Banking on Zoellick: Memo to the New President of the World Bank

Posted by Michael Watkins on May 31, 2007 1:29 PM

Between 2002 and 2004 the author was director of the Harvard Business School’s World Bank Leadership Program, an executive program for high-potential leaders at the bank. Since that time he has had no association with the institution.

Dear Mr. Zoellick,

Congratulations. Your appointment as president of the World Bank represents a nearly ideal opportunity to make a successful transition into a significant new role. Thanks to your predecessor, Paul Wolfowitz, the Bank is in crisis. While crisis situations are hard on organizations, they vastly simplify the work of new leaders like you. The (ironic) beauty of the turnaround scenario you have inherited is that a sense of urgency already exists. So you won’t have to work as hard to make the case for change. Think about how much more difficult it would have been if the bank were in business-as-usual mode.

This is not the only way that Mr. Wolfowitz has made your life easier. You also stand to benefit from what psychologists call the contrast effect. To put it bluntly, because he was so bad, you have to be less good. One reason your predecessor failed is that he didn’t even try to engage with the senior career bureaucrats at the bank. He relied for advice on a few people he brought in with him; he formulated policy in a vacuum. He tried to drive painful and perhaps misguided change without internal support, and predictably was viewed as hostile to the institution. So the bank’s immune system attacked and destroyed him like a transplanted organ from a mismatched donor. This leaves you with a pretty low hurdle to jump to be viewed as a major improvement.

At the same time, you face some significant challenges. The mission of the bank has become increasingly unclear in our globalizing economy. Developing countries have access to alternative sources of capital that come with fewer strings attached. While the poverty reduction mission defined by long-time World Bank President James Wolfensohn remains important, the bank unquestionably is in the midst of an identity crisis. At the same time, there are rising calls for a fundamental review of the institution’s governance, especially the tradition that the United States appoints presidents of the World Bank in consultation with other governments.

Then there is your own history as a supporter of the neoconservative agenda and the war in Iraq. If you let them, it will be easy for your opponents to paint you as Wolfowitz-lite, yet another ideologically driven Bush Administration apparatchik. Given your record as accomplished diplomat, this would be unfair. But you of all people know that politics are rarely about what is fair.

Given these realities, here are my recommendations for how you should approach your transition.

1. Strike the right balance between assimilating into the bank’s culture and trying to alter it. It’s a fundamental principle of organizational immunology that a leader cannot successfully transform an institution unless he or she is viewed by powerful constituencies as being sympathetic to the organization’s goals, appreciative of its accomplishments, and willing, at least to some degree, to become “of” the place. So don’t set yourself up for failure by casting yourself in the outsider-crusader-reformer role. The best way to avoid an organizational immune system attack, and to build your credibility in the process, is to adopt a learning-consultative approach during the first few months. Go out of your way to engage all the key constituencies -- outside and inside -- in dialogue. Take care not to convey the impression that you have “the answer.” When you see good things, recognize them, lest you inadvertently create the impression that you believe “no good can come of this place.” [For more on organizational culture and the perils of executive on-boarding, see my piece “Help Newly Hired Executives Adapt Quickly” in the Forethought section of this month’s Harvard Business Review.]


2. Build alliances for change. The easiest way to avoid an immune system attack is to do nothing and allow yourself to become captive to the institution. That’s simply not acceptable, because the Bank is in need of major realignment on a number of fronts. This brings us to a second principle of organizational immunology: syndicate the pain. It’s dangerous to be the sole source of discomfort in an organization, especially for an outsider. So once you are clear about your vital few “A-item” change priorities, work hard to build alliances, inside and outside, in support of that agenda. The good news is that there are many fine, smart people inside the bank who believe that reform is necessary. But you need to identify and mobilize them.

3. Get your new team in place fast. You will inherit a senior team and have to evaluate and restructure it to achieve your goals. This process is akin to repairing an airplane in mid-flight. You have to be careful not to change too much too fast, lest you precipitate a crash. At the same time, it’s essential that you move decisively to reshape the senior team at the Bank. A weak or unsupportive team will inevitably translate into poor performance and place an intolerable burden on you and your best people to pick up the slack. The sooner you can get the core of your team in place, the sooner you can begin the hard work of creating a shared vision and strategy. As you make changes in the team, however, keep recommendations #1 and #2 in mind by, for example, taking care to balance selecting bank insiders and outsiders for senior positions.

4. Secure early wins, in the right ways. By the end of the first six to nine months, you must have made substantial progress in energizing people and focusing them on solving the bank’s most pressing problems. It is crucial that key constituencies perceive momentum to be building during your transition. So identify four or five things you can do to secure some early wins. Then focus relentlessly on making them happen. Take care not to take on too much, too soon, lest you end up overtaxed and diffused. At the same time, be sure that you get your wins in the right ways. The way you go about securing early wins sends important messages to key constituencies about who you are and what you represent as a leader.

5. Create a balanced advice and counsel network. To learn quickly and create momentum, you will need to build and leverage a network of advisers and counselors. As you do this, think hard about the types of advice you need most to be effective. In part, you will benefit from good technical advice about key policy issues. But you will also need insightful counsel about how to navigate the political currents of the bank. Think, too, about striking the right balance between taking advice from insiders (people who know the Bank well, but who may have their own agendas) and outsiders (people who unambiguously stand for your success). Above all, don’t fall into the trap your predecessor did of relying too much on a narrow a group of like-minded outsiders. Remember that it’s all too easy to create an echo chamber. To avoid these traps, read Dan Ciampa’s wonderful new book, Taking Advice: How Leaders Get Good Counsel and Use It Wisely.

6. Remember that you are in leading in a fishbowl. More so than in your previous roles, you will be subject to extraordinary scrutiny. What felled your predecessor had little to do with the actual severity of his alleged offense (supporting a pay raise for his companion) and much to do with Mr. Wolfowitz’s perceived hypocrisy in pushing an anticorruption agenda in the Bank while lining his own nest. Optics and perceptions matter a great deal. So keep the pronouncement of Julius Caesar that “my wife ought not even to be under suspicion” firmly in mind.


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The Rise of Corporate Diplomacy (Finally!)

Posted by Michael Watkins on May 18, 2007 4:20 PM

Successful product innovation always involves a healthy dose of good timing. Emerging customer needs and available technical solutions must be in alignment if entrepreneurs are to gain traction. Come to market too early, and you have a great solution but no pressing need for it. Come too late, and someone else has beaten you to the punch.

The same is true in the world of ideas, as I have discovered recently in my own work on corporate diplomacy, which I've defined as the role senior executives play in advancing the corporate interest by negotiating and creating alliances with key external players including governments, analysts, the media and non-governmental organizations (NGOs). Though I have been working on the subject for close to a decade, it has only recently begun to take off. In the March 2007 issue of World Business, for example, there is a feature called “Spot the Future” that lists “10 issues that will undoubtedly affect your organization.” My work on “The Manager Diplomat” clocks in at #3. There’s also been a big upsurge in the requests I’m getting to speak on the topic.

It’s gratifying to have this happen, but it’s also interesting that it is happening now. I spent the early 1990s at the Kennedy School of Government studying great international diplomats: Shimon Peres and the Oslo peace process, James Baker and the building of the first Gulf War coalition, Richard Holbrooke in Bosnia, and Robert Gallucci in North Korea. I also spent some time working with the Peres Center for Peace in Tel Aviv helping to teach conflict resolution to emerging leaders from Egypt, Israel, Jordan, and the Palestinian Authority. When I moved to the Harvard Business School in late 1990s I created a second-year MBA course called Corporate Diplomacy and taught it for five years. Along with former congressman Mickey Edwards, I wrote a book on the subject called Winning the Influence Game: What Every Business Leader Should Know About Government. At the time, the book sold about 12 copies. It was a solution looking for a problem.

But this past January I got a call from a large pharmaceutical company asking me to speak to 150 government relations people, all of whom would be given a copy of the book. I spoke on the need to institutionalize the diplomatic mind-set throughout their organization, and to equip line managers at all levels to help shape the external environment. More requests to speak from other companies followed.

Why is this happening? The rise of corporate diplomacy is a global phenomenon, but it’s being driven by different forces in different regions. In the United States, one driving force is the decline of the imperial CEO resulting from the constraints imposed on senior executives by Sarbanes-Oxley and activist boards. There was a great article in a recent Wall Street Journal, "After the Revolt, Creating a New CEO," that captures the magnitude of this shift. For example, Jim McNerney, the new chariman, president, and CEO of Boeing, is quoted as saying "I'm just one of 11 [members of the board of directors] with a point of view. I have to depend on my power to persuade." Another fascinating article in the New York Times details the multitude of diplomatic challenges confronting Tony Hayward, the new group chief executive of BP.

A second driving force is the dramatic upsurge in M&A activity, driven by rising stock market valuations and decreasing barriers to merger activity. It takes a lot of diplomatic skill not just to strike deals, but to shepherd them successfully through a thicket of regulatory approvals and stakeholder challenges. Think, for example, about the trouble that XM and SIRIUS are facing in their effort to merge, or the surprising role that the United Steelworkers union is playing in influencing mergers in the steel industry, or the challenges Exxon is facing in keeping its alliance deals in Russia intact.

In the rest of the world, the rise in corporate diplomacy is being fueled by a combination of growth, globalization, and an increasing realization by business executives that they have to play an active role in influencing governmental rule making and in shaping public perceptions. I spent a week in Malaysia recently, and I was told by the chairman of a leading telecommunications company that only recently had the industry realized that some measure of cooperation (legal, of course) was necessary to establish appropriate rules governing growth and competition in the industry. Throughout the region, dramatic growth and increasing democratization are resulting in a sea change in business-government relationships. More and more executives are realizing that diplomacy has to be in their toolbox.

Do you have thoughts about the rise of corporate diplomacy or examples of successes or failures? Please share them.

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Why DaimlerChrysler Never Got into Gear

Posted by Michael Watkins on May 18, 2007 4:15 PM

That Daimler can sell Chrysler as a more-or-less intact unit to a private equity firm tells you all you need to know about why the combination failed. The two organizations never were integrated into anything that approached a cohesive whole. The potential synergies that were used to justify the deal went unrealized.

Why did this happen? Because the two organizations really didn’t like each other, and couldn’t cooperate to the extent necessary to make the combination work. Serious efforts to integrate the operations of Daimler and Chrysler foundered on lack of trust clashes between the mid-market cowboys of Detroit and the high-end knights of Stuttgart.

The seeds of post-merger disintegration were sown early when it became obvious that a “merger of equals” was actually a takeover of Chrysler by Daimler. And there were unbridgeable differences in the cultures of the two organizations. As is too often the case in acquisitions, the synergies were all on the surface.

In theory, the Daimler-Chrysler combination should have yielded two very potent sources of competitive advantage. The first was a cohesive global brand architecture. Consider Toyota. Its brand structure is extremely clear and logical: Lexus for the high-end buyer, Toyota for the middle-income family, and Scion for the hip young. The segmentation makes sense and the progressions between segments are natural ones. Young people find partners, have children, and buy minivans; people with money move up to luxury vehicles.

The second potential source of competitive advantage lay in creating a coherent platform strategy built on the economic logic of parts sharing. Because the cost of developing new vehicles is so great, car companies design “platforms” from which they create families of vehicles. They also try to share parts between platforms to drive economies of scale in manufacturing. See two papers on the history of the US and European automobile industries and platform strategy -- 1, 2 -- that I wrote with Nathan Simon.

Realizing synergy in brand architecture and platform strategy would have required deep integration of Daimler and Chrysler. German engineers would have had to design cars using parts created by American engineers and vice versa. The management team would have had to develop a global brand strategy and associated logic of competitive positioning. None of this happened. They ran the two organizations as separate operations. When major shifts in the environment (rising gas prices and the move away from SUVs and trucks) kicked out the blocks from under Chrysler’s recovery, it was both necessary and possible for them to part.

Much of the fault for this debacle belongs to Daimler’s former chairman, Jergen Schrempp. Like many senior executives anxious to cement their legacies, he got caught up in late 90’s acquisition mania. Economists have estimated that between 1998 and 2001, large acquisitions cost the shareholders of acquiring firms $397 billion. We can only wonder if the current surge in the urge to merge will yield a similarly bitter harvest.

Have you observed situations where cultural differences have undermined the potential synergies of mergers and acquisitions? What can leaders do to avoid these problems? Please share your thoughts and experiences.

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The Promise and Peril of Complementary Leadership

Posted by Michael Watkins on May 14, 2007 1:33 PM

“What should I be thinking about as I assess and build my leadership team?”

My colleague Steve Miles and I have an article in the April 2007 issue of Harvard Business Review on complementarity in senior leadership teams, The Leadership Team: Complementary Strengths or Conflicting Agendas? In a nutshell, it says (1) you can’t do it all, (2) you need to build teams that complement your strengths and compensate for your weaknesses, and (3) as you do so, you should be careful not to set up your organization for longer-term problems.

I’ve been thinking about complementarity in senior leadership teams for a long time, beginning with a study I did of Israeli leaders Yitzhak Rabin and Shimon Peres during the Oslo peace process in the mid-1990s. When the long-time Labour Party rivals joined forces to change the dynamic in the Israeli-Palestinian conflict, they brought complementary strengths to the table. Rabin was the respected former soldier that Israelis trusted with their security. Peres was the entrepreneur who pushed the boundaries of the possible in ways Rabin couldn’t. Not long after the agreement was signed Rabin was assassinated and that was the beginning of the end for the process. Peres tried to move things forward himself, but he lacked the trust that the Israeli public had vested in his dead partner.

Years later, we did a case study on the rise and fall of Douglas Ivester as CEO of Coca-Cola and I saw a similar dynamic take hold. Ivester had been COO until the untimely death of CEO Roberto Goizueta. Together they had been a winning team, with the charismatic, diplomatic Goizueta focusing on the long term and managing external relations, while the detail-oriented, hard-driving Ivester instilled short-term discipline in the organization. They were near-perfect complements. But when Ivester was named CEO, he was unable to make the leap to the new role. He stayed in his comfort zone and fumbled a series of external challenges, to the point where the Coca-Cola board asked him to step down.

What are the implications for building senior teams? The first is that days of the imperial CEO are long gone; in complex organizations leadership is a shared responsibility. Most organizations are run not by one individual but by a core coalition of people with complementary strengths.

The second implication is that you need to think carefully about the dimensions along which your team needs to be complementary. In the HBR article, Steve Miles and I lay out four key dimensions:

1. Task complementarity -- Who is going to take responsibility for what pieces of the business? Will one person focus on the inside and another on external relations? Will leaders be charged with responsibility for specific divisions or groups of businesses?
2. Expertise complementarity -- What are the key types of expertise that you need to have on the team? Will one person bring finance and operations expertise to table while another provides depth in sales and marketing?
3. Cognitive complementarity -- What types of thinking ability do you need to include? Do you need someone who is good at big-picture, blue-sky visioning? Who will provide the organizational drive and detail-orientation necessary to get things done?
4. Role complementarity -- What social roles do we need people to play? Do we need a good cop -- someone people love and want to follow -- and a bad cop?

The third and final implication is that complementarity can set senior teams up for real difficulties when the time comes for succession. Why? Because by definition complements are not substitutes. Peres could not play the role that Rabin had played. Nor could Ivester step into the shoes of Goizueta.

Succession wouldn’t be a problem if people truly understood their strengths and weaknesses and accepted that they were good in some roles and not in others. Because then they would know when to step aside and let a new complementary team take charge. But too often #2’s aspire to be #1, even when the very capabilities that make them good #2s render them unfit to fill the top slot.

Do you have great examples of complementary leadership teams? Have you observed teams get into difficulty when people leave or roles change?

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Welcome to the Panopticon: Are Leaders Under Too Much Scrutiny?

Posted by Michael Watkins on May 4, 2007 1:28 PM

In the late eighteenth century Jeremy Bentham, an English philosopher and proponent of legal reform, proposed a new type of prison he called the Panopticon (meaning “all-seeing”).The prison was designed such that all the inmates could be observed by a centrally-located warden (Bentham’s drawing of the circular prison with the central observation point is reproduced below). Critically, the prisoners were unable to tell at any given moment whether or not they were being observed. The goal was to create what Bentham described as a debilitating "sentiment of an invisible omniscience" and “a new mode of obtaining power of mind.”

Reading about the recent falls from grace of John Browne at BP , Marilee Jones at MIT, and Steve Heyer at Starwood got me thinking about the strange inversion in power relations that is transforming our world. We used to worry a lot about an Orwellian “big brother” observing our every move. We used to fret about “who watches the watchers.” We were concerned that technology would allow the powerful to control the multitudes.

But we are hurtling toward something that could be far worse, the multitudes observing every act of the powerful, waiting (even hoping) for the fatal flaw to emerge, and then inciting the web-based mob to cry for blood. As the recent case in which Directors at Wal-Mart were allegedly and unknowingly being taped during Board meetings suggests, anyone worth watching is increasingly being watched. As Alec Baldwin recently learned to his sorrrow, one price of stardom is having your (inappropriate, but private) voice mail messages to your daughter, taken out of context, broadcast throughout the universe.

This is not to say, obviously, that I think we should condone lying in court about how you met a lover (Browne’s admitted offence), lying on one’s resume to get a job (Jones’), or violating company policies concerning fraternization with employees (the allegation against Heyer). Nor am I saying that increasing transparency in corporate governance or holding leaders to higher ethical standards is a bad thing.

But when do we cross the line from appropriate safeguards to paralyzing surveillance? In a world where everyone worth watching is being microscopically observed, how do we avoid creating profound disincentives for people to seek higher office? Do we want to live in a state in which, to quote the old proverb “the tallest stalk of grain is the first to fall to the scythe.” Would we not be wise to recall the admonition of the Gospel of John 8:7, “Let he that is without sin cast the first stone?”

Left unchecked, it seems that we will end up with everyone watching everyone else’s every move. We all could end up living in own personal panopticons.

===============================================================International Tourism

Posted by Michael Watkins on May 3, 2007 10:53 AM

I spent a stimulating afternoon yesterday with The Conference Board’s Executive Coaching Council talking about the work I’m doing on using coaching to accelerate senior executive transitions. The Council is a group of about 25 talent management executives with responsibility for overseeing executive coaching at Fortune 500 companies. It’s a really great group that is grappling with issues around the role and impact of executive coaching.

I mentioned my last blog post about management tourists to them, and it evoked smiles and much nodding of heads. One participant, who leads coaching at a major insurance company, raised her hand. “Before coming to the United States, I worked for a multinational in the Philippines,” she said. “New leaders would get sent from headquarters on a three-year cycle. And everyone knew all they had to do was keep their heads down. [The new leader] barely had time to figure out what was going on and then they were gone and the next one arrived.”

I’ve heard other complaints that multinational companies cycle managers from the home country through short-term foreign assignments. It allows high-potential leaders to check the “international experience” box on their resumes, but I imagine it’s pretty dysfunctional for the foreign operations. As with all forms of managerial tourism, the reaction of those on the receiving end is predictable. They know “this, too, shall pass,” so they focus on throwing the leader a few bones and getting on with their lives.

Have you experienced the negative effects of international tourism? If so, please share your experiences with other readers.

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