4
The Leader's Search for Opportunity
Setting
direction is one of the primary roles of leadership. To be effective at this activity, the leader must be adept at perceiving not only environmental opportunities but also obstacles that stand in the way. Failure to do so will result in failed ventures and follies that discredit the leader. The leader must then be able to translate these opportunities into organizational goals and enlist organ- izational members in their achievement. In the enlistment process, the leader must be capable of realistic assessments of followers' needs and abilities and must ensure that targeted opportunities offer rewards meaningful enough to garner follower commitment and task efforts. Charismatic leadership is no exception to these fundamental requirements of leading others.In the first stage of our leadership model, we described the charismatic leader's heightened sensitivity to environmental opportunities, constraints, and follower abilities. In our empirical research, this sensitivity to the environment was corroborated. We also found that this characteristic was shared with other forms of leadership. In addition, the leader's sensitivity to member needs proved to be a common feature of both participative and people-oriented forms of leadership. As such, these two dimensions of sensitivity are not unique to charismatic leadership but instead are baseline attributes of leading in general.
What we did find in the assessment stage that was unique to charismatic leaders was their desire to challenge the status quo and to act as reformers or agents of radical reform. It would appear that they are significantly more sensitive than
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other leaders both to the constraints inherent in the status quo and to opportuni- ties that run counter to current conventions.
This chapter is devoted to understanding how charismatic leaders assess the state of their environments and from this activity then formulate environmental opportunities into visions and goals. We will first examine what we know about leadership and environmental assessments and the related process of seeking opportunities beyond the status quo. We will follow this discussion with a look at follower assessments by the leader. Although there is widespread agreement about leaders' sensitivity to their environment, there are two schools of thought concerning sensitivity to followers. One line of thinking believes that leaders gain follower commitment to a vision through finding a common denominator between themselves and follower motives (Avolio & Bass, 1988). The other sees visions as shaped largely by external opportunities detected by the leader with little or no influence from follower needs (Locke et al., 1991). We will explore both sides of this debate and provide our own perspective. We will follow this discussion with an examination of how charismatic leaders challenge the status quo around them and the implications of such actions for enhancing follower perceptions of leadership. Finally, we will turn to the complex process of formulating the leader's vision. This is the first step that the leader undertakes in Stage 2 of our model. We include it in this chapter, which is devoted largely to Stage 1 of the model, because it is a natural by-product of the environmental assessment. The formulation process is another area of considerable debate.
Popular notions believe it to be largely leader-based. Others feel that vision is shaped by many individuals and by contextual events often far beyond the leader.
Some argue that it is a largely rational, planned process. Others see it as a more intuitive, opportunistic process. We will provide some resolution to the debate.
In the next chapter, we explore the actual content, articulation, and communica- tion of the vision—the rest of our model's Stage 2.
SENSING OPPORTUNITIES AND CONSTRAINTS IN THE LARGER ENVIRONMENT
To be effective, a leader must be capable of making realistic assessments of the environment. These assessments will in turn dictate the shape of initiatives and their timing as well as the resources the leader must seek out and where they will be deployed. In Mintzberg's (1973) taxonomy of the 10 roles that managers play, two roles—the monitor and the liaison—describe the activities of leaders
in the assessment stage. As Yukl (1994) explains, the monitor role concerns itself with information processing:
Managers [in this role] continually seek information from a variety of sources, such as reading reports and memos, attending meetings and briefings, and conducting observational tours. . . . Most of the information is analyzed to discover problems and opportunities, and to develop an understanding of outside events and internal processes within the manager's organizational subunit.
(pp. 29-30)
Monitoring or assessing is a vital activity for the leader. It ensures that the leader is able to identify not only opportunities but also emerging problems and obstacles to the achievement of goals. Ultimately, the purpose of much of this information gathering is to formulate more effective visions and marketplace strategies and to devise organizational initiatives that will realize these aims. The leader uses this information to set goals and strategies rather than the reverse order of setting goals followed by a later assessment of the environment (Kotter, 1982). Although this would seem like rational behavior, it appears in reality to be infrequently practiced. Instead, as noted by Jan Carlzon, the charismatic former CEO of Scandinavian Airlines,
Remarkably, many business executives begin by devising goals and strategies, and only later back into an examination of the business climate and the custom- ers' needs. Obviously, this is proceeding in the wrong order. How can you know what your goals or strategies should be if you don't have a clear picture of the environment you're working in or of what your customers want? (Carlzon, 1987, p. 42)
The liaison role concerns itself with the manager's ability to establish relation- ships with individuals outside the manager's immediate work group. Although this network is crucial for implementing initiatives, it also serves as a rich source of information for the monitoring or assessment role. It is in essence a set of important pipelines bringing information to the leader on markets, customers, competition, the economy, regulation, the organization, and so on (Kotter, 1982).
With a few exceptions, charismatic leaders are more concerned with bound- ary spanning and adaptation activities (Thompson, 1967) than with activities related to technical efficiency of day-to-day operations. (Those who are not tend to create maladaptive visions at some point in their careers. Examples include Steven Jobs and his NeXT computer and Edwin Land and his SX-70 instant
camera.) Their interest lies in constantly maintaining an interface with the larger environment and devising appropriate adaptations or change strategies for organizational survival and growth. For this reason, Pawar and Eastman (1997) propose that transformational leadership will be more accepted in organizations where boundary spanning and adaptive functions are dominant than in organi- zations where technical and efficiency functions are dominant.
We know from the research literature that active information gathering is directly correlated with organizational effectiveness (Komaki, 1986). For exam- ple, in a sample of 128 manufacturing companies, Jenster (1987) discovered that the successful firms were those that both identified and monitored more closely the activities and conditions essential for implementing the firm's strategy.
Similarly, Bourgeois (1985), in an examination of 20 nondiversified companies, found that profitability was greater for the organizations whose executives had realistic perceptions of market and technology volatility in their industry. In a comparison of 28 companies that experienced rapid performance improvements with a matched sample of companies with only average performance, Grinyer, Mayes, and McKiernan (1990) discovered that a key difference was that com- pany executives of the high-performing firms conducted more external monitor- ing and were faster at spotting and acting on opportunities. From these examples, it is clear that active assessment of the environment by a leader is a crucial activity (Yukl, 1994, pp. 103-104).
Although it would seem evident that organizational leaders must be effective at scanning their environments, research shows that many executives in formal leadership positions are not. They are instead strongly influenced by the existing beliefs and assumptions underlying current organizational strategies, and these impede their assessment efforts. As Miller (1990) has shown, the more success- ful and established an organization's strategy, the more its managers rely on ingrained habits and routines that prevent them from seeing and actively reflect- ing on new challenges: "Yesterday's programs will shape today's perceptions and give rise to tomorrow's actions" (p. 17). In addition, managers are often risk averse—unwilling to "see" the potential implications of market changes (Miller, 1990). For example, we know that a major shift in strategy generally produces a temporary decline in performance as employees learn new routines and as resources are diverted to invest in new activities (Lord & Mäher, 1991). Knowing this, managers are reluctant to deploy new strategies even though long-term environmental conditions may demand them. Pressures for short-term perfor- mance simply are too high. Moreover, there are no guarantees of success with any new strategy—short-term declines may become long-term declines because of inappropriate strategic choices. Such concerns then heighten the perceived
riskiness of acting on perceptions of environmental changes and can lead to narrow or biased assessments. As a result, what tends to occur is that executives make less risky improvements or incremental changes to the existing strategy rather than questioning it (Staw, Sandelands, & Dutton, 1981). These responses may produce short-term successes that further reinforce perceptions that the executives are effective (Johnson, 1992) despite impending crises. For example, Cooper and Schendel (1976) demonstrated that established firms facing com- petitive threats of radically new technologies simply increased their efforts at perfecting the existing technology rather than adapting to the new one.
In addition, the extent of growth opportunities in an organization's particular domain may be so high that managers resist considering or acting on market information that suggests that this domain may one day be supplanted (Burgel- man, 1991). As a result of these forces, it would appear that visionary leaders who are willing to see and undertake bold initiatives to reinvent their firms are quite rare. In a study of 40 companies in environments undergoing major change, Tushman and Anderson (1986) found that in only 15% of the cases was the current CEO willing to initiate a major reorientation. (We have no way of knowing how many of the six CEOs were charismatic leaders, because the executives' charisma was not measured in the study.) In these six cases, the CEOs often were outsiders hired to implement change, and in all cases several members of the executive team were replaced with new individuals.
Finally, managers can be blindsided by their prior experiences and training, which can constrain their ability to conduct broad assessments of their environ- ments or choose appropriate responses. For example, Gabarro (1985) found that managers placed in change situations tended to make initial changes principally in their area of functional expertise. Thus, a marketing executive will more likely focus on changes in marketing rather than on changes in manufacturing or sales.
Similarly, early initiatives are likely to mirror lessons from the CEO's prior experiences in executive positions. This is even more likely if the individual believes that prior programs and strategies were the reason for his or her selection to the position (Yukl, 1994). Recent research on senior executives by Waller, Huber, and Glick (1995) suggests that although they may be open to a broad range of information, their sense of the sources of organizational effectiveness is shaped by their functional backgrounds. The problem, they suggest, may be more accentuated for non-executives.
We found that in at least one area (organizational effectiveness), executives' functional backgrounds were related to what they perceived. It seems reasonable to conclude that the results would have been even stronger for functional
managers than for the CEOs, COOs, and general managers whom we studied.
That is, function-related selective perception resulting from conditioning or schema development processes is probably greater for managers currently work- ing in functional areas than for top executives. Thus, whichever is the more valid explanation, had the participants in our study been functional managers rather than top executives, it is very likely that the effect of either current functional position or previous functional background (these would be highly correlated) on perception across effectiveness categories would have been stronger. (Waller et al., 1995, p. 968)
In summary, the majority of managers will tend to focus their assessments in the areas of their functional expertise and career experiences and in turn fail to conduct broader assessments. An illustrative counterexample of this tendency would be Jan Carlzon, the charismatic former CEO of Scandinavian Airlines (SAS), whose behavior supports the notion that effective leaders are capable of more profound assessments. Carlzon had successfully managed Linjeflyg, the domestic airline of Sweden, for a number of years when he was invited to serve as the chief operating officer of SAS in 1980. Accepting the position, he faced the task of revitalizing a bureaucracy-riddled organization that was in the midst of its second year of losses. We can see in his comments below that he quickly realized essential differences in markets, comparing those of SAS and his former companies, rather than slipping into the trap of employing his earlier strategies.
His broad-based assessment led him to a different conclusion about how to approach the problem:
Many people at SAS assumed that I would cut fares dramatically, as I had done at Linjeflyg, and squeeze costs as much as possible, as I had done at Vingresor (a vacation tour company). But it wasn't that simple. At Vingresor we were faced with a slumping market, so we had to cut c o s t s . . . . At Linjeflyg we had fixed costs, so we had to increase revenues. . . . But at SAS the situation was differ- ent—and required a different approach. . . . We realized that SAS had already cut costs to the bone. Continuing to cut would have been like hitting the brakes of a car already standing still. . . . SAS's top management at the time used the standard weapon: the cheese slicer, which disregards market demands and instead cuts costs equally from all activities and departments [It] eliminated many services that customers wanted and were prepared to pay for while retaining others of little interest to the customer. In cutting costs, the company was, in effect, slicing away its own competitive strengths . . . the only solution for SAS's predicament was to increase revenue . . . we had to create a new strategy. . . . We wanted SAS to be profitable in its airline operations even in a
zero-growth market such as we were then experiencing We had pegged the businessmen as the only stable part of the market. Unlike tourists, businessmen must travel in good times and bad. Perhaps most important, the business market has special requirements, and developing services to meet those requirements would enable us to attract their full-fare business. (Carlzon, 1987, pp. 21-22)
Adept at recognizing that SAS's principal market from a profitability stand- point would be the business traveler, Carlzon avoided employing the cost-cutting strategy that would have undermined the business traveler strategy. This market segment is not as cost sensitive as it is service sensitive. In addition, SAS is an international carrier, in contrast to Linjeflyg, Scandinavia's domestic airline.
This means that SAS has a significantly greater number of competitors, and the business traveler has more air carrier choices. To compete in this segment, SAS must offer a higher level of service to differentiate itself from other airlines. As Carlzon rightly notes, SAS needed investments that are not cost-cutting. This is in sharp contrast to his prior strategies of cost cutting at Vingresor and fare cutting at Linjeflyg.
To be effective at such broad-based assessments, leaders generally must be acutely sensitive to their environments, possess a breadth of focus beyond their functional expertise and prior experiences, and be active learners. For example, Hambrick and Fukutomi (1991) have found that CEOs who generally remain flexible and vigilant in the face of environmental shifts are those who are able to continually learn from experiences, who possess a high tolerance for ambi- guity, and who have an orientation toward achievement. We suspect that a disposition toward curiosity also plays a role, especially as it relates to one's own industry. For example, a Fortune magazine journalist recently accompanied Bill Gates, the CEO of Microsoft, on an international business trip. What he discovered was that Gates was like "a college student cramming for a final"
(Sohlender, 1997, p. 81). While on airplanes, Gates would read magazines and books on each upcoming destination to understand its historical and current context. At each destination, he questioned those whom he met in each country or city. As the journalist explained,
Once on the ground, he peppers his escorts with endless questions about everything from architecture to local politics to, yes, even the weather. [For example] In India he pumped U.S. ambassador Frank Wisner to explain that country's complex linguistic and religious heritage. (Schlender, May 26, 1997, p. 81)
These conversations or environmental assessments inevitably led to tactical actions on the part of Microsoft. On returning from his trip to India, Gates decided to make some important product revisions and to expand operations there. As Gates stated in an interview,
I never realized that there are 14 distinct written and spoken languages in India.
Now that I understand that, we're going to invest a whole lot more in localizing our products. And the raw software talent you see there really grabs you. A billion people is a lot of people, and even though the country is really poor, there are a lot of talented people with world-class educations, and companies that are as forward-looking and capable as anywhere. I came back quite enthused about taking some of our software development overload here and moving it over there.
(Schlender, 1997, p. 81)
Given the critical importance of environmental monitoring not only for charismatic leadership but also for leadership in general, what do we know about the process itself? The existing research tells us that leaders use multiple vehicles to make their assessments. For example, to ascertain the capabilities of their subordinates, they rely on their own observations and those of trusted others.
They also may assign challenging responsibilities or unusual projects to test the competence of subordinates. We know of several turnaround leaders who as company outsiders assigned projects outside the functional expertise of their subordinates to assess individuals' ability to think broadly. In other cases, assignments may be used to determine a subordinate's openness to radical change or to unconventional approaches.
To assess the resources and capabilities of the organization itself, perfor- mance measurement systems are a common resource for the leader. As Yukl (1994) notes, the more effective of these measures employ multiple indicators (e.g., sales trends, quality, costs, productivity, customer satisfaction) and meas- ure process variables as well as outcomes. They also include independent sources of information wherever possible to provide comparisons for accuracy.
For example, Tichy and Devanna (1986) found that change-agent leaders typi- cally benchmark company performance measures against those of their compe- tition. This tends to mitigate against the insularity and complacency that often arises when benchmarks are all generated internally. Recently, a number of companies such as General Electric have been benchmarking internal compe- tencies against "best in class" organizations outside their own industry. Lew Piatt, the CEO of Hewlett Packard, recently insisted that the company's personal computers group benchmark its distribution system not against industry com-