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A C R I S I S I N L E A D E R S H I P
Over the past several years, the swift, and most
often forced, depart u res of CEOs have become
commonplace at companies in North America,
E u rope and Japan. Among those affected are
X e rox, Lucent, JC Penney, Gillette, Texaco and
Nissan. Nor does the list end here .
To d a y, a new psychology grips the board of
d i rectors at companies like those mentioned
above: If your CEO has failed, you should
re c ruit from outside the company, where the
p a s t u res are always gre e n e r.
But those boards would be wise not to
adopt that new psychology. For example, Rick
Thoman at Xerox came from outside the com-
pany. Today, Xerox is fighting for its life
and some think it will not be able to survive. The crucial
lesson is this: While recruiting from the outside and taking
risks may seem like a solution, it is one for the short term.
For the long term, management must build, develop and
maintain a pipeline of skilled, prepared leaders from within
the company.
Many companies have practised this lesson. Xerox was
one, but it failed. It did so because it failed to develop
managers who:
- Were prepared and had the necessary skills to be effective
at the next level
- Could understand what is unique about their job, especially
compared to the jobs held by their boss and direct
reports
- Could hold their direct reports and themselves accountable
for achieving the right results in the right way.
An important truth underlies these three important points:
A crisis in leadership is the result of a company-wide
breakdown rather than the actions or failure of
one person. Moreover, finding the perfect
CEO does not solve the crisis. Nor does
going outside to fill senior leadership
positions. In fact, going outside is an
admission of failure and not very likely
to succeed. Hiring an outsider
masks the hard truth that a company
has not developed a
pipeline of leaders from among
its ranks who can step in and
manage the bigger chal
lenges of the day.
Based on work origi-
nally done at General
Electric in the 1970s
(referred to as Critical Career
C ro s s roads and developed by
Walter Mahler), and later
expanded to and tested in more
than 80 companies, we devel-
oped a six-passage model for2 understanding the leadership
re q u i rements throughout an
entire company. We call this
model The Leadership Pipeline
(The Leadership Pipeline, by Ram
Charan, Stephen J. Drotter and
Jim Noel, Jossey-Bass Inc., 2001).
The six turns, or passages, in our pipeline are major
events in the life of a leader. Grasping what each passage
entails, and the challenges involved in making each transition,
will help organizations build a leadership pipeline. It
will also help build a leadership culture that will enable the
organization to respond to changes and threats in the business
environment.
T H E L E A D E R S H I P P I P E L I N E
PASSAGE 1: managing self to managing others
N e w, young employees usually spend their first few years in
an organization as individual contributors. Whether in
sales, accounting, engineering or marketing, their skill
re q u i rements are primarily technical or professional. They
contribute by doing the assigned work within given time
frames and in ways that meet objectives. By sharpening and
b roadening their individual skills, they make incre a s e d
contributions and are then considered for pro m o t i o n s .
From a time-application standpoint, learning involves
planning (so that work is completed on time), punctuality,
content, quality and reliability. The work values to be
developed include accepting the company s culture and
adopting professional standards. When people become
skilled individual contributors who produce good results,
especially when they demonstrate an ability to collaborate,
they usually receive additional responsibilities. When they
demonstrate an ability to handle these responsibilities and
adhere to the company s values, they are often promoted to
first-line manager.
When this happens, these individuals are at Passage
One. Though this might seem like an easy, natural leadership
passage, it s often one where people trip. The highest-
performing people, especially, are reluctant to change; they
want to keep doing the activities that made them successful.
As a result, many people make the transition from
individual contributor to manager without actually making
a behavioral or value-based transition. In effect, they
become managers without realizing or accepting the
re q u i rements. Many consultants, for instance, have
skipped this turn, having moved from transitory team
leadership to business leader without absorbing much of
the learning in between. When business leaders miss this
passage, the result is frequently disaster.
First-time managers need to learn how to reallocate their
time so that they not only complete their assigned work but
also help others perf o rm eff e c t i v e l y. They must shift fro m
doing work to getting work done through others. This is
especially difficult for first-time managers. Part of the pro blem
is that they still prefer to spend time on their old work,
even as they take charge of a group. Yet the pre s s u re to
spend less time on individual work and more time on managing
will increase at each passage. If people don t start
making changes in how they allocate their time from the
beginning, they re bound to become liabilities as they move
up. It s a major reason why pipelines clog and leaders fail.
The most difficult change for managers to make at
Passage One involves values. Specifically, they need to
learn to value managerial work rather than just tolerate it.
They must believe that making time for others planning,
coaching, and the like is a necessary task and their
responsibility. More than that, they must view this other-
directed work as mission-critical to their success. For
instance, first-line knowledge managers in the financial
services industry find this transition extremely difficult.
They value being producers, but they must learn to value
making others productive. Given that these values had
nothing to do with their success as individual contributors,
it s difficult for them to make this dramatic shift.
While changes in skills and time application can be seen
and measured, changes in values are more difficult to
assess. Someone may appear to be making the changes
demanded by this leadership turn. But, in fact, he or she is
actually adhering to individual-contributor values. Value
changes will take place only if upper management reinforces
the need to shift beliefs, and if people find that
they re successful at their new jobs after a value shift.
PASSAGE 2: managing others to managing managers
Few companies address this passage in their training, even
though this is the level where a management foundation is
constructed, and even though level-two managers select
and develop the people who will eventually become a
company s leaders.
P e rhaps the biggest diff e rence from the previous passage
is that, at this level, managers must only manage. They
need to divest themselves of individual tasks. The key skills
they must master during this transition include selecting
people to turn Passage One, assigning managerial and leadership
work to them, measuring their pro g ress as managers,
and coaching them. At this point, managers must also see
beyond their own job description and consider the bro a d
'THE PRESSURE TO
SPEND LESS TIME
ON INDIVIDUAL
WORK AND MORE
TIME ON MANAGING
WILL INCREASE
AT EACH PASSAGE'
strategic issues that affect the business overall.
Too often, people who have been promoted to managerof-
manager positions have skipped Passage One; they were
promoted to first-line managers but didn t change skills,
time application or work values. As a result, they clog the
leadership pipeline because they hold first-line managers
accountable for technical work rather than managerial
work. They help maintain and even instill the wrong values
in those individuals who report to them. They are
essentially unable to differentiate between those who can
do and those who can lead.
Managers at Passage Two need to be able to identify
value-based resistance to managerial work, a common
reaction among first-line managers. They need to recognize
that the software designer who would rather design
software than manage others cannot be allowed to move
up to a leadership role. No matter how brilliant he or she
might be at designing software, the individual will block
the leadership pipeline if he or she does not derive satisfaction
from managing and leading people. In fact, one of
the tough responsibilities for managers of managers is to
return people to individual contributor roles if they don t
shift their behaviour and values.
Coaching is also essential at this level because first-line
managers frequently don t receive formal training in how
to be a manager; they re dependent on their bosses to
instruct them on the job. Coaching requires managers to
go through the instruction-performance-feedback cycle
with their people; some managers aren t willing to reallocate
their time in this way. In many organizations, coaching
ability isn t rewarded (and the lack of it isn t penalized).
It s no wonder that relatively few managers view coaching
as mission-critical.
'A MAJOR SHIFT IN
SKILLS, TIME
APPLICATION AND
WORK VALUES
MUST TAKE PLACE'
P A S S A G E 3: managing managers to managing a function
Making this transition is tougher than it appears. While
the difference between managing managers and managing
a function might appear to be negligible, a number of significant
challenges lurk below the surface. For example,
communicating with the individual-contributor level now
requires penetrating at least two layers of management,
thus making the development of new communication
skills mandatory. Functional heads must also manage some
areas that are unfamiliar to them. They must not only
endeavour to understand this foreign work but learn to
value it as well.
At the same time, functional managers report to multifunctional
general managers. They there f o re have to
become skilled in considering other functional needs and
concerns. Team-play with other functional managers and
competition for resources based on business needs are two
major skills they must learn. At the same time, managers
at this level should learn how to blend the strategy for their
own unit with the business s overall strategy. This means
participating in business-team meetings and working with
other functional managers, and spending less time on
purely functional responsibilities. This is why it is essential
that functional managers delegate responsibility for overseeing
many functional tasks.
Succeeding in this leadership passage also requires
increased managerial maturity. In one sense, maturity
means thinking and acting like a functional leader rather
than a functional member. But it also means that managers
need to adopt a broad, long-term perspective. Long-term
strategy, especially applied to their own function, is usually
what gives most managers trouble at this stage. At this
level, effective leadership entails creating a functional strat
egy that enables them to do something better than the
competition. Whether it s coming up with a method to
design more innovative products or reach new customer
groups, these managers must push the functional envelope.
They must also push it into the future for a sustainable
competitive advantage rather than just for an
immediate, but temporary, edge.
PASSAGE 4: functional manager to business manager
This leadership passage is often the most satisfying and
challenging of a manager s career. For any organization, it s
mission-critical: Business managers are responsible for the
bottom line.
Business managers usually have significant autonomy,
which people with leadership instincts find liberating. They
also are able to see a clear link between their eff o rts and
bottom-line results. At the same time, this passage also re presents
a sharp turn: A major shift in skills, time application
and work values must take place. This is not simply a matter
of thinking more strategically. Rather than consider the
feasibility of an activity, a business manager must examine
it from a short- and long-term profit perspective.
There are probably more new and unfamiliar responsibilities
here than at other levels. For people who have only
been in one function their entire careers, the position of
business manager represents unexplored territory; they are
suddenly responsible for many unfamiliar functions and
outcomes. Not only do they have to learn to manage different
functions, but they also need to become skilled at
working with a wider variety of people than ever before;
they need to become more sensitive to functional diversity
issues and able to communicate clearly and effectively.
Even more difficult is the balancing act between future
goals and present needs, and making trade-offs between
the two. Business managers must meet quarterly profit,
market share, product and people targets and, at the same
time, plan three- to five-year goals. The trial of balancing
short- and long-term thinking is one that bedevils many
managers at this turn. It is why allocating time to think is
a major requirement at this level: Managers need to stop
doing something every second of the day and reserve time
to reflect and analyze.
P A S S A G E 5 : business manager to group manager
This is another leadership passage that, at first glance,
doesn t seem arduous. The assumption is that if you can
run one business successfully, you can
do the same with two or more businesses.
The flaw in this re a s o n i n g
begins with what is valued at each
leadership level. A business manager
values the success of his own business;
a group manager values the success of
other people s businesses. The distinction
is critical because some people
derive satisfaction only when they re
the ones receiving the lion s share of
the credit.
As you might imagine, a group manager
who doesn t value the success of
others will fail to inspire and support
the business managers who report to
him. Or, his or her actions might be
governed by frustration; the individual
is convinced he or she could operate
the various businesses better than his
or her manager. In either instance, the
leadership pipeline becomes clogged
with business managers who are n t
operating at peak capacity because
they re not being properly supported
or their authority is being usurped.
group managers must master
four skills:
1 . Evaluate strategy in order to allocate and
deploy capital. This is a sophisticated skill
that involves learning to ask the right
questions, analyzing the right data, and
applying the right corporate perspective
to understand which business strategy
( p re p a red by business managers) has the
g reatest probability of success, and
should there f o re be funded.
2. Develop business managers. Group
managers need to know which function-
managers are ready to become
business managers. Coaching new
business managers is also important.
3 . Develop and implement a port f o l i o
s t r a t e g y. This is quite diff e rent from a
business strategy and demands a shift
A SMALL-BUSINESS PIPELINE
In a company of less than 20 people,
there is only one real leadership
passage from managing
oneself (the owner) to managing
others. The owner-founder usually
has to move from being an individual
contributor to a manager of
other people. After designing a
product or creating a service, he
or she must hire more people.
This marks the beginning of the
leadership passage.
If the business is to survive, the
owner must learn and value skills
such as coaching, planning and
rewarding employees. If not, people
will either quit or, even worse,
stay and perform poorly. A significant
percentage of owner-founder
enterprises fail to become large
organizations. In many instances,
they survive for one or two generations
after the founder has left. In
venture-capital-funded companies,
founders are frequently
replaced by more experienced
managers from larger companies
sooner rather than later. Given all
this, a small company s leadership
passages are limited by size
and circumstance.
If the business evolves and more
people and offices or stores are
added, the owner must again go
through a leadership passage.
Because he or she can t be everywhere
at once, the leader must
appoint additional managers and
hold them accountable for managerial
work. He or she must
ascertain that the work of the
entire enterprise is integrated so
that customers are properly
served and resources used efficiently.
Essentially, this business
owner is going through Passage
Two, from managing others to
managing managers. In this role,
he or she must make sure the
total effort is profitable and sus
in how he or she perceives the business.
This is the first time managers
have to ask these questions: Do I have
the right collection of businesses?
What businesses should be added,
subtracted or changed to position us
p roperly and assure current and
f u t u re earn i n g s ?
4. Assess whether they have the right core
capabilities to win. This means avoiding
wishful thinking, looking at resources
objectively, and making a judgment
based on analysis and experience.
A leader at this level must have a
global perspective. People may master
the required skills, but they won t perform
at full leadership capacity if they
don t think in broad terms, aren t able
to factor in the complexities of running
multiple businesses, and don t
think in terms of community, industry,
governmental and ceremonial activities.
They must also prepare themselves
for the bigger decisions, greater
risks and uncertainties, and the longer
time spans inherent to this leadership
level. They must always be aware of
what Wall Street wants.
P A S S A G E 6 : group manager to enterprise
manager
When the leadership pipeline
becomes clogged at the top, all leadership
levels suffer. CEOs who have
skipped one or more passages can
diminish the performance of direct
reports and individuals all the way
down the line. They fail to develop
other managers effectively, and don t
fulfill the responsibilities that come
with this position.
The transition during the sixth passage
is much more focused on values
than skills. To an even greater extent
than at the previous level, people must
reinvent themselves as enterprise
managers. They must set direction and
develop operating mechanisms to
know and drive quart e r- b y - q u a rter perf
o rmance that is in tune with longer-
t e rm strategy.
They must thoroughly understand
how the organization executes and gets
things done. The trade-offs involved
can be mind-bending, and enterprise
leaders learn to value these trade-offs.
In addition, this new leadership role
requires an ability to manage a long list
of external constituencies proactively.
Enterprise leaders need to come to
terms with the fact that their performance
as a CEO will be based on three
or four high-impact decisions each
year. There s a subtle but fundamental
shift in responsibility from strategic to
visionary thinking, and from an operating
to a global perspective. There s
also a letting-go process that should
take place during this passage, if it has-
n t taken place already. Enterprise leaders
must let go of the pieces, i.e., the
individual products and customers,
and focus on the whole, i.e., how well
do we conceive, develop, produce and
market all products to all customers.
Finally, at this level, a CEO must
assemble a team of high-achieving,
ambitious direct reports, knowing that
some of them want his job, yet picking
them for the team despite this knowledge.
Also, this is the only leadership
position that must shape the soft side
of the enterprise.
leadership pipeline problems
occur at this level for two reasons:
1. CEOs are often unaware that this pas sage
re q u i res a significant change in values.
Too many CEOs fail because they didn t
recognize the re q u i rement to make a full
t u rn. They maintain the same skills,
time applications and work values that
tainable. Setting goals based on
what customers want and what
the competition is doing is
another new responsibility.
Small businesses often fail when a
new level of leadership-management
must be added. We worked
closely with a financial service
institution that did acquisitions
lending to small business. The
company asked us to help it determine,
before the loan was made,
whether the borrowing company
could manage a larger company
post-acquisition. We studied
almost 50 loans and found that
the companies that failed to manage
the acquisition were headed
by people who were reluctant to
change their own work habits;
they found it difficult to give up
their hands-on involvement or
trust a new layer of management.
In other words, the leader-owner
was unable or unwilling to make a
crucial leadership passage.
A SMALL-BUSINESS
PIPELINE MODEL
As a business continues to grow,
understanding the passages in
this expanding organization is crucial.
The group level (managers of
several businesses) doesn t apply
to the small-business model, and
the work of the enterprise manager
is done by the business manager
(who runs the business for
short-term and long-term results
and deals with government agencies
and key customers). Similarly,
the functional manager s position
in this small-business model is
usually absorbed by the managerof-
managers layer.
With these differences in mind,
smaller companies can reap the
same leadership-development
benefits as larger organizations.
s e rved them well as group managers,
and never adjust their self-concept to fit
their new leadership role. They behave
as though they are running a port f o l i o
of businesses, not one entity. They must
have the will and determination to
change their work values.
2. It is difficult to develop a CEO for this
p a rticular leadership transition.
Preparation for the position is the
result of a series of diverse experiences
over a long period of time. The best
approach provides carefully selected
job assignments that stretch people
over time and allow them to learn and
practise the necessary skills. Though
coaching might be helpful, people
usually need time, experience and the
right assignments to develop into
effective CEOs.
T H E B E N E F I T S
O F A P I P E L I N E
Too often, organizations don t re a l i z e
that their leaders are n t perf o rming at
full capacity because they are n t holding
them accountable for the right
things. Companies focus only on the
economic re q u i rements of a given job
rather than the skills, time application
and work values of a specific leadership
level. As a result, a business manager is
allowed to spend most of his or her
time acquiring new customers rather
than developing an effective business
s t r a t e g y. Or the business manager s
boss, the group manager, never questions
or explores what the business
manager values about his or her work,
and whether those values are appro p r i-
ate for the leadership the company
re q u i res. But when this business man-
a g e r s strategy is flawed and import a n t
goals are n t achieved, the group manager
isn t held accountable (or held
accountable for the right thing).
A well-defined leadership pipeline
delivers important benefits
1. By establishing appropriate requirements for the six
leadership levels, companies can greatly facilitate succession
planning, and leadership development and selection
processes in their organizations.
2. Individual managers can clearly see the gap between
their current performance and the desired performance.
They can also see gaps in their training and experience,
and where they may have skipped a passage (or parts of a
passage) and how that s hurting their performance.
3. HR can make development decisions based on where
people fall short in skills, time application and work values,
rather than rely on generalized training and development
programs.
4. An individual s readiness for a move to the next leadership
level can be evaluated objectively rather than tied to
how well they performed in their previous position.
5. Leadership passages provide companies with a way to
improve selection. Rather than basing their selection decisions
on past performance alone, personal connections or
preferences, managers can be held to a higher, more effective
standard. Organizations can select someone to make a
leadership turn when an individual is demonstrating some
of the skills required at the next level.
6. A defined pipeline provides organizations with a diagnostic
tool that helps them identify mismatches between
individuals capabilities and their leadership level.
Therefore, remedying the situation or, if necessary, removing
the mismatched person, which is more likely.
7. It helps organizations move people through leadership
passages at the right speed. People who ticket-punch their
way through jobs don t absorb the necessary work values
and skills. The pipeline provides a system for identifying
when someone is ready to move to the next leadership level.
EVERYONE WINS
AND SO DOES THE
COMPANY
8. It reduces the time needed to prepare an individual for
the top leadership position in a large corporation. Because
the pipeline clearly defines what is needed to move from
one level to the next, there s little or no wasted time on jobs
that merely duplicate skills.
From a pure talent perspective, however, the most significant
benefit of a pipeline is that you don t need to bring
in stars to prime the leadership pump and unclog the
pipeline. You can create your own stars up and down the
line, beginning at the first level when people make the
transition from managing themselves to managing others.
By moving people upward only when they have mastered
the assigned level greatly increases their chances of success.
Clearly defining the new requirements enables them
to help themselves and help their direct reports. Everyone
wins and so does the company. Recruiting outside for top
positions will be greatly reduced.
STEPHEN J. DROTTER IS CEO OF DROTTER HUMAN RESOURCES, IN BERWYN, PENNSYLVANIA.
RAMCHARANIS A DALLAS, TEXAS-BASEDLEADERSHIPCOACHAND A FORMER
FACULTY MEMBER AT THE HARVARD BUSINESS SCHOOL. THEY ARE THE
CO-AUTHORS OF THE LEADERSHIP PIPELINE, JOSSEY-BASS INC., 2001.
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IVEY BUSINESS JOURNAL MAY/JUNE 2001