Monday, June 11, 2018

Genius ≠ Great Leadership?

Intelligence Quotient (IQ) is one of the most hyped characteristics while determining the potential effectiveness of an individual. Fanciful figures of 175 or more are associated with certain categories of people – Nobel laureates, chess prodigies, and corporate titans – among others.Image result for why genius and great leadership don't go together
The truth is quite different. The “average” IQ is supposed to be 100 and a score of 120 is considered adequate for success in any field. Strangely, there is a consensus among experts that beyond a certain level, IQ by itself means nothing although the level is not fixed.
Now, Emotional Intelligence (EI) guru Daniel Goleman argues that while there is a correlation between intelligence and leadership performance for leaders up to an IQ of around 120, there is none for an IQ above 120 – what is more, there is a negative impact on leadership effectiveness for an IQ above 128!

This surprising research finding from the University of Lausanne surmises that the super-high-IQ leaders may not know how to tune into how other people think about a given issue or challenge. For example, they couch what remarks they think are motivating in ways that people cannot understand, let alone find resonating.

Consider this example:

Jimmy Cayne, the CEO of Bear Stearns when it imploded in 2008 triggering the financial crisis, is a genius. Yet, when the company was falling apart, he was incommunicado – playing at a bridge tournament. How do you explain this? Even more baffling is his reaction to the New York Fed’s refusal to give him a new line of credit (since I cannot reproduce the language used here, please read William Cohan’s verbatim account in the book House of Cards).

Consider why Kodak, the pioneer in photography, could not make the transition to digital in time?

Consider Sears, Blackberry, Nokia, and Kmart – companies that at one time were trailblazers and still managed to fail spectacularly. 

Goleman calls the missing skill set adaptability. Organizations need the ambidexterity to explore new opportunities while exploiting what is already working for them

Why do “geniusleaders fail this test?

The answer can be found in cognitive neuroscience – the brain’s super highway between the prefrontal cortex and the amygdala – the interaction between the executive center and the emotional circuitry for rising to an emergency. To the brain’s danger radar, any change appears to be a threat, and the circuitry propels us into a state of action, anger, panic, or over-reaction.

Neuroscience defines “resilience” as the time it takes to recover from the emergency arousal to a state of calm and clarity. When we are in high alert, our responses are rigid. As we recover, we can be more flexible in our thinking. All of which is exactly what makes adaptability so critical in dealing with today’s state of perpetual change. 

At a meeting of 100 CEOs from different sectors, the sole point of consensus was that the issue was a people problem

We need leaders who can embrace change, not resist it

The next time you think a brilliant leader is what you need, think again.

Look for someone who can adapt – quickly.

As Goleman observes, genius and great leadership may not be compatible after all.

Sunday, June 10, 2018

Complicatedness and Firm Performance

Image result for Complicatedness and firm performance Boston Consulting Group

Nobel laureate Paul Krugman wrote in The Age of Diminished Expectations that “a country’s ability to improve its standard of living depends almost entirely on its ability to raise its output per worker.”

At the peak of its economic prosperity, Japan had the highest human productivity in the world. Today it is in the 7th position – even though the average Japanese works 80 hours a week and 100 hours a week is not uncommon. Japan ranks at the bottom among countries on the vacation dimension. Unfortunately, there is no relationship between hours worked and performance. In a desperate attempt to encourage people to spend a little time away from work, Japan introduced a “Friday Premium” program under which employees were required to leave their workplace at 3 PM on the last Friday of every month. The result? Nothing. In a culture that places the welfare of the group far ahead of the individual, no one wanted to be the first to leave. 

Contrast this with countries that literally force people to work no more than 30 – 35 hours a week. Has anything changed in these countries? Nothing, again.

If you are wondering why we see so much of chaos and confusion around us today (despite Professor Steven Pinker’s argument to the contrary) the answer appears to be “complicatedness” – a term coined by the Boston Consulting Group. Complicatedness refers to the increase in organizational structures, processes, decision rights, metrics, score cards, and committees that organizations impose to manage the escalating complexity of their external business environment.

Most organizations react to the complexity in the external environment by increasing the complexity within the organization. A simple product quality problem can easily be morphed into the addition of a separate quality function, more rules, standardization, and governance mechanisms that ensure no decision is ever made on time.

The reality is of course that simplicity invariably wins. The “less complicated” organizations achieve revenue growth and profit margins that are above industry average and far above their “complicated peers.” Complicatedness hampers growth by slowing innovation and the deployment of new products and services. Complicatedness also cuts margins by injecting inefficiency and costs into operations.

Complicatedness Characteristics:

1.    Company size has no relationship with complicatedness. The smallest companies can be as complex as large organizations if the systems, cultures, and processes come in the way of agility and flexibility.

2.    Complicatedness varies with industry. Highly regulated industries (health care) tend to be more complicated than less regulated industries (technology).

3.    Most surprisingly, the perception of complicatedness is directly related to the level of managerial responsibility. Employees with no managerial responsibility have a 70% higher score on complicatedness than that of the board of directors. 

Image result for Complicatedness and firm performance Boston Consulting Group

I urge you to allow that last strand to sink in for a moment. What the research is pointing out is that leadership and complicatedness go hand in hand. Leaders typically don’t need to live by the many rules and procedures they create and instead can work outside the systems that apply to their employees. Many leaders believe they are very good at reducing complicatedness. 


The obvious answer to reducing complicatedness and improving firm performance is to simplify all processes at all levels. A four-step solution is suggested:

1   Identify perceptions of complicatedness at all levels through a fair and transparent process.

2   Diagnose the root causes of complicatedness and unproductive behavior.

3    Design pilot solutions that simplify processes and are perceived to be simpler and better by employees.

4.    Implement the solution throughout the organization.

Remember: “Progress is our ability to complicate the simple. Genius is our ability to simplify the complex.”

For more on complicatedness and to take the complicatedness survey, please visit the Boston Consulting Group’s Website and read the latest “perspectives” column.


Thursday, February 1, 2018

Better Decisions - In 3 Steps

We can all be wise in hindsight. How about being wise looking into the future?
Managers make decisions every day, often several times a day. Have you ever thought how you could significantly improve the quality of your decisionsHBR editor Walter Frick has some sage advice – in three simple steps.
Image result for Better Decisions

1.   Be less certain – make no mistake – while confidence is a desirable, indeed necessary characteristic, overconfidence is a killer. We tend to think that failure is due to incompetence. While sustained incompetence can lead to failure, by itself incompetence is a correctable deficiency. You can acquire new skills, seek a mentor, or turn to colleagues for help. If you are overconfident, you are in a league of your own. Consider this example:
 Image result for Bear Stearns

Jimmy Cayne was the CEO of Bear Stearns and considered to be among the brightest fund managers in the world. When the first signs of trouble appeared in 2007, you would think that Cayne would be keen to address the problem. What did he do? He flew by helicopter to play a round of golf. When more trouble appeared, he went to a prestigious Bridge tournament where the rules did not permit any communication devices. For over a week, he was cut off from the world while his company was imploding. When he returned and realized that a collapse was imminent, he went to the then Governor of the Federal Reserve of New York, Timothy Geithner seeking a new line of credit. Geithner promptly declined leading to the bankruptcy of Bear Stearns.
In hindsight, you would think that Jimmy Cayne would be humble in admitting his mistake. You would be wrong. Please read William Cohan’s brilliant book “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street” to understand the audacity with which Cayne uses expletives to describe Geithner – a classic example of overconfidence and its consequences. In fact, the entire financial meltdown of 2007- 2008 has been attributed by many scholars to overconfidence and hubris – the illusion of control.
The next time you are about to decide, and are supremely confident of your infallibility, please think again. There are many quizzes online to determine whether you are confident or overconfident. Try one of them before your next big decision.

2.   Ask “How Often Does This Typically Happen?” One of the best points of take-off toward better decisions is to look at history. How often has something similar happened? For example, there is a raft of evidence to suggest that acquisitions rarely add value. Yet, large companies are fond of acquisitions because CEOs are fond of telling their board they are firmly in control and growing. Think about Microsoft’s acquisition of Nokia and its subsequent decision to write off over $7 billion tacitly admitting that the acquisition was a failure. In fact, if you look a little deeper, you can find a laundry list of failed acquisitions. We are talking about just one company. Think of the cascading effect of all the acquisitions of the last decade and the consequent value dissipation. If only we have the patience to look at data, we would find that very few (as a percent of the total) projects are executed on time, at the desired level of quality, and within budget, the three key components of any project. Yet, day after day, you come across launch dates and deadlines that are routinely missed. Nobel laureate Daniel Kahneman reveals a stunning fact – a focus group tasked with preparing a text book predicts that the project would be completed in 18 months. No such project had ever been completed in less than 7 years. The project in question took over 7 years and was never implemented. Don’t we want to learn anything from events that have occurred and thus we have precedents?
It is much easier to identify a minefield when you observe others wandering into it than when you are about to do so - Daniel Kahneman.
3.   Think probabilistically – and learn some basic probability: You can adopt the first two principles straight away – after all, both represent a mindset. The third one may take a little time. There are no certainties in the real world (except death and taxes) but there are probabilities. For example, the probability of the earth being hit by a meteor is much less than the probability of a person being killed in a road accident. The probability of dying in a flying accident is much less than the probability of dying in a motor vehicle accident. Yet, it is the air crash that makes the headlines, not the hundreds of motor vehicle accidents that occur every day. The ability to assign probabilities to the actions that you are about to take, and their possible outcomes can significantly mitigate the effects of cognitive bias. If you think it is all too easy, try these two problems:
A.   What is the probability of getting five Mondays in a 31-day month?

B.   What is the probability of choosing the correct answer at random from the options below:
                     i.        ¼
                   ii.        ½
                  iii.        1
                  iv.        ¼
 Image result for probability

If you can get both answers right without any help, you have understood the concept of probability sufficiently to start applying them to your work.

Obviously, the three steps have the greatest impact when they are used together than when they are used separately

For better decisions, tamp down your overconfidence, look for precedents, and assign probabilities.