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 / Summer 2013 / Issue 71(originally published by Booz & Company)


The Wise Leader

Practical wisdom in business comes from combining the broad view with the narrow, and opportunity with constraint.

Smartness is the operating currency of organizational culture in the 21st-century. Whether it’s called cleverness, practical intelligence, or savvy, one can never have too much of it in a company. Smart leaders can see patterns in seemingly random information, enabling them to take decisive action while their peers are still assessing a situation, and to make the strategic choices that bring competitive advantage. But there are two categories of smartness, both of which carry benefits and risks. Most executives 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 unlimited, at least for those ready to seize those opportunities. They are competitive, dynamic, and proactive. They relish high-stakes games, and display an aggressive, winner-take-all mentality. Bill Gates exemplified this form of leadership when he took Microsoft from a college dropout’s startup in 1976 to a company 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 accounts, this was a rude awakening for Gates. Under questioning at trial, he appeared combative and defensive. Although Microsoft settled 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 David Packard, functional-smart leaders 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 appropriate solutions. Tim Cook, for example, 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 procrastinating on tough decisions. They are more likely to be caught in the weeds of habitual practice, neglecting things outside their purview. Cook, for example, in overlooking the poor working conditions at Apple’s Chinese subcontracted factories, damaged Apple’s reputation and some of its profitability.

Today’s business leaders need to balance narrow and broad views of their business and of the world, and to combine flawless execution with big-picture thinking. This ability to navigate swiftly and effectively between the two forms of smartness based on the context, coupled with a focus on a higher purpose and enlightened 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 flexibility to anticipate disruptive change, the execution capabilities 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 filter. They see what they expect to see—they become conscious of only one set of possibilities and accept only one type of behavior. The perceptual filters 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; although people may have an intellectual or intuitive appreciation for both types of smartness, they miss chances to bring them together.

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