disciplined thought, you don't need bureaucracy.

Disciplined Action.
When you have disciplined action, you don't need excessive controls.

When you combine a culture of discipline with an ethic of entrepreneurship, you get the magical alchemy of great performance.
In Indian context Premier & Ambassador car makers did not feel and changed themselves and knocked out of the race whereas, Bajaj Scooter chnaged itself and survived.
In Indian context Ratan Tata can be one of the examples of level 5 leadership.