To p Te a m s : W h y S o m eWork and Some Do NotF i v e T h i n g s t h e B e s t C E O s D o ToC r e a t e O u t s t a n d i n g E x e c u t i v e Te a m sWhen top teams fail, is the leader to blame?Portfolio managers lower company valuations when top teams falter.It is not hopeless: Ineffective top team leaders can become effective ones.W O R K I N G PAPER
eet Martin, the Chief Executive Officer of a global pharmaceutical com- M pany. Martin (not his real name) is a 15-year veteran of the firm, a con- sistent high performer personally and an undisputed leader. His colleagues describe him as hard-hitting, driven and charismatic. The company’s stock price jumped eight percent the day he was named CEO. However, as we will see, despite his many attributes he is an ineffective executive team leader. Martin’s top team has 15 members, including all the global business-unit heads and several functional leaders. The group gathers monthly for a full-day meet- ing, sometimes at headquarters, often at one of the company’s many world- wide locations. Martin kicks off today’s meeting with a joke, then lays out a packed 17-item agenda. First to speak is the head of the Asia/Pacific division, who updates the group on her numbers and answers Martin’s questions. After her two-hour presentation, the other team members each deliver a similar “silo briefing.” Almost no one pays attention. Vibrating cell phones—“No ringing cell phones!” the CEO has decreed—alert several team members to calls, which they excuse themselves to take. Others read faxes and memos. No speaker is offended because the real dialogue is between Martin and the presenter; team members rarely comment. In fact, they have tacitly agreed that no one will ask challenging questions. If you don’t make me look bad, I won’t make you look bad. When a team member says something Martin likes, his face radiates approval: Now there’s a team player. When someone disagrees with him, his body lan- guage says it all: I need to talk to that guy in private and straighten him out. Martin is unsettled when the meeting breaks at 11 in the evening. It was the same bloodbath as always on capital expenditures. All they care about is “How much of the Cap Ex budget am I going to get?” What about the big picture? Team members, jet-lagged and running out of energy, also feel frustrated. I flew 16 hours for this? What little I contributed today could have been done by phone or email. The strategic issues I care about got buried on the agen- da and we never even got to them. And I still don’t know what piece of the Cap-Ex pie I’m going to get! 1W O R K I N G P A P E R
Perhaps you recognize Martin. Then again, hopefully you do not. His top team is not really a team at all. And whatever results Martin gets from his senior peo- ple could be better—a lot better—if he understood the dynamics of executive teams. With so much at stake for CEOs—since 1999 turnover at the chief executive level has increased five-fold—why do so many falter with their top teams? Since 1999 turnover at Clearly, a major factor driving CEO dismissals is the inability to execute strate-the chief executive level gy, which is the main purpose of executive teams. In fact, an Ernst & Younghas increased five-fold. study1 showed a direct link between top team effectiveness and company valu- ation. The survey of institutional portfolio managers suggested that 35% of an investment decision is driven by non-financial data. The top two non-financial criteria were “execution of corporate strategy” and “management credibility.” One would expect CEOs to see that molding an effective executive team is a means to boost shareholder value—and keep one’s job. Yet our research shows that few seem to get it. Since 1998 Hay Group—working with Harvard University’s Richard Hackman and Dartmouth College’s Ruth Wageman—has been studying executive teams at major international organizations. Together, we have concluded that top teams can work effectively and bring a lot of value to the organization. But too many fail. And often the reason—many CEOs are not going to like hearing this—is the team leader. The benefits of effective top teams Successful team leaders from our study point to two key benefits of effective top teams: 1) they advance the team leader’s agenda much more quickly; and 2) they allow a company to weather tough times more effectively. Arturo Barahona, CEO of AeroMexico, credits his top team for several major accomplishments after he took the top job in 1999. In a turbulent airlines market during his first year, Barahona’s team carried out his directive to insti- tute company-wide cost-cutting procedures. They ended up slashing costs two percent, an exceptional feat at a time when fuel price hikes were increasing 1 "Measures that Matter:An Exploratory Investigation of Investors Information Needs and Value 2 Priorities," by Sarah Mavrinac and Tony Siesfeld. Ernst & Young Center for Business Innovation and W O R K I N G the Organization for Economic Cooperation and Development, 1998. P A P E R
costs significantly at other airlines. The team also increased revenues by 12% during that first year. To implement an aggressive growth initiative, the CEO of a British telecommu- nications company reorganized and revitalized his executive group. As a result the company increased its market capitalization from 10 billion pounds to 30 billion pounds and increased its customer base several-fold within three years. The Research: Identifying True Teamwork Since 1998, Hay Group has been working with Richard Hackman of Harvard University and Ruth Wageman of Dartmouth College to identify the dynamics of top executive teams and their impact on performance. From an initial group of 48 teams, the researchers narrowed their study to 14 teams, many from large global organizations. Each team member represented the head of an organization, a major business division, or a major geography. The study identified the elements that differentiated the outstanding teams through the following techniques: Behavioral Event Interviews, Managerial Style Inventory, Organizational Climate Survey, Team Effectiveness Rating Scale, and Team Diagnostic Survey. "Outstanding" performance was determined through four criteria: 1. Financial performance; 2.Team climate; 3. Customer satisfaction; and 4.The growth and development of the team and its individual members. Growth had stalled at an international specialty chemical company, so the CEO mandated cost-cutting measures to increase profits. Acting independently of each other, the strategic business unit heads felt they had driven out all unnec- essary costs from their operations, improving profits slightly. The CEO was unsatisfied and refocused his executive team on an interdependent goal. Together, the team was able to chase out even more costs, making cuts that eventually doubled profits. 3W O R K I N G P A P E R
The common theme in these success stories is getting individual team mem- bers to move out of their silos and function as an interdependent team, one that can advance the leader’s agenda quickly and switch gears when market changes require it.“The seven VPs on our executive team traditionally had worked very independently,” says AeroMexico’s Barahona. “If they had contin- ued to work that way, we could never have accomplished what we did.” Many business leaders see top team unity as a necessity, not a luxury, in today’s environment. “The world is too complex today,” says Vickie Tillman,Vice “To think a company can President of Credit Market Services at Standard & Poor’s. “Executive teams, especially in global companies, can’t afford to allow a silo mentality where peo- achieve its objectives with ple do not buy in to a shared vision. To think a company can achieve its objec- individual team members tives with individual team members acting in isolation is naïve.”acting in isolation is naïve.” What is a “real” team? Martin’s executive team in the opening vignette is a reporting group, not a team. Its main purpose is to share information. Thousands of such reporting groups now operate in companies worldwide. And most, if not all, mistakenly believe they are teams. So what constitutes a real team? In his book “Groups That Work and Those That Don’t,” Richard Hackman defines a real team as follows: “[A real team has] a collective task that demands a high level of interdependency among its members, something that can only be accomplished together; and clear and stable boundaries, so that membership is not constantly changing, and it is easy to tell who is on the team.” Martin’s executive team may have stable boundaries, but given its size probably does not. Our research shows that effective teams typically have six to eight members.With 15 members, Martin’s is too big. More important, Martin has not given his team a task that its members can work on together. As a result, there is little or no interdependence. In fact, every team member functions independently of the others, and this independence is reinforced at each meet- ing during “silo briefings.” 4 W O R K I N G P A P E R
F i v e C o n d i t i o n s F o r To p Te a m S u c c e s s he good news is that struggling executive team leaders such as Martin T can become successful ones. Creating effective teams is not an instant or easy process. It takes time, hard work and, most important, the leader’s and the Creating effective teams team’s full commitment. Ultimately, it is a new way of leading, requiring newtakes time, hard work and, behaviors and values. most important, the Hay’s research with Hackman and Wageman shows there are proven, and unex- leader ’s and team’s full pected, ways that CEOs can create and run highly effective executive teams.We commitment. found that on successful teams, the leaders created five conditions. They are: Direction, Structure, People, Support, and Development (see Figure 1). Figure 1: The Five Conditions for Top Team Success Conditions Support Direction Leadership Structure Results People Development In the following section, we discuss each of the five conditions in detail: 1. Establish a clear, compelling direction We worked with several organizational leaders who communicate a clear, com- pelling mission brilliantly and who get their employees to buy in to the compa- ny’s goals. But when it comes to leading their executive teams, many of these 5 same leaders assume there is no need to provide direction. One such leader was W O R K I N G taken aback when we suggested he determine if all his team members could P A P E R
identify the team’s purpose. “Of course they can,” the team leader insisted. “These are smart people. I don’t want to insult their intelligence.” The attitude is, unfortunately, widespread. A boss at an oil refinery agreed to give his team a quick quiz, one in which each member was asked to write down the team’s number one priority. This manager was stunned when the 10 team members listed four different top priorities, including cost-cutting, safety, environmental compliance and seeking new markets. “For goodness sakes,” exclaimed the team leader,“Don’t you guys realize that if “Teams, even ones with we can’t cut our refining costs by three cents a gallon, they’re going to shut ushigh-level people who are down?”leaders themselves, really “Is that all you need us to do?” replied the incredulous team members.want a leader. They need Galvanized by the discovery of what their leader really wanted them to do, the a framework of ground team members reduced costs by five cents per gallon over the following year. rules to operate in.” Many team leaders hesitate to thrust their vision on their team members. Vickie Tillman of Standard & Poor’s was one such leader. She says: “I had just gone from being a peer to being the boss, and I wanted people to buy into my vision, but I didn’t want to force it.” But a survey she conducted of the team members revealed that they wanted her to articulate her vision for them. “I was surprised,” Tillman says. “It showed me that teams, even ones with high- level people who are leaders themselves, really want a leader. They need a framework of ground rules to operate in.” Our research showed that on outstanding teams, the leader gave far clearer direction than on average or poor-performing teams. Figure 2 shows how the six factors that determine organizational climate affect team performance: flexi- bility, responsibility, standards, rewards, clarity and team commitment. For each factor, we asked team members to rate: 1) how the team was performing in reality; and 2) how the team should be performing. The gap is the difference between those two ratings; anything over 20% indicates a problem. On out- standing teams the clarity gap is just 18%, but on typical teams the gap is a whopping 58%, suggesting that team members strongly feel the absence of clear direction from their team leader. Figure 2 shows that of all the factors influencing team climate, clarity is the one that really distinguished great teams 6 from average ones. W O R K I N G P A P E R
Why is clarity so important? Because when the team leader does not provide it, a leadership vacuum is created, one that all members rush to fill with their own individual priorities and goals. High-performing individuals—i.e., people who tend to be on top teams—need goals and direction. When team members cannot see where the team is going, each member will promote his or her per- sonal interests. With no unifying team purpose, irresolvable conflicts erupt. Ultimately the top team can self-destruct, often with considerable collateral damage, including severe personality clashes and deep cynicism about the value of teams. Our study examined how Figure 2: Organizational Climate and Teams the six elements of Typical vs. Outstanding Teams Gap Between Actual and Desired Organizational Climate Performanceaffected team performance. 58% The most important by far was Clarity. For eachfactor, team members were Percentile Gap asked to rate: 1. How the team was performing in Typical reality; and 2. How theteam should be performing. 18% The bigger the gap, the Outstanding bigger the problem. For Typical teams, the gap for Flexibility Responsibility Standards Rewards Clarity Team Total Clarity is 58%. For Commitment Outstanding teams, the gap is just 18%. A top team success story How did AeroMexico’s Arturo Barahona convince a group of highly independ- ent vice presidents to work together, thereby molding a team capable of achieving exceptional results during a very tough year for airlines? Barahona began by establishing a direction for his team. He did so by drafting a document that laid out his vision. Preparing the core vision was not a demo- cratic process. Barahona did it alone, working 14 hours a day for two weeks. Once he had a draft, he met with each of his seven vice presidents in private to discuss his ideas, but also to get them to buy in to his plans. One month after he became CEO, Barahona held his first top team meeting, where he—and 7 he alone—spoke for four hours. “I was putting my stake in the ground,” W O R K I N G P A P E R Barahona recalls.
But once he had set the direction, Barahona backed off. “The people on a top team are very successful, ambitious people who have a lot of energy,” he says. “If you give them a strong challenge, they will do what it takes to succeed.” Six months later, Barahona and his executive team were ready to meet with 130 other key employees. “At this meeting I spoke for five minutes at the beginning and let my executive team take over and present the plan,” he recalls. “What they said wasn’t nearly as important as the fact that they were talking, not me. For our company, this was a major change. In the past, all our people knew these guys had always acted very independently. Yet here they were taking a team approach. Yes, it was my vision, but everyone put some- thing into it. It’s amazing how much a person can support an idea when they participate in the creation and execution of that idea.” Will AeroMexico face tough challenges in the future? Of course. But the team- work Barahona has fostered at the executive level will help the company face those challenges better than most. Team members rated team leaders on their Figure 3: How Managerial Styles Impact Team Performanceuse of the six managerial styles. On outstanding Outstanding Typical Poor teams, the dominant 77% 74% styles were Democratic 69% 63% 61% 64% (74%) and Authoritative 60% 56% 54% (63%). On poor teams 51% 43% 46%the dominant styles were 41% Coercive (77%) and 29% 29% 24% Pacesetting (69%). 12% 8% Coercive Authoritative Affiliative Democratic Pacesetting Coaching Direction and the Authoritative managerial style As Figure 3 shows, Barahona’s approach to team leadership is clearly the right one. Our research shows that the Authoritative style—in which the CEO sets a clear direction—is highly valued by team members. But so is a CEO’s effort to 8 infuse his leadership with an element of democracy by allowing his team and W O R K I N G P A P E R other key executives to participate in fleshing out the vision articulated by the CEO.
It is important to note, however, that outstanding teams do not much like lead- ers who are Pacesetters—who set a clear direction, but must always be out front “modeling the way,” and who often feel compelled to rescue team mem- bers who are struggling. In some circumstances Pacesetting is a valuable man- agerial style, but when it is a dominant style of an executive team leader, team members ultimately feel disempowered. The boss has all the answers. WhyThe executive team’s mission does he need me? must be consequential, Set a compelling challenge for the teamrequiring the deep experience As they work to make their teams effective, CEOs should never ask the teams and skills of the top team to take on challenges that could be accomplished by lower-level managers or members. executives. The executive team’s mission must be consequential, requiring the deep experience and skills of the top team members. A major manufacturer involved in our study had a top team whose mission was to improve product cycle time and delivery speed to market. One could argue that in this business these are mission-critical issues worthy of the executive team’s attention. But these challenges are primarily operational, requiring the expertise of capable middle and senior managers; the executive team, not suffi- ciently engaged by the challenges, stalled. So the CEO reinvented the team, establishing new, more appropriate goals such as exploring e-business opportu- nities, evaluating acquisitions of other companies and identifying new markets overseas. Energized by this new direction, the team took off. 2. Create an appropriate structure With direction firmly established, the CEO who hopes to create a successful team must also put in place an appropriate structure for the team. To do so, the CEO must set team size and boundaries, establish its procedures and spell out the norms of conduct the team will follow. Team size and boundaries The CEO who wants to create a successful team will generally populate it with six to eight members. More members mean more competing interests, more personality clashes and a greater risk that competing factions will form. “In 9 smaller groups people are much less concerned about making their peers look W O R K I N G P A P E R
bad,” says Standard & Poor’s Tillman, who cut her team from 14 to eight. “So you get better discussion, more passion, more honesty.” Why do teams grow too large? CEOs and other top executives, fearful of leav- ing key players off the team and perhaps offending them, often invite too many people to the party. But the best leaders understand that organizations are not democracies, and that full representation is unnecessary. The appropriate ques- tion is: Given the team’s goal, which individuals bring the expertise required to achieve that goal? Anyone who lacks expertise or merely duplicates expert- ise already offered by someone else should not be on the team. Larger teams mean more Procedures competing interests, more CEOs must periodically review procedures followed by their executive teams personality clashes and a and continually ask whether the procedures impede or advance the team’sgreater risk that competing efforts. factions will form. On one team we observed, the CEO allowed the meeting agenda to begin with tactical items and end with strategic ones. Not surprisingly, meetings got bogged down on the early items while strategy—the real purpose of the team—almost always got short shrift. When we pointed this out to the CEO and the team, this unproductive, team-defeating practice stopped. Another CEO had his team begin its executive meeting at 4:00 in the afternoon and let it go on until 11 in the evening. As a result, after about 9 o’clock no one dared raise an important issue for fear it would ignite a discussion and pro- long the meeting. Ultimately, the CEO realized what was happening and start- ed the team’s meetings earlier in the day. Norms All too often, team leaders overlook one important factor: That they have to establish norms, the ground rules for determining what is acceptable behavior by team members and what is not. A norm could be something very simple: On Martin’s team, members were allowed to take phone calls during meetings, but were asked to silence their ringers. But norms can also be complex, like those that spell out how team members should debate opposing points of view. 10 W O R K I N G A CEO may also allow tacit norms to crop up, but only as long as those norms P A P E R
are accepted by everyone on the team. There are not likely to be problems if a regular meeting scheduled for 9:00 in the morning always starts at 9:20, and all participants know that. But the CEO has to stop disruptive norms from creep- ing in. Our researchers encountered a team leader who routinely stopped his team meetings when latecomers arrived and insisted they receive a quick recap of what they had missed. The same two people were the ones who were always late, and the rest of the team deeply resented them for it. MoreTeam leaders who emphatically important, they resented the leader for tolerating a norm so disrespectful ofarticulate the team’s direction the team’s time.and who establish clear norms As important as norms are, no universal norms apply to all teams.The CEO and do not have to act coercively the team, together, have to set the ones best suited to their endeavors. And the list does not have to be an extensive one—two or three that will enhance the to hold their team members team’s performance will do. At AeroMexico, CEO Barahona and his team put accountable. The team will their norms on paper. “We came up with a long list together of things that we do it for them. felt were important and then narrowed it down to 10,” Barahona said. “We typed them up and everyone signed them.” Two key norms on that list were “Never play politics” and “When you commit to something for the group, always deliver.” Enforcing norms Barahona says that in the first month or two he had to reprimand a couple of team members.“I pulled out my list of norms and said,‘What you did violated Norm #3 right here.’” He has not had to do it since. “The norms have become part of the normal life of the group,” he says. “No one violates them anymore.” The team leader can, and should, establish new norms as the need arises. At an executive team meeting of a division of a worldwide chemical company, the division president asked his Chief Financial Officer for some analysis. “Sorry, I don’t have it because Corporate didn’t get the numbers to me,” the CFO replied. The president, who had heard this excuse repeatedly at earlier meet- ings from several others, had had enough.“New rule,” he said firmly. “From now on no one will blame Corporate when they are unprepared.” Team leaders who emphatically articulate the team’s direction and who estab- lish clear norms do not have to act coercively to hold their team members 11 accountable. The team will do it for them. Teams with clear direction and W O R K I N G norms tend to self-regulate. P A P E R
Moreover, when a CEO sets a strong direction and clear norms that take root within the executive team, the members readily use them to train newcomers how to behave within the team. Norms are the glue that holds a team together. As CEO you should never assume that because your top team includes bright, successful individuals, What people on the there is no need to establish clear norms. Our research suggests the oppositebest teams contributed is true: Because top teams are composed of such strong personalities, clearwas the ability to work norms are even more important. And only the leader can establish and enforce them effectively. with others. 3. Select the right people When we studied what kinds of executives should be on top teams, the results were surprising. We found that people on outstanding teams were neither brighter, more driven nor more committed than members of less accomplished teams. What people on the best teams contributed was the ability to work with others. They brought emotional intelligence to the table. Emotionally intelligent people are capable of self-control, are adaptable and exude self-confidence and self-awareness, to name just a few of the attributes that distinguish them. However, our research showed that on outstanding executive teams, two attributes in particular distinguished members from those who served on less capable teams: empathy and integrity. Empathy Empathy is the ability to understand the emotional makeup of others. Our research shows that members of outstanding teams were far more empathic than their counterparts on average teams (see Figure 4). On outstanding teams 71 percent of participants said their peers were sensitive to the unspoken emotions of their fellow team members. On average teams the percentage was just 44 percent. Why must a CEO see to it that the top team is populated with people who have empathy? Because the members of a team will only buy in to the team process if they feel they are both heard and understood. Like others who have 12 researched how individuals react in a team environment, we found that team W O R K I N G members accept criticism, even outright rejection, of their ideas as long as they P A P E R
have had a chance to explain them and feel that others understood their point of view. Resentment builds if people feel they have not been heard or that, either for political reasons or simply because others dominated the floor, their ideas were not fairly evaluated. Figure 4: Empathy Level of Team Percentage of team members who answered "yes" 71% 44% Outstanding Typical Are members of your team sensitive to the unspoken thoughts, concerns and feelings of their fellow team members? It is critical that CEOs select emotionally intelligent team members capable of empathy, people capable of mutual respect who can listen to others’ views without interrupting. It is equally important that team leaders remove anyone not willing to demonstrate this important attribute. Consider the tough choice made by the CEO at a major health care company: An executive team member (we will call Paul) dominated team meetings with his personal demands. Paul had the top-performing hospital in the company. He knew it, and made sure everyone else on the team knew it too. During dis- cussions of capital expenditures and other resources, he demanded special treatment. “With Paul it’s always ‘I want this’ and ‘I want that,’” the CEO explained. “It seems like three-quarters of every meeting is about his issues. He never listens to the needs of others on the team.” Paul’s disruptive need to dominate the meeting showed poor self-management. He demonstrated weak social skills, eroding relationships with his peers and 13 limiting the group’s ability to work as a team. And, of course, he lacked empa-W O R K I N G P A P E R thy.
The CEO removed Paul from the executive team, and Paul left the company as a result. “But it was worth it,” the CEO continued.“Paul was a smart guy, and a great performer, but in the end I felt he was holding me and the rest of the team hostage. A guy like that can destroy an executive team.” Integrity“Paul was a smart guy, and a The study we conducted with the help of Harvard’s Hackman and Dartmouth’s great performer, but in the Wageman also suggests that integrity is extraordinarily important on executiveend I felt he was holding me teams. Integrity is generally thought to encompass honesty and a strict adher- ence to an ethical code. In the context of our team study, integrity was defined and the rest of the team more narrowly. On top teams, a person with integrity is someone who behaveshostage. A guy like that can consistently with the organization’s (or the team’s) values—even when it is per- destroy an executive team.” sonally risky to do so. That is, when there is some personal sacrifice involved. Figure 5: Integrity Level of Team Percentage of team members who answered "yes" 44% 3% Outstanding Typical Does the team have at least one member who challenges the group to live up to its values and norms, even when it is personally uncomfortable and/or professionally risky to do so? When a CEO has created a team whose members have the kind of integrity that puts the organization first, team members also develop an extraordinary amount of trust in each other. This was very evident in surveys we conducted of teams categorized as outstanding and teams that were less so. On average teams, only three percent of the team members surveyed said that even one individual on the team would take the personal risk of challenging the team to live up to its 14 values (see Figure 5). On outstanding teams 44 percent of the members said W O R K I N G P A P E R
that their fellow team members would take such an action. For example, an executive team in our study was contemplating the immediate closure of a factory. Several members argued in favor of closing the factory because it was not productive. Shutting it down would help cut costs. ThisStrong team leaders create hard-line view was gaining steam when one team member spoke up:“One thing we always say at this company is that we show respect for people,” she an environment where said. “How is closing the factory this way consistent with that core companyteam members understand value?” that conflict is good, as It was risky for this team member to say that—on some executive teams such long as it is over ideas, candor could be suicidal. But because the team leader had created conditions not personalities. of trust on the team, the team member felt she could safely present the oppos- ing point of view. After lengthy debate, the team agreed that shutting down the plant right away could have serious repercussions with employees, the union, customers and the community, and they agreed at that meeting to keep the plant running. Enabling productive conflict The team described above has the emotional intelligence to deal with conflict. Strong team leaders create an environment where team members understand that conflict is good, as long as it is over ideas, not personalities. Contrast that with the situation at the pharmaceutical company described in our opening vignette. The team members had a tacit agreement with one another not to speak their minds in meetings. The reason: One of the ground rules established by Martin, the team leader, was that “conflict is bad.” He never explicitly said so, but his reaction when members disagreed with him sent the message loud and clear. Achieving high integrity on a team Team leaders can create the conditions that encourage team members to deep- en their commitment to integrity. For example: ■ Speak your mind. The CEO should make clear that when team members disagree with issues relating to team goals, they should speak out. Team 15 members should recognize that holding back, for political reasons or for W O R K I N G fear of reprimand, undermines the effectiveness of the team. A top team P A P E R
leader at a major financial institution had this to say to a team she was plan- ning to relaunch:“When I reorganize this team, I need people who will be providing thoughtful input. If you don’t express your ideas, you’re not ful- filling the purpose I intended for you as a member of this team. That does not mean you won’t play an important role at the company. It just means you won’t be at this table.”In teams characterized by ■ Walk the talk once you have signed on. Hay researchers have often seen outstanding integrity, teams whose members agree to a measure while in a team meeting, but members recognize that who then do everything they can to thwart the goal later. In teams charac- terized by outstanding integrity, members recognize that they must subordi- they must subordinate nate their narrow interests to those of the group. The CEO should say: their narrow interests to “Raise objections, engage in conflict over ideas, but if the group decides to those of the group. go forward anyway, act in a manner that supports rather than under- mines the initiative.” ■ Speak for those who are not present. CEOs assemble top teams to bring together people who have complementary abilities and a variety of opin- ions. But on teams with strong integrity, when a team member is absent her colleagues express her views for her: Natalie couldn’t make today’s meeting, but I know she would disagree with what’s been put on the table today. Let me try to sum up how Natalie would react to this pro- posal. We have seen teams where the absence of one member was per- ceived as an opportunity by other members to drive through proposals to which the absentee might object. In other words, Let’s pass this thing before Natalie gets a chance to object to it. Such low-integrity behavior erodes the effectiveness of a team. It undermines trust. 4. Support the top team Our research showed that CEOs who want outstanding teams must arrange to provide them with strong organization support by providing their members with sound data and forecasts. But CEOs must also see to it that team mem- bers get training and that their efforts are adequately rewarded. It is especially important for a CEO to set compensation that is appropriate, 16 but also encourage top team members to buy into the goals set by the team. W O R K I N G Doing so delivers a strong message about what a company values. Compen- P A P E R sation also can be a powerful tool for accomplishing top team goals.
At a major financial institution we studied, the CEO and the executive commit- tee decided that for strategic reasons the company’s European division would operate in maintain mode rather than growth mode during the next year. That meant that the division would get no increase in its capital expenditures budg- et. The head of that business unit was unhappy about the decision. After all, Outstanding team leaders he had to go home and deliver bad news to his troops and he left the meetingprovide individual coaching torn between his role as a business unit head and his role as an executive team member. to team members. Because all executive team members effectively wear two hats, there is no way to eliminate this conflict completely. But imagine if the CEO at this financial institution had set a variable compensation system that included bonuses and long-term incentives for helping the company as a whole attain its corporate goals. The head of the European unit still would have gone home wounded— but could have looked forward to rewards to help salve those wounds. Figure 6: How Development Impacts Performance Level of Development (Scale of 1-5) The Level of Development, or 3.9 coaching, was much 3.1 higher on outstanding 2.6 teams than on typical and poor ones. Outstanding Typical Poor 5. Provide development CEOs who are outstanding team leaders periodically review team performance. They hold meetings to discuss how the team is doing, what it is doing best, what it is doing poorly and what it and its members have learned. One execu- tive team we observed went through a very rocky acquisition together. When they were about to undertake another, the CEO gathered the team to discuss candidly what had gone wrong the first time around. As a result the second 17 acquisition went very smoothly and the team felt a strong sense of accomplish- W O R K I N G P A P E R ment. As a group, we made this happen. We learned from our mistakes.
Outstanding team leaders, we learned, also provide individual coaching to team members (see Figure 6). For example, when a team member does not realize how her personal style affects others, the team leader can make her aware of it: Your tone was a bit aggressive in the meeting today, Joan. Soften it a bit and people will accept Faster execution of the your ideas better. If a team member is not participating adequately in meet- CEO’s agenda, improved ings, the leader can take the person aside and encourage him to speak up: You responsiveness to market have strong opinions on the topics we discussed today, Joseph. Other peoplechanges and higher perceived besides me need to hear them. valuations from institutional investors are three big Conclusion benefits of effective top s our research has shown, top teams can work, and the payoff for com- teams. A panies can be significant—faster execution of the CEO’s agenda, improved responsiveness to market changes and higher perceived valuations from institutional investors are three big benefits. The latter should provide par- ticular comfort—and job security—for CEOs. But creating and sustaining effective top teams is hard work. Top teams are organic units. Effective CEOs will take care to nourish and renew them, as they would any valued living organism. A CEO will never let that team tell itself “We have arrived.” Yes, leaders should take pride when their efforts create excep- tional levels of harmony and focus, bring out the best in people and generate breakthrough thinking. But external conditions, as well as the complexities of interpersonal relationships on top teams, will conspire to erode whatever har- mony and focus the CEO has brought about. And CEOs—nobody said this would be easy—will have to earn their pay once again. For senior executives who have never run a top team, or for those whose past experience has made them cynical about teamwork at the executive level, the five conditions offer a road map for creating successful top teams. For Arturo Barahona of AeroMexico, the high level of team commitment he got was the payoff for successfully establishing the five conditions. He recalls that at a team meeting in early 2001 his sales director was a bit down because sales were off. 18 “We had economists there explaining how all other airlines were having the W O R K I N G same problems,” recalls Barahona,“but he kept saying,‘I don’t want to use that P A P E R
as an excuse. I feel I’m not delivering for the team.’ We all tried to reassure him by saying we understood the economic reasons why sales were off. But he wouldn’t listen. He couldn’t accept that he was letting down his team.” Although Barahona acknowledges that leaders strongly influence team per- formance, he insists that it is the team members themselves who actually make teams work, and who deliver the outstanding results that companies need to get from their executive teams. “On top teams you have very talented individuals who demand a lot of them- selves, but who also have the team demanding more and more of them,” he says. “People feel tremendous pressure from the group. So you get results that you wouldn’t get from individuals only acting for themselves. That’s the real richness of teams.” 19W O R K I N G P A P E R
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