Tạp chí Chiến lược kinh doanh - quý II / 2013

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CAPTAINS
IN
DISRUPTION
THIS YEAR’S study of
the incoming class of
chief executives
DISRUPTION
Emily Cavanagh
Program for Leadership Development 2012
“

I HAD VERY HIGH
EXPECTATIONS.
I CAN TELL YOU
THAT THIS PROGRAM
MET THEM ALL.”
Yannick Hausmann
Advanced Management Program 2012
“

I LEARNED TO
CONNECT THE DOTS
FROM FINANCE TO
STRATEGY TO LEADERSHIP
TO OPERATIONS AND MORE.
”
The world’s top executives often need to step outside their organizations to acquire
the skills, knowledge, and leadership to successfully address today’s critical business
issues. The Harvard Business School Executive Education comprehensive leadership
programs are where they convene. clp_info
@hbs.edu |
www
.exed.hbs.edu /pgm/clp/
Emily Cavanagh
Program for Leadership Development 2012
“

I HAD VERY HIGH
EXPECTATIONS.
I CAN TELL YOU
THAT THIS PROGRAM
MET THEM ALL.”
Yannick Hausmann
Advanced Management Program 2012
“

I LEARNED TO
CONNECT THE DOTS
FROM FINANCE TO

STRATEGY TO LEADERSHIP
TO OPERATIONS AND MORE.
”
The world’s top executives often need to step outside their organizations to acquire
the skills, knowledge, and leadership to successfully address today’s critical business
issues. The Harvard Business School Executive Education comprehensive leadership
programs are where they convene. clp_info
@hbs.edu |
www
.exed.hbs.edu /pgm/clp/
We chose the title “Captains in Dis-
ruption” for the lead feature story
of this issue—by Ken Favaro, Per-
Ola Karlsson, and Gary L. Neilson
(page 40)—explicitly to contrast
with captains of disruption. In other
words, we’re not talking about the
charismatic CEOs who come into
office roaring about the dangers of
tradition and complacency, promot-
ing upheaval as a turnaround strat-
egy, gratuitously marginalizing and
scapegoating the previous leader-
ship, and then burning out, leaving
their companies in a state of back-
lash and collapse. (The latest promi-
nent example, as I write this, is Ron
Johnson at J.C. Penney.)
The most effective CEOs today
are steady, collaborative chief execu-

tives—those who look for stability
in all the chaotic places. They face
down disruptive events and trends
by planning and preparing for the
time after crisis, and by acting in
harmony with the people of their
enterprise.
Several articles in this issue sug-
gest that the trends are in their favor.
For example, “Portrait of the Incom-
ing Class” (page 52), which tracks
the proportions of planned to un-
planned CEO successions in 2012,
finds that boards of directors on
average are less inclined to fire their
CEOs reactively, and more inclined
to deliberately develop a pipeline of
leadership acumen. A similar point is
made by the former CEO of Procter
& Gamble A.G. Lafley and his long-
time advisor, dean of the Rotman
School of Management Roger Mar-
tin, in “Leading with Intellectual
Integrity” (page 60). While at P&G,
they redesigned the strategic plan-
ning process to cultivate more co-
herent and rigorous thinking among
fast-track executives.
Jon Katzenbach and DeAnne
Aguirre, who lead the Katzenbach

Center (which coordinates Booz &
Company’s research on organiza-
tional culture and change), argue
that the CEO’s most important role
is as a leader of the company’s cul-
ture (page 22). On page 11, CEO
Tom Fanning of Southern Compa-
ny, an innovative power utility based
near Atlanta, explains how he fos-
ters collaboration across functional
disciplines, and how this has led to
many of the firm’s most profitable
and intriguing energy initiatives.
This issue also contains a note-
worthy Thought Leader interview
with David Kantor, the influential
author of Reading the Room (page
90); a list of five principles for “re-
imagining” your digital identity,
from three leaders of the new team
known as Booz Digital (page 34 );
a compelling profile of AeroViron-
ment, an idiosyncratic manufacturer
of drones and innovative battery sys-
tems (page 78); an intriguing asser-
tion that driverless vehicle technol-
ogy could transform the long-haul
trucking industry (page 8); and a
look at the consumer-centric busi-
ness model for healthcare (page 68)

that is emerging as hospitals and
healthcare companies address the
disruption facing their industry.
Whether you’re standing be-
hind it, cheering it on, or facing off
against it, disruption can be exhaust-
ing. If you’re a CEO—or a business
leader of any type—you’ve already
learned, at least somewhat, to take it
in stride. After the past several years
of uncertainty, we’re all learning to
do so. Or maybe we’ve just been liv-
ing in disruption for so long that it’s
starting to look like equilibrium.
Art Kleiner
Editor-in-Chief

Illustration by Lars Leetaru
Stability in Chaos
comment editor’s letter
1
editor’s letter

Turning the Tables on Success
Adam Grant
In today’s workplace, what goes around comes around
faster, sinking takers and propelling givers to the top.
The Next Autonomous Car Is a Truck
Peter Conway
The obstacles to adoption are significant, but driverless

technology now in development could transform long-
haul trucking.
Innovating for Energy’s Future
Edward H. Baker and Tom Flaherty
The key to clean, reliable, and affordable energy,
says Southern Company CEO Tom Fanning, is a bold
and balanced approach to R&D.
The Wise Leader
Prasad Kaipa and Navi Radjou
Practical wisdom in business comes from combining
the broad view with the narrow, and opportunity with
constraint.
s+b Trend Watch
Big Pharma’s Potential in Emerging Markets
India’s Leadership Challenge
Gaurav Moda, Anshu Nahar, and Jai Sinha
At many Indian companies, the development of top
management lagged behind the pursuit of technical
excellence.
STRATEGY & LEADERSHIP
Culture and the Chief Executive
Jon Katzenbach and DeAnne Aguirre
CEOs are stepping up to a new role, as leaders of their
company’s thinking and behavior.
STRATEGY & LEADERSHIP
Building a Flywheel Business
Tim Laseter and Jeff Bennett
By linking customers and capabilities, companies can
generate the momentum for sustainable growth.
MARKETING, MEDIA & SALES

Don’t Reengineer. Reimagine.
Jeff Schumacher, Simon MacGibbon, and Sean Collins
To realize the digital potential of your business, bring the
dynamics of a startup to scale.
leading ideas
16
14
6
8
11
essays
34
28
22
17
78
14
68
SPECIAL SECTION: THE BOOZ & COMPANY 2012
GLOBAL CHIEF EXECUTIVE STUDY
Captains in Disruption
Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson
Even when facing a crisis, some CEOs know
how to anticipate the worst, plan a response,
and navigate to advantage. You can do the same.
“It’s Time for a Change”
Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson
CEO turnover is trending high, but in a more
planned and stable manner.
Portrait of the Incoming Class

Ken Favaro, Per-Ola Karlsson, and Gary L. Neilson
The newest CEOs have neither the diversity nor
the global backgrounds that you might expect.
STRATEGY & LEADERSHIP
Research Perspectives
on the New CEO
Matt Palmquist
Academic studies of the recruitment of chief
executives suggest that those from outside the
industry do relatively well, companies pay more
for generalists than for specialists, and “shadow
emperors” hamper performance.
STRATEGY & LEADERSHIP
Leading with
Intellectual Integrity
A.G. Lafley and Roger Martin, with Jennifer Riel
One skill distinguishes the effective CEO: the abil-
ity to make disciplined and integrated choices.
HEALTHCARE
Putting an I in
Healthcare
Gil Irwin, Jack Topdjian, and Ashish Kaura
The days of the disengaged health consumer
are numbered. Consumerization will transform
healthcare systems, involving individuals as never
before in the management of their own care.
The Patient Engagement Framework
INNOVATION
Flight of the
Drone Maker

Lawrence M. Fisher
How a small firm named AeroVironment is
changing the course of airplanes, automobiles,
and warfare.
Factors beyond Their Control



THE THOUGHT LEADER
INTERVIEW
David Kantor
Art Kleiner
An eminent systems therapist
says that learning to recognize
the hidden patterns in
conversation is the first step
toward more effective executive
leadership.
BOOKS IN BRIEF
Toward a Better-Informed Cynicism
Marvin Weisbord
The Practitioner’s Tale
David Warsh
Many-to-Many Manufacturing
Tom Igoe
Skill or Luck?
David K. Hurst
END PAGE: RECENT RESEARCH
The Power of “Independent”
Senior Executives

Matt Palmquist
Top leaders appointed by previous CEOs can help rein
in the incumbent.
Cover illustration by Gérard DuBois
features
40
78
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strategy+business issue 71
lems and manage heavy workloads.

Takers, who put their own agenda
first, are far less likely to climb the
corporate ladder.
The fall of takers and the rise
of givers hinges on a third group,
whom I call “matchers.” Matchers
hover in the middle of the give-
and-take spectrum, motivated by a
deep-seated desire for fairness and
reciprocity. They keep track of ex-
changes and trade favors back and
forth to keep their balance sheet
at zero, believing that what goes
around ought to come around. Be-
cause of their fervent belief in an eye
for an eye, matchers become the en-
gine that sinks takers to the bottom
and propels givers to the top.
Takers violate matchers’ belief
in a just world. When matchers wit-
ness takers exploiting others, they
aim to even the score by imposing a
tax. For example, matchers spread
negative reputational information to
colleagues who might otherwise be
vulnerable, preventing takers from
getting away with self-serving ac-
tions in the future. On the flip side,
most matchers can’t stand to see
generous acts go unrewarded. When

they see a giver putting others first,
matchers go out of their way to dole
Turning the
Tables on
Success
In today’s workplace,
what goes around
comes around faster,
sinking takers and
propelling givers to
the top.
by Adam Grant
I
n the old world of work, good
guys finished last. “Takers”
(those in organizations who put
their own interests first) were able
to climb to the top of hierarchies
and achieve success on the shoulders
of “givers” (those who prefer to con-
tribute more than they receive).
Throughout much of the 20th cen-
tury, many organizations were made
up of independent silos, where tak-
ers could exploit givers without suf-
fering substantial consequences.
But the nature of work has
shifted dramatically. Today, more
than half of U.S. and European
companies organize employees into

teams. The rise of matrix structures
has required employees to coordi-
nate with a wider range of managers
and direct reports. The advent of
project-based work means that
employees collaborate with an ex-
panded network of colleagues. And
high-speed communication and
transportation technologies connect
people across the globe who would
have been strangers in the past. In
these collaborative situations, takers
stick out. They avoid doing unpleas-
ant tasks and responding to requests
for help. Givers, in contrast, are the
teammates who volunteer for un-
popular projects, share their knowl-
edge and skills, and help out by ar-
riving early or staying late.
After studying workplace dy-
namics for the past decade, I’ve
found that these changes have set
the stage for takers to flounder and
givers to flourish. In a wide range of
fields that span manufacturing, ser-
vice, and knowledge work, recent
research has shown that employees
with the highest rates of promotion
to supervisory and leadership roles
exhibit the characteristics of giv-

ers—helping colleagues solve prob-
Leading
Ideas
leading ideas
Illustration by Phil Marden
7
leading ideas
out a bonus, in the form of compen-
sation, recognition, or recommenda-
tions for promotions. Of course,
these responses aren’t limited to
matchers. Givers, too, are motivated
to punish takers and reward fellow
givers. But I’ve found that in the
workplace, the majority of people
are matchers, which means that they
are the ones who end up dispensing
the most taker taxes and giver bo-
nuses. In an interdependent, inter-
connected business environment,
what goes around comes around
faster than it used to.
At Google, for example, an en-
gineer named Brian received eight
bonuses in the span of a single year,
including three in just one month.
He volunteered his time to train
new hires and help members of mul-
tiple cross-functional teams learn
new technologies, and his peers and

managers responded like matchers,
granting him additional pay and
recognition. Consistent with Brian’s
experience at Google, a wealth of re-
search shows that in teams, givers
earn more respect and rewards than
do takers and matchers. As Stanford
University sociologist Robb Willer
notes, “Groups reward individual
sacrifice.”
Interdependent work also means
that employees will be evaluated and
promoted not only on the basis of
their individual results, but also in
terms of their contributions to oth-
ers. This reduces the incentives for
takers to exploit givers, encouraging
them to focus instead on advancing
the group’s goals. As a result, takers
engage in fewer manipulative acts—
which reduces the risks to givers—
yet they still contribute less than
givers. This allows givers to gain
a reputation for being more gener-
ous and group-oriented. And a rich
body of evidence has shown that
these qualities are the basis for sound
leadership.
In fact, when givers become
leaders, their groups are better off.

Research led by Rotterdam School
of Management professor Daan van
Knippenberg has shown that em-
ployees work harder and more effec-
tively for leaders who put others’
interests first. This, again, is a
matching response: As van Knip-
penberg and Claremont Graduate
University professor Michael Hogg
found, “going the extra mile for the
group, making personal sacrifices or
taking personal risks on behalf of
the group” motivates group mem-
bers to give back to the leader and
contribute to the group’s interests.
And a thorough analysis led by
Nathan Podsakoff, a professor at the
University of Arizona, of more than
3,600 business units across nu-
merous industries showed that the
more frequently employees give help
and share knowledge, the higher
their units’ profits, productivity,
customer satisfaction, and employee
retention rates.
By contributing to groups, giv-
ers are also able to signal their skills.
In a study led by researcher Shimul
Melwani of UNC’s Kenan-Flagler
Business School, members of five

dozen teams working on strategic
analysis projects rated one another
on a range of characteristics and be-
haviors. At the end of the project,
team members reported which of
their colleagues had emerged as
leaders. The single strongest predic-
tor of leadership was the amount of
compassion that members expressed
toward others in need. Interestingly,
compassionate people were not only
viewed as caring; they were also
judged as more knowledgeable and
intelligent. By expressing concern
for others, they sent a message that
they had the resources and capabili-
ties to help others.
Today, these signals are ever
more visible: Givers are aided by
the fact that the anonymity of pro-
The strongest predictor of leadership was the
amount of compassion that members expressed
toward others in need. Compassionate people
were judged as more knowledgeable.
leading ideas
8
strategy+business issue 71
changing the characteristics that we
value in people. Two of the defining
qualities of great leaders are the abil-

ity to make others better and the
willingness to put the group’s inter-
ests first. Because givers today add
increasing value in leadership roles
and interdependent work, hiring
processes can be modified to assess
which candidates are inclined to
contribute more than they receive.
For development, promotion, and
retention, leaders and managers
should focus less on individual skills
and talents, and more on the extent
to which employees use their skills
and talents to lift others up—rather
than cutting them down. The em-
ployees with the greatest potential to
excel and rise will be those whose
success reverberates to benefit those
around them.
Along with investing in people
who are already disposed toward op-
erating like givers, it will be of para-
mount importance to create prac-
tices that nudge employees in the
giver direction. In many organiza-
tions, owing to their tendencies to
claim credit and promote them-
selves, successful takers are more
visible than successful givers. To
make sure that employees are aware

that it’s possible to be a giver and
achieve success, it may be necessary
to locate and recognize respected
role models who embody an orienta-
tion toward others. That way, when
what goes around comes around
faster than it used to, it will be for
the benefit of employees and their
organizations.
+
Reprint No. 00175

Adam Grant

is Wharton’s youngest tenured professor
and the author of Give and Take: A
Revolutionary Approach to Success
(Viking, 2013).
The Next
Autonomous
Car Is a
Truck

The obstacles to
adoption are significant,
but driverless
technology now in
development could
transform long-haul
trucking.

by Peter Conway
E
ach year, Wal-Mart Stores
Inc. spends hundreds of
millions of dollars deliver-
ing its merchandise across the Unit-
ed States. The 6,000 trucks in the
retailer’s fleet are a common sight on
highways, as are those of the many
other companies that rely on long-
haul trucking to transport their
goods from coast to coast. But what
if that fleet could be cut by one-
third—and be made up of trucks
pulled by slimmed-down tractors
less than half their current size, with
a computer at the helm?
It may be hard to imagine:
trucks guided by GPS, radar, sen-
sors, and software, hauling much of
the nation’s cargo. Yet autonomous
vehicle technology has made head-
lines for years, and experimental au-
tonomous cars are already on the
roads today. Google’s driverless cars
have logged more than 300,000
miles on California and Nevada
highways since 2011. That same
year, Chinese carmaker FAW un-
veiled its own autonomous car,

fessional life is vanishing. In the
past, when we encountered a job ap-
plicant, a potential business partner,
or a prospective service provider, we
had to rely on references selected by
that candidate. When takers burned
bridges with one contact, they could
eliminate that person from their
reference list. But now, online social
networks offer a much richer data-
base of references. Odds are that
through a quick search of our
LinkedIn or Facebook networks, we
can find a common connection with
knowledge of that person’s reputa-
tion. By reaching out to the mutual
contact to obtain an independent
reference on the candidate’s past be-
havior, decision makers can screen
out takers and favor givers. Of the
billion Facebook users around the
world, 92 percent are within four
degrees of separation—and in most
countries, the majority of people are
just three degrees apart.
Such tools have made it tough
for a taker to hide in the shadows.
At Groupon, for example, Howard
Lee was heading the South China
office, and received a slew of appli-

cations for sales jobs. He searched
his LinkedIn network for common
connections, and located quite a
number of them. When he discov-
ered that certain candidates had a
history of self-serving behavior, he
quickly moved on, focusing his time
and energy on candidates with track
records as givers.
Taken together, these trends are
Are you a taker, giver, or matcher?
Visit www.giveandtake.com for
a free assessment of your
self-awareness or to collect
anonymous 360-degree ratings
from anyone in your network.
leading ideas
9
leading ideas
Illustration by Dave Plunkert
in commercial airliners, able to take
off and land without human inter-
vention. Similarly, the operating
system in driverless trucks will eval-
uate the road and surrounding ob-
stacles, such as cars, trees, or people,
hundreds of times a second, and will
decide the best path on which to
proceed to its final destination.
These new technologies won’t

come cheap. It is hard to put an ex-
act cost figure together, given that
much of the technology is still in the
pre–mass production stage. But the
total cost of outfitting a truck with
equipment and software could be
as much as US$200,000. And
although savings will vary from firm
to firm, they could exceed $100,000
per truck annually. Over several
years, the gains would far outstrip
the initial investment and the main-
tenance costs. A significant portion
of both the cost savings and the
efficiency gains would come from
eliminating drivers’ wages from the
bottom line.
Diesel fuel costs would fall,
which it demonstrated on public
roads. Toyota and Audi exhibited
their versions of the technology at
the Consumer Electronics Show in
January 2013.
The use of autonomous vehicle
technology in trucks, however, is
more of a glimmer. There have been
some developments to date, for ex-
ample, computer-guided trucks that
transport ore around mine sites. Yet,
in these and other closed-loop trans-

portation ecosystems, it is easy to
maintain control and address issues
as they arise. The appearance of
driverless trucks on a congested
highway poses many more challeng-
es and will face technical, practical,
social, and political hurdles. But
despite these significant obstacles,
this vision is worth exploring. The
use of autonomous long-haul trucks
(ALHTs) could add up to a multi-
billion-dollar opportunity for com-
panies throughout the trucking val-
ue chain, and in turn, lower prices
for consumers. Although the trans-
formation is still years away, compa-
nies should start preparing for an
automated future today.
A Technology-Powered Vision
ALHTs will have all the fundamen-
tal mechanics of the trucks we see
today, but they will be guided by a
suite of sensors acting together to
paint a digital picture of the road for
a computer positioned where the
driver now sits. These sensors will
provide the data to support an oper-
ating system that one might com-
pare to the most capable autopilots
too—as long as other factors, such

as oil prices, hold constant—be-
cause the technology reduces con-
sumption by optimizing accelera-
tion and braking. The Center for
Automotive Research estimates that
driverless trucks would increase fuel
efficiency by 15 to 20 percent. Acci-
dent-related expenses and insurance
premiums also could decline, be-
cause automated trucks would be
programmed for maximum safety,
eliminating the driver errors that
cause most crashes.
Along with the savings would
come significant productivity im-
provements. Currently, restrictions
on the number of consecutive hours
a driver can stay on the road limit
asset utilization. But the software
controlling driverless trucks never
gets drowsy, and that opens the
door to round-the-clock operations.
Higher asset utilization rates would
reduce the need for capital spending
on additional trucks. Retailers, dis-
tributors, and manufacturers that
ship goods by truck will see addi-
tional benefits as competition among
trucking companies converts the
efficiencies of ALHTs into lower

shipping rates. Retailers, in turn,
could pass those savings along to
consumers. The one-day delivery
radius could also expand, enabling
Although the savings created by autonomous
vehicle technology will vary, they could exceed
$100,000 per truck annually. The gains would
far outstrip the initial investment.
leading ideas
10
leading ideas
10
strategy+business issue 71
The Road to Opportunity
There are several different scenarios
for how the adoption of autonomous
trucking could unfold. One is that
driverless trucks appear first in large
industrial environments, where they
can be contained (just like the com-
puter-driven trucks already navigat-
ing mine sites). As with machines in
the early days of factory automation,
these trucks would have limited
range and capabilities. But just as
robots became indispensable to
moving parts and goods around
plants, autonomous trucks could ex-
pand to more open areas and longer
distances as the technology is re-

fined and proven. We may also see
partial adoption. For example, some
companies may opt for “remote-
control trucking,” in which a driver
pilots a truck hundreds of miles
away through a complex environ-
ment of local roads until the truck
gets onto the highway. At that point,
a more basic, less expensive autono-
mous system designed for the rela-
tively simple environment of high-
way driving would take over. This
could be a palatable option for legis-
lators and the public.
Given the obstacles that loom, it
is likely that adoption will be an evo-
lution along these lines. We won’t
see highways dotted with driverless
trucks in the near term. But the eco-
nomics suggest that over the long
term, the industry will migrate
to autonomous vehicles. Trucking
companies that deploy these tech-
nologies most effectively will secure
industry-leading positions, and the
capitalize on new opportunities to
supply billions of dollars of auton-
omous trucking equipment. But
they’ll also see orders plunge for
cockpit gear such as steering wheels

and other components that won’t be
needed if software replaces drivers.
More importantly, if existing trucks
can be retrofitted as autonomous ve-
hicles, the current national fleet
could find itself 30 percent over ca-
pacity, because of the efficiency
gains that can be extracted from ex-
isting vehicles.
ALHTs will also face legal ob-
stacles: Legislation allowing driver-
less vehicles to operate will be need-
ed across the country. California,
Florida, and Nevada have already
enacted rules allowing testing of
driverless vehicles. But a patchwork
of varying state standards would cre-
ate a difficult environment, which
suggests a need for uniform federal
rules of the road. To that effect, the
National Highway Traffic Safety
Administration is working on na-
tional standards, due in 2013 for
cars and 2014 for heavy vehicles. In
addition, autonomous vehicle tech-
nology will have to overcome resis-
tance from a public frightened by
the specter of unmanned trucks
hurtling down highways.
Finally, as we’ve seen with auto-

mation in other industries, such as
manufacturing, the use of driverless
trucks is likely to face opposition
from unions and their political allies
as they are faced with the elimina-
tion of hundreds of thousands of
truck driving jobs.
businesses to offer overnight ground
shipping to more customers.
Society at large will also reap
benefits. If truck driving shifted to
off-peak periods, which is a viable
option in a driverless vehicle, high-
ways would be less congested. They
would also become safer as the acci-
dents involving trucks were reduced
by eliminating human error.
Costs and Compromises
Autonomous vehicle technology of-
fers advantages across the trucking
industry value chain. However, the
pace and extent of eventual adop-
tion will depend to a large degree on
the ability of stakeholders—whether
they’re shippers such as Con-Way
and Allied or manufacturers such as
Freightliner and Mack—to resolve a
range of technical, practical, politi-
cal, and social concerns.
On the technical front, driver-

less trucks could reach commercial
viability within a decade, as the
manufacturers of their supporting
technology components ramp up
production and prices, in turn, fall
as the industry moves down the
cost curve.
These components are still
prohibitively expensive today; for
example, the 600-rpm spinning
light-imaging radar system that
crowns most current autonomous
vehicles costs upward of $70,000.
And ALHT supporters must answer
such difficult questions as how to
refuel driverless trucks and protect
their cargo when trucks break down.
Fuel retailers, repair companies,
highway patrol, and insurers, among
others, will all play a role in finding
the solution.
It’s worth noting that for truck
manufacturers and incumbent sup-
pliers, the impact of autonomous
trucks will be mixed. Many will
If existing trucks can be retrofitted as
autonomous vehicles, the current national
fleet could find itself 30 percent over capacity,
because of the efficiency gains.
leading ideas

11
leading ideas
Photograph by James Schnepf
Innovating
for Energy’s
Future
The key to clean,
reliable, and affordable
energy, says Southern
Company CEO Tom
Fanning, is a bold and
balanced approach to
R&D.
by Edward H. Baker and
Tom Flaherty
S
outhern Company is one of
the largest utilities in the
United States. It is also one
of just a small number of electric
power companies with a reputation
for cutting-edge innovation and ro-
bust, proprietary R&D. Under chair-
man and CEO Thomas A. (Tom)
Fanning, the company has been
deeply committed to a wide range of
R&D efforts designed to employ a
diverse mix of fuel resources.
Southern Company’s four oper-
ating companies—Georgia Power,

OEMs and suppliers that provide
the equipment needed by those lead-
ing firms will claim more than their
fair share of the market. The most
transformative addition to the value
chain will be the autonomous vehi-
cle operating system, a software
package likely to cost hundreds of
millions of dollars to develop.
Google, now testing its system on
public roads, may emerge as the sup-
plier of a standard operating system
for the industry. But car and truck
manufacturers are likely already
working to develop this critical
component as well.
Executives at trucking compa-
nies, truck manufacturers, and
equipment suppliers should start
thinking through how they see this
technology emerging, what the im-
plications are for their current busi-
ness model, and what they should
do in response. The best approaches
for each company will vary, but one
thing is clear: Inaction isn’t an op-
tion. Given that heavy truck model
changes occur infrequently, some-
times not for a decade or longer,
ALHTs could be just one design cy-

cle away.
+
Reprint No. 00176

Peter Conway

is a principal with Booz & Company’s
engineered products and services practice,
and is based in Chicago.
Also contributing to this article were Booz
& Company associates Antoine Cadoux,
Sathya Narasimhan, and Seva Rodnyansky,
and consultant Uppili Rajagopalan.
Alabama Power, Gulf Power (oper-
ating in northwest Florida), and
Mississippi Power—all combine
power generation, transmission, dis-
tribution, and customer engage-
ment. Rather than stifling innova-
tion, Fanning says, the company’s
integrated business model enables it
to make these broad investments in
energy innovation. And in doing so,
it can better serve its customers and
shareholders.
S+B: What drives Southern Com-
pany’s R&D strategy?
FANNING: Energy innovation repre-
sents an enormous advantage for
Southern Company. Our efforts

have simple goals: to preserve fuel
flexibility and increase the value of
energy to our customers. We are es-
sentially fuel agnostic. We don’t
know which fuels are or will be in
vogue, and we don’t bet on them.
We need to invest in “all the arrows
in the quiver”—the full portfolio of
energy resources. About five years
ago, approximately 70 percent of
our energy came from coal and ap-
proximately 11 percent from natural
gas. Now it’s about 45 percent natu-
ral gas and about 36 percent coal.
We don’t profit more off one fuel
over another. We just want to use
the cheapest fuel available for the
benefit of our customers. Because
Southern Company is so integrated,
we can follow this strategy. The
problem with separating generation
from distribution and delivery is
that it sends the wrong economic
signals to the industry’s participants
[by prioritizing profits over opti-
mized costs], without serving the
interests of customers. And if the
interests of your customers conflict
with the interests of your sharehold-
ers, you’ve got a major problem.

Besides cost and effectiveness,
Tom Fanning
leading ideas
12
leading ideas
12
strategy+business issue 71
The “pull” side involves regular
meetings between our innovation
people and the marketing and pow-
er generation planning teams. This
allows the innovation team to dis-
cuss the company’s operational chal-
lenges and to identify opportunities.
S+B: What about the role of
external partners?
FANNING: Typically, we work with
other companies on one-off or two-
off projects, to put big money into
big ideas. Examples of this include
our scrubber technology work with
Chiyoda, the development of our
new coal gasification plant in Mis-
sissippi, and the CO
2
filter research
we’ve done with Mitsubishi. The
goal is to share the significant fixed
costs of some of these projects.
Like many other companies, we

partner with and support research at
a number of universities, working
directly with the schools on techno-
logical issues. At our carbon capture
research center, for instance, we di-
vert some of the post-combustion
gas streams from an operating coal
plant into a series of bays in the re-
search shop. Then we invite univer-
sities with strong research proposals
to plug into the gas streams and ap-
ply their technology solutions to
capturing the carbon in the streams.
We pick out the best ideas, and we
get to use some of what they learn
during their experiments.
We also hold regular customer
forums where we show people our
new ideas and gather feedback.
Much of this work involves our IT
we also prioritize environmental and
regulatory R&D. In fact, since the
1970s, we’ve had a proprietary R&D
group working on developing real-
world ways to manage environmen-
tal issues involving coal. Our initial
R&D involved coal liquefaction—
taking coal and turning it into an oil
derivative, essentially.
S+B: So much has changed since

the 1970s: the advent of renewables
and now the new sources of shale
oil and natural gas. How does that
affect your innovation bets?
FANNING: One of our most interest-
ing efforts today involves the gasifi-
cation of coal—transforming low-
grade coal into synthetic gas that
can be used to generate electricity,
with resulting carbon emissions
comparable to [those of] a similarly
sized natural gas plant. We’re build-
ing a clean coal plant in Kemper
County, Miss., that uses the gasifi-
cation technology we developed in a
joint venture with KBR Inc. under
the sponsorship of the U.S. Depart-
ment of Energy, and we recently
announced an alliance to market
this 21st-century coal technology to
power companies worldwide.
In another project, a joint ven-
ture with the Japanese engineering
firm Chiyoda, we’ve developed
scrubbers for removing sulfur diox-
ide from the emissions from our
coal-fired plants. And we created
our own technology for selective
catalytic reduction—a chemical
process used to remove nitrates from

coal-fired boiler emissions. We have
already spent [US]$8 billion on im-
plementing these new technologies,
and plan to invest even more in the
coming years.
Such efforts have given us prow-
ess and proficiency. We’ve been able
to deploy these environmental con-
trol technologies 10 to 20 percent
cheaper than the competition, de-
pending on the plant and the tech-
nology involved. We can also re-
move up to 98 percent of certain
emissions, significantly more than
the average.
S+B: How centralized are South-
ern’s innovation practices?
FANNING: They are very central-
ized, but we try to maintain what
might be called a “push–pull” sys-
tem. The “push” side is headed by
Chris Hobson, the senior vice presi-
dent of research and environmental
affairs and our chief environmental
officer. Chris is involved with our
portfolio of energy solutions for cus-
tomers, whether that’s generation or
transmission. He convenes his own
meetings with people in the operat-
ing companies, which involves both

compliance-related and market-re-
lated issues.
Another entity on the push side
is our R&D group, headquartered
in Birmingham, Ala. We also have a
large facility in Wilsonville, Ala.,
that’s dedicated to our gasification
and carbon capture technologies.
We’re the only power company in
the U.S. conducting carbon capture
research in this manner, on both a
post-combustion and pre-combus-
tion basis. We leverage the full range
of our technology research, assess-
ment, and deployment projects all
around the system. Our scientists
come to us saying, “Here’s some-
thing I’ve got. Where else in the
company can we use it?”
“When tornadoes went through Alabama in 2011,
we could tell immediately which neighborhoods
were out of power, because we could see which
smart meters were still working.”
leading ideasleading ideas
13
organization, which has become an
integral part of how we deliver en-
ergy to customers.
S+B: How do smart grids and smart
metering factor into your delivery

scheme?
FANNING: Southern Company had
about 4.4 million operational smart
meters by the end of 2012, which is
the second-largest smart meter de-
ployment in the United States.
Those smart meters are already re-
ducing the number of vehicles on
the road. In fact, Southern Compa-
ny has avoided approximately 40
million miles of driving since the
program began. It’s good for our
bottom line, for the environment,
and for customers.
There have also been some re-
markable unplanned consequences.
When devastating tornadoes went
through Alabama in April 2011, we
could tell immediately from our
electronic map which neighbor-
hoods were out of power, because we
could see which smart meters were
still working. That enabled us to de-
ploy our restoration crews more ef-
fectively. The use of smart meters
contributed significantly to the
company’s fast response and success-
ful restoration efforts.
In the longer term, smart meters
may be the gateway to the so-called

smart home. But we’re taking a pru-
dent, measured approach. We’re not
going to act hastily, because of cy-
bersecurity concerns. It is better to
move slowly and deliberately, and
get it right. Given how important
our service is to our customers, we
will not expose their personal infor-
mation—and the Southeast electric
network—to threats. This is an im-
portant issue, and we will not take
unnecessary chances simply in a
rush to be first.

S+B: Where do your best new ideas
come from?
FANNING: We look across conven-
tional boundaries. For example,
many people know that one of the
big problems with wind generation
is that it’s an intermittent resource.
We’re developing the next genera-
tion of compressed air energy stor-
age, or CAES. This technology uses
power generated by the wind that
blows during the night to compress
air and inject it into the ground. The
air is then extracted under exceed-
ingly high pressures during peak pe-
riods of the day, using turbines to

generate electricity.
CAES technology has been
around for a while, but we are im-
proving its efficiency by exploring
more advanced cycles that will help
reduce operating costs and make
CAES an economically viable op-
tion for bulk energy storage. This
advanced application of CAES came
from the joint efforts of our carbon
sequestration group and our renew-
ables group. When we put these two
teams together, they said, “Let’s not
just think about sequestering CO
2
underground. Let’s think about how
to use wind energy and compressed
air underground.”
S+B: Do you kill many ideas?
FANNING: Oh, sure. In fact, I would
argue that your greatest indicator of
success is how many ideas you kill. It
proves that you’re developing ideas
and pushing the envelope. And it
proves that you have the discipline
not to pursue just any idea—and
sometimes that’s the hardest part of
all, especially once you’ve started
down the road.
Sometimes we’ll say, “That just

isn’t going to work now, but let’s
keep experimenting with it.” The
original coal liquefaction idea even-
tually morphed into gasification
from the ground up. Then we
blended that with carbon capture
technology, and now we’re on the
way to bringing the concept to real-
ity in Mississippi. It took some time,
but ultimately it emerged into some-
thing really valuable.
Right now, we’re building a
nuclear power plant and a 21st-
century coal plant, converting other
plants to gas, adding environmental
equipment, and developing sources
of renewable energy. That’s a total
commitment of about $20 billion.
A little bit of R&D goes a long way
if it can raise the efficiency of these
assets or reduce the amount of capi-
tal investment needed. Even our
failures have more than paid for
themselves in terms of cheaper en-
ergy, and that’s what matters most
to our customers.
+
Reprint No. 00171

Edward H. Baker

is a contributing editor to
strategy+business.
Tom Flaherty
tom.fl
is a senior partner with Booz & Company’s
energy, chemicals, and utilities practice,
and is based in Dallas.
“I would argue that your greatest indicator
of success is how many ideas you kill. It proves
that you’re pushing the envelope.”
leading ideas
14
leading ideas
14
Illustration by Anna Parini
never have too much of it in a com-
pany. Smart leaders can see patterns
in seemingly random information,
enabling them to take decisive ac-
tion while their peers are still assess-
ing a situation, and to make the stra-
tegic choices that bring competitive
advantage. But there are two catego-
ries of smartness, both of which
carry benefits and risks. Most exec-
utives favor one or the other, and
that makes it more difficult for them
to lead.
“Business smart” leaders, like

GE’s Jack Welch and Oracle’s Larry
Ellison, are big-picture thinkers who
recognize that opportunities are un-
limited, at least for those ready to
seize those opportunities. They are
competitive, dynamic, and proac-
The Wise
Leader
Practical wisdom in
business comes from
combining the broad
view with the narrow,
and opportunity with
constraint.
by Prasad Kaipa and Navi Radjou
S
martness is the operating
currency of organizational
culture in the 21st-century.
Whether it’s called cleverness, prac-
tical intelligence, or savvy, one can
tive. They relish high-stakes games,
and display an aggressive, winner-
take-all mentality. Bill Gates exem-
plified this form of leadership when
he took Microsoft from a college
dropout’s startup in 1976 to a com-
pany with a market capitalization of
more than US$616 billion by 1999.
But these leaders’ expeditious and

sometimes self-centered approach to
decision making can also cause
trouble. Gates learned this in 1998,
when the U.S. Justice Department
(followed by a number of European
countries) filed an antitrust suit
against Microsoft. By most ac-
counts, this was a rude awakening
for Gates. Under questioning at
trial, he appeared combative and
defensive. Although Microsoft set-
tled the lawsuit in 2001, these events
contributed to the company’s loss
of dominance.
“Functional smart” leaders are
grounded in the concrete, tangible,
and tactical, enabling them to
achieve operational and execution
effectiveness. Like Genentech co-
founder Herbert Boyer and HP
founders William Hewlett and Da-
vid Packard, functional-smart lead-
ers tend to have deep expertise in
narrow domains. They understand
that constraints are unavoidable, but
also know that they can be managed
by those willing to design appropri-
ate solutions. Tim Cook, for exam-
ple, who took over as CEO of Apple
after Steve Jobs’s death, brought a

new level of operational efficiency
and bottom-line productivity to
Apple, honed during his years as
chief operating officer. Functional-
smart leadership may seem like a
safer bet, but these leaders are prone
to repeating poor decisions or pro-
crastinating on tough decisions.
They are more likely to be caught in
the weeds of habitual practice, ne-
leading ideas
glecting things outside their pur-
view. Cook, for example, in over-
looking the poor working conditions
at Apple’s Chinese subcontracted
factories, damaged Apple’s reputa-
tion and some of its profi tability.
Today’s business leaders need to
balance narrow and broad views of
their business and of the world, and
to combine fl awless execution with
big-picture thinking. This ability to
navigate swiftly and effectively be-
tween the two forms of smartness
based on the context, coupled with a
focus on a higher purpose and en-
lightened self-interest—the belief
that a rising tide can lift all boats—
is what we call “wise leadership.”
Practical wisdom gives executives

the tools they need to achieve both
professional and personal success:
the fl exibility to anticipate disrup-
tive change, the execution capabili-
ties to meet today’s demand, and the
opportunity to build their facility in
ethics and shared values.
Most people, when they start
their careers, have potential for
both business-smart and functional-
smart leadership. But over time, as
they move up the hierarchy, they
tend to favor one or the other. They
take on what psychologists call a
perceptual fi lter. They see what they
expect to see—they become con-
scious of only one set of possibilities
and accept only one type of behav-
ior. The perceptual fi lters of business
smartness and functional smartness
are so prevalent and yet so subtle
that it’s hard to recognize the extent
to which they govern behavior. They
shape executives’ world view; al-
though people may have an intellec-
tual or intuitive appreciation for
both types of smartness, they miss
chances to bring them together.
To see the world more clearly,
leaders need to become aware of,

To Do
r Osite client meeting
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r Graham
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leading ideas
16
leading ideas
16
strategy+business issue 71
s+b Trend Watch
Pharmaceutical markets in developed
countries may still be quite sizable, but
in 2011–12 they were mostly stagnant—
or worse. Not so in emerging economies,
which are becoming the industry’s best
hope for growth.
–5%
1
5%
10%
15%
20%
25%
30%
35%
10 100
1,000
Venezuela
Saudi
Arabia

Algeria
Thailand
Nigeria
Vietnam
Indonesia
Egypt
Pakistan
South Africa
Ukraine
Japan
U.S.
Germany
France
Spain
Canada
U.K.
Italy
Argentina
Poland
South Korea
Circle size=
2012 population
Source: Matthias Buente, Stephan Danner, Susanne Weissbäcker, and Christoph Rammé, “Pharma
Emerging Markets 2.0: How Emerging Markets Are Driving the Transformation of the Pharmaceutical Industry,”
Booz & Company, 2013, booz.com/pharmawatch.

China
Brazil
Turkey
India

Mexico
Russia
Pharma Market Growth, 2011–12
2012 Pharma Market Size, US$ billions (log scale)
The Global Pharmaceutical Market, 2012
Mature
Markets
BRICMT
2nd-Tier
Emerging
Markets
African
Markets
KEY
0
29 million
1.35 billion
down as Microsoft’s chief executive.
He took on the role of chief software
architect, which emphasized func-
tional smartness. In the same year,
he embraced a higher purpose by
establishing, with his wife, the Bill
& Melinda Gates Foundation. Al-
though some people initially ac-
cused Gates of using his charitable
activities to sugarcoat his image, his
foundation is today respected and
appreciated for its highly effective
approaches to combating global

challenges. Gates, the successful but
polarizing fi gure, has become more
righteous and moral in the eyes of
many people.
Tim Cook was driven by Steve
Jobs’s advancing illness to change
his leadership style. He moved from
a narrow form of smartness to a
more opportunity-oriented perspec-
tive, turning his attention to the big
picture and becoming sensitive to
the changing context in the world
around him. When the factory scan-
dal broke, Cook went to China
to inspect working conditions fi rst-
hand, and he is now striving to
improve conditions there and else-
where. He also started matching
employee contributions to nonprof-
its, encouraging commitment to the
greater good. Although he has not
fully emulated Steve Jobs’s agenda or
style—for example, he pays divi-
dends, which Jobs avoided—Cook
has adopted some important busi-
ness-smart approaches. He discusses
strategy with investors, reaches out
to developers, focuses on top-line
growth, and has defended Apple’s
position as a leading innovator by

winning a patent infringement case
against rival Samsung.
A balanced approach also en-
ables leaders to lead their companies
to sustained growth, even through
trying times. Here we can look to
Ford CEO Alan Mulally as a model
of wise leadership. Long before com-
ing to Ford, Alan Mulally was a gen-
eral manager at Boeing in charge of
developing the 777 passenger air-
craft. Even at that time, he deliber-
ately cultivated a mix of business-
smart and functional-smart actions.
Traditionally, Boeing teams operat-
ed in silos with little collaboration,
leading to project delays and higher
costs. Mulally’s job was to coordi-
nate multiple teams and integrate
their efforts. In every project review
meeting, he began by reminding all
and then set aside, their perceptual
fi lters. This type of refl ection doesn’t
always come by choice—it is typi-
cally forced upon people. Bill Gates
didn’t wake up one morning and
say, “I want to become a wise lead-
er.” He must have been compelled,
by the lawsuit and other factors, to
reconsider his leadership style.

Gates, who had been known for his
intensely competitive personality
and take-no-prisoners strategies,
made a major course correction.
In early 2000, while awaiting the
antitrust court decision, he stepped
leading ideas
17
leading ideas
India’s
Leadership
Challenge
At many Indian
companies, the
development of top
management has lagged
behind the pursuit of
technical excellence.
by Gaurav Moda, Anshu Nahar,
and Jai Sinha
A
significant number of In-
dian companies have expe-
rienced impressive growth
during the past two decades. But
today, many face a daunting side ef-
fect: a nationwide crisis in leader-
ship. In some ways, Indian compa-
nies are victims of their own success.
As one senior HR manager at a large

private-sector conglomerate ex-
plained, “People have been so fo-
cused on growth that they have not
invested in developing [the next gen-
eration of executives]. There is a
strong circle of top leadership in our
businesses, but no tag team.”
Recent survey data supports
this claim. In a 2010 study by
Harvard Business Publishing, an
overwhelming 88 percent of top
Indian companies cited “gaps in
[their] leadership practice” as their
top challenge in coming years.
The 2012 ManpowerGroup Talent
Shortage Survey, a global survey of
employers, reported that 48 percent
of respondents based in India had
difficulty finding qualified candi-
dates for their senior managerial po-
sitions. And Booz & Company (the
teams that they had to factor in the
larger system, the whole plane, when
making narrow decisions; then he
moved to intensive, detailed review
of the technical and design issues.
Mulally took the same decision
logic to Ford. When he arrived in
2006, the company was losing mar-
ket share and brand equity. Mulally

mortgaged all of Ford’s assets to se-
cure a $23.6 billion loan, which he
said was needed to invest in R&D
and serve as “a cushion to protect
from a recession or other unexpected
event.” This decision, made at a time
when the economy seemed healthy,
was widely criticized. But Mulally
defended it on the grounds that “we
have to control our own destiny.”
Two years later, this business-smart
decision allowed Ford, unlike GM
and Chrysler, to avoid government-
funded restructuring.
Around the same time, Mulally
also made a critical functional-smart
decision. Walking through the park-
ing lot at Ford headquarters in De-
troit, he noticed the plethora of Ford
brands, with no common attributes
in shape or style. He set about prun-
ing the Ford model portfolio. This
allowed Ford to concentrate on im-
proving the engineering quality of a
smaller roster of models, to make life
easier for Ford distributors and deal-
ers, and to reuse components across
brands, reaping big savings on sup-
ply chain costs.
Becoming a wise leader is not

always a smooth journey—people
can easily revert to their familiar
smart behaviors. Practical wisdom
requires the unlearning of one’s past
success formulas. Even today, Bill
Gates becomes intense and defensive
when addressing Microsoft’s lack of
growth in the past decade. And Tim
Cook saw a significant decline in
Apple’s market valuation when he
focused more on tangible products
and services than on intangible con-
nections to the marketplace and
end-users. Such struggles are to be
expected. But wise leaders are resil-
ient, and they learn from failure.
They are flexible, enabling them to
maintain this crucial balance: The
business-smart leader can give voice
to aspiration, the functional-smart
leader can appreciate limits and exe-
cute within them—and the wise
leader can do both.
+
Reprint No. 00177

Prasad Kaipa

is a Silicon Valley–based CEO coach and
advisor and a senior fellow of the Indian

School of Business’s Centre for Leader-
ship, Innovation, and Change.
Navi Radjou

is a Silicon Valley–based strategy
consultant and the coauthor of Jugaad
Innovation: Think Frugal, Be Flexible,
Generate Breakthrough Growth (Jossey-
Bass, 2012).
This article is adapted from Kaipa and
Radjou’s book, From Smart to Wise: Acting
and Leading with Wisdom (Jossey-Bass,
2013).
Tim Cook was driven to change his leadership
style, from a narrow form of smartness to a more
opportunity-oriented perspective.
leading ideas
18
leading ideas
18
Illustration by Marco Melgrati
population has thus far fallen short
of its promise. Nandan Nilekani
points out in his book Imagining In-
dia: The Idea of a Renewed Nation
(Penguin, 2009) that India lacks the
educational institutions it needs,
from the earliest years to the post-
college level. Thus, even though
thousands of Indian university grad-

uates enter the workforce every year,
they are often not “industry ready”
or equipped in the skills of global
business. This has contributed to a
dearth of topnotch candidates and a
growing talent war for those few
with desirable skill sets.
Young talent needs development
and supervision. And as Indian com-
panies have expanded their reach
both domestically and abroad, the
lack of managers capable of provid-
ing this guidance has become more
acutely felt. The founding executives
who built these thriving businesses,
and who made the far-reaching stra-
tegic decisions in the past, are now
approaching retirement. According
to the chief executive of a large pri-
vate-sector fi nancial-services com-
pany in India, the country’s econ-
omy is growing at a faster pace than
the rate at which the leadership pipe-
line is maturing. A decade of rapid
expansion and exponential growth
has left companies in deep need of
talent that is in short supply.
This dynamic is all the more
daunting because operating models
at many Indian companies have

shifted. Traditionally, Indian com-
panies operated in a markedly top-
down manner—the person with the
corner offi ce made the fi nal deci-
sions, and senior managers oversaw
their specifi c silos. That top-down
model was effi cient, but it stifl ed
creativity and discouraged autono-
mous decision making. Now it is
giving way to a more participative
need, putting both potential growth
opportunities and the continuity of
existing business operations at risk
(see Exhibit).
Several underlying causes have
contributed to this breakdown in
India’s corporate leadership pipeline.
Considered together, they explain
how Indian companies have arrived
at their current precarious position.
Understanding these factors can re-
veal the opportunities that today’s
senior executives can use to set
things right. It can also provide
helpful insight to executives in other
emerging economies, many of whose
companies are also suffering from a
senior executive talent shortage.
Shifting Realities
About 65 percent of India’s 1.2 bil-

lion people are between 15 and 64
years old, and 30 percent of the pop-
ulation is made up of those younger
than 15. This widely recognized
“demographic dividend” should
have given Indian companies a sig-
nifi cant advantage in the form of a
sizable pool of qualifi ed applicants.
But the country’s youth-dominated
publisher of strategy+business) fore-
cast in a recent in-depth analysis of
India’s top 500 companies that by
2017, 15 to 18 percent of leadership
positions in those companies will be
unfi lled—or will be fi lled by people
underprepared for the jobs. This im-
plies that companies will be missing
almost one of every fi ve leaders they
2012
Projected Gap in
Top Management
2022
5%
1
5%
1
0%
2
0%
2017

Exhibit: The Supply–Demand Gap
India's top 500 companies will experience a
significant leadership shortfall over the next
five years. Although supply will eventually
catch up, a gap will remain unless companies
take action.
Source: Booz & Company analysis, using data from RBI,
the Indian government, Indiastat, and Prowess
leading ideas
19
leading ideas
approach, more resonant with the
younger generation and more effec-
tive for companies that are too big to
micromanage. But this new operat-
ing model can be effective only if
skilled managers are available to fi ll
the ranks.
Looking for Leaders
India’s young, underprepared popu-
lation, its rapid economic growth,
and its changing business models are
the most visible contributors to its
leadership defi cit. But there is a sub-
tler yet equally powerful underlying
cause: Historically, Indian business
leaders have focused on developing
technology rather than people. As
a senior manager at a large Indian
conglomerate put it, “We have qual-

ity technical experts, but can’t con-
vert them into business leaders.”
Perhaps the most obvious ex-
ample occurs in the C-suite: Few
companies have provided human
resources a seat on the executive
management committee. As a result,
the HR department often has a lim-
ited role (or no role) in the strategic
planning process, leading to a lack
of focus on people matters. As U.S.
companies did in the early years of
the Silicon Valley boom, Indian
companies have prioritized achiev-
As a senior manager at a large Indian
conglomerate put it, “We have quality
technical experts, but can’t convert them
into business leaders.”
ing technical excellence, hiring en-
gineers who’ve been trained to pur-
sue innovation—but not to manage
people and lead organizations. Evi-
dence of this dynamic can be found
in practices prevalent throughout
Indian companies.
Insuffi cient training for new re-
cruits.
Many Indian companies
struggle with new-hire “onboard-
ing” programs. Often, the incoming

class of MBA recruits is not suffi -
ciently integrated into the broader
workforce, and companies put too
much hope too early on these new
hires’ shoulders.
Meanwhile, rotation programs
meant to train the new recruits are
often ill conceived and seen by line
managers as an intrusion into daily
work. “Corporate has assigned two
MBAs to my department for rota-
tion—I don’t know what to do with
them,” said a department head at
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leading ideas
20
leading ideas
20
strategy+business issue 71
one midsized Indian company. “My
people are already overworked with
their routine work. We do not have
the time to train these overpaid
young recruits.”
Limited variety of experience at
the top.
Without a strong leadership
pipeline in place, star functional
specialists are typically promoted to
top roles. These individuals may
have a background focused within
one domain, and may not have had
the opportunity to develop a broad-
er perspective or set of skills.
This experience gap is not a
problem just for Indian companies;
it is endemic to corporate structures
everywhere. Many global companies
compensate with targeted on-the-

job experiences and in-depth train-
ing, where they bring senior execu-
tives together to help develop one
another’s skills. But Indian compa-
nies have invested little in this type
of executive development. Thus,
when functional specialists are pro-
moted into general management po-
sitions, few are well prepared and
motivated to handle their new roles.
A lack of succession planning.
Rapidly growing industries, such as
those driven by the rise of digital
media, often rely on relatively young
and inexperienced managers to take
on senior positions. By and large,
these individuals have not yet devel-
oped a leader’s perspective. For ex-
ample, the telecom boom over the
past decade has led to a flurry of
flourishing mobile phone brands in
India. But each of these firms has
had to draw upon the company’s ex-
isting pool of players to build its se-
nior team. The growth of that talent
pool has not kept pace with those of
the brands. One regional sales head
for a mobile handset company point-
ed out that “eight to 10 years ago,
there were only three or four handset

brands in the country. Today, there
are over 60. Relatively younger man-
agers have had to step up to take on
top roles in these companies.”
The ultimate result of this lack
of qualified successors? Senior lead-
ers are postponing retirement. In-
stead of developing and executing a
clear succession plan, executives
have been extending their tenure,
lacking confidence that the next
level of management is up to the
task of leading.
The Next Generation
Many Indian executives recognize
the challenges, but are unsure what
steps to take to overcome them. First
and foremost, they need to take a
fresh, holistic look at their leadership
development practices. Their goal
should be to develop a sustainable
leadership pipeline throughout the
organizational pyramid: a well-
rounded leadership team to comple-
ment the required skills at the top,
a team of successors right behind
them, a strong bench of high-poten-
tial individuals identified and devel-
oped in the middle, and a cadre of
young, industry-ready talent. The

pipeline should also include ad-
vancement opportunities for techni-
cal specialists.
This is no small task, and will
require executives and managers to
embrace the idea that training
young recruits is an essential part of
their routine, and will provide the
incentives for them to contribute to
the organization. Companies will
need to invest in replicating and
implementing specific interventions
that have been successful at global
companies (and a small number of
Indian companies), instead of ge-
neric initiatives. This means making
talent management a key compo-
nent of HR strategy, and making
HR a key participant in the firm’s
decision-making processes.
By taking these steps, compa-
nies can fill their immediate gaps
while building the enterprise capa-
bilities necessary to ensure that they
thrive in the long run. But only in
companies whose leaders endorse
this approach wholeheartedly, and
where it can become ingrained in
the company’s culture, will such
changes take hold. Talent is India’s

greatest opportunity, but it is also
one of its biggest challenges. The
same is true for more and more
businesses in other developing re-
gions around the world. In each of
them, it falls to today’s executives to
ensure strong leadership for genera-
tions to come.
+
Reprint No. 00178
Gaurav Moda

is a principal with Booz & Company’s
organization, change, and leadership prac-
tice, and is based in New Delhi.
Anshu Nahar

is a senior associate with Booz &
Company’s organization, change, and lead-
ership practice, and is based in Mumbai.
Jai Sinha

is the co-head and managing director of
Booz & Company in India, and is based in
Mumbai.
“Eight to 10 years ago, there were only three or
four handset brands in the country. Today, there
are over 60. Relatively younger managers have
had to take on top roles in these companies.”
“S

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to engagement is to provide employees ample autonomy, the
opportunity to make progress, and a sense of purpose. Dennis Bakke
brings these principles to life in a modern business fable with ample
lessons for building successful organizations from the ground up.”
— Daniel Pink, author of
Drive and To Sell Is Human
A leadership fable destined to
be a modern business classic.
www.decisionmakerbook.com
Also by Pear Press: NYT Bestseller
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by Jon Katzenbach and
DeAnne Aguirre
I
t is striking to see how many
chief executives see their most
important responsibility as be-
ing the leader of the company’s
culture. According to Ginni Rom-
etty, CEO of IBM, “Culture is your
company’s number one asset.” Her
counterpart at Microsoft, Steve
Ballmer, has said, “Everything I do

is a reinforcement or not of what
we want to have happen culturally.”
In another typical remark from the
C-suite, Starbucks Corporation
CEO Howard Schultz has written
that “so much of what Starbucks
achieved was because of [its em-
ployees] and the culture they fos-
tered.” Researchers such as former
Harvard Business School professors
John Kotter and James Heskett have
also found consistent correlation be-
tween robust, engaged cultures and
high-performance business results
(as described in their book, Corpo-
rate Culture and Performance [Free
Press, 1992]). But most business
leaders don’t need that evidence;
they’ve seen plenty of correlation in
their own workplace every day.
Recognizing the importance of
culture in business is not the same
thing as being an effective cultural
chief executive. The CEO is the
most visible leader in a company.
His or her direct engagement in all
facets of the company’s culture can
make an enormous difference, not
just in how people feel about the
company, but in how they perform.

Schultz described the CEO’s role
this way in his book Onward: How
Starbucks Fought for Its Life without
Losing Its Soul (Rodale Books, 2012):
“Like crafting the perfect cup of
coffee, creating an engaging, re-
spectful, trusting workplace culture
is not the result of any one thing. It’s
a combination of intent, process, and
heart, a trio that must constantly
be fine-tuned.”
A company’s culture is the col-
lection of self-sustaining patterns
of behaving, feeling, thinking, and
believing, the patterns that deter-
mine “the way we do things around
here.” At its best, an organization’s
culture is an immense source of
value. It enables, energizes, and en-
hances its employees and thus fos-
ters ongoing high performance. At
its worst, the culture can be a drag
on productivity and emotional com-
mitment, undermining long-term
success. Most companies are so large
and complex that the culture acts in
both ways at once. Indeed, the cul-
ture of a large company is typically
made up of several interwoven sub-
cultures, all affecting and respond-

ing to one another.
If you are the chief executive of
a company that is sailing with the
wind and leading in its competitive
race, that’s a sign that your culture
is in sync with your strategy. This
makes your company much more
likely to deliver consistent and attrac-
tive profitability and growth results.
You can tell you have such a culture
because people are confident and
energized. They can justifiably take
pride in the results of their work. As
CEO, your role is to keep the ship
on course and ahead of the competi-
tion. This requires generating regu-
lar behavioral reminders about the
values, aspirations, and engagements
that underlie your company’s success
and reinforce its strategy.
However, if your company is
STRATEGY & LEADERSHIP
Culture and the
Chief Executive
CEOs are stepping up to a new role,
as leaders of their company’s thinking
and behavior.
22
Illustration by Lars Leetaru
essay strategy & leadership

heading into stormy waters, facing
the kinds of disruptive competition
or unexpected market changes that
affect every industry sooner or later,
then a program of normal reinforc-
ing leadership won’t cut it. A cul-
ture that no longer aligns with your
strategic and performance priorities
needs a lot more attention—from
you and other senior leaders.
Many CEOs understand in
principle that cultures are multi-
dimensional, slow to change, and
troublesome to control—and thus
that influencing them requires care
and thoughtful engagement. This is
particularly true for global compa-
nies led by people of diverse back-
grounds. When confronted with a
cultural challenge in real life, how-
ever, chief executives tend to forget
this principle. Instead, they revert
to conventional managerial tactics,
but with more rigor. They turn up
the volume on the inspirational mes-
sages. They raise the bar and set
stretch goals with new statements
of the vision, mission, values, and
purpose of the company. They bear
down on costs and castigate people

for complacency. They may also see
culture change as primarily a func-
tional responsibility, to be delegated
to experts, either inside or outside
the company. More often than not,
these approaches leave the deeply
embedded cultural behaviors largely
unchanged. Only an enlightened
CEO can break through that kind
of cultural inertia.
A better starting point is a real-
istic recognition of the culture’s cur-
rent status. No company’s collective
practices and beliefs are all good or
all bad. They have evolved over time
for understandable reasons—often
to deal with the challenges or mal-
functions of the past. Moreover,
they are firmly entrenched in mind-
sets and habits. Therefore, it is es-
sential to be rigorously selective and
disciplined in dealing with cultural
issues. There are several things you
can do from your highly visible po-
sition at the top of the hierarchy to
spark and foster the cultural realign-
ments you want to see:
• Demonstrate positive urgency
by focusing on your company’s aspi-
rations—its unfulfilled potential—

rather than on any impending crisis.
• Pick a critical few behaviors
that exemplify the best of your com-
pany and culture, and that you want
everyone to adopt. Set an example
by visibly adopting a couple of these
behaviors yourself.
• Balance your appeals to the
company to include both rational
and emotional cues.
• Make the change sustainable
by maintaining vigilance on the few
critical elements that you have estab-
lished as important.
In all this activity, avoid dele-
gating your culture-oriented actions.
Do as much as you can yourself.
The Power of Positive Urgency
Time and again, we hear execu-
tives cite the importance of having
a “burning platform”—a stress-
producing crisis, whether externally
driven or self-induced—to incite a
high-performance culture. We once
observed a CEO incur several hun-
dred million dollars of unnecessary
debt for the sole purpose of creating
a sense of urgency for his culture
change effort. For many years, we
too subscribed to the conventional

wisdom that burning platforms were
the only way to obtain cultural im-
pact. But no longer.
Certainly we understand the
logic that underlies this point of
view: Companies full of complacent
people will rouse themselves only
in response to crisis. But experience
and common sense argue differ-
ently. Consider what people on real
burning platforms do. They escape.
They barely have time to act, much
less change their mind-sets and hab-
its with a view toward long-term
success. In the business equivalent,
which usually involves a rapid drain
of cash and profitability, your op-
tions will be similarly limited—in
this case, to layoffs, plant closures,
responses to the press and investors,
and other forms of damage control.
Like BP’s recovery efforts after the
Deepwater Horizon spill, Toyota’s
after the Fukushima disaster, or any
plant shutdown made in response to
a sudden loss of business, these trau-
matic activities are typically seen as
a one-time event, not as a way of
building for the future.
There is a much better way

to overcome complacency. As a
CEO or senior executive, the great-
est thing you can do is to marshal
an authentic sense of urgency, but
not one built solely on the logical
reasons that change is necessary.
Consider what people on real
burning platforms do. They escape.
They barely have time to act, much
less change their habits.
essay strategy & leadership
23