Leadership as an Institutional Trait

In the popular press, companies are often portrayed as shadows of the "Great Men" who sit in the chief executive's chair. In reality, there is little that an executive, no matter how charismatic, can do alone to affect business results. Leadership is, by definition, doing things through the efforts of others. A new global study conducted jointly by the World Economic Forum and Booz-Allen & Hamilton analyzes leadership as an institutional capacity, not solely a personality trait of individuals.

Businesses that become dependent on a single great leader run a risk: If that individual retires, leaves, or dies in office, the organization may lose the capacity to succeed. Witness the fates of ITT Industries Inc. after Harold Geneen, the Polaroid Corporation after Edwin H. Land, or Apple Computer Inc. between Steven P. Jobs's terms.

Instead, the CEOs of enduring companies use effective communications and enabling management systems (such as vision, planning, organization structure, group measurement, compensation) to create organizational alignment around business objectives, while encouraging adaptability in the face of discontinuous threats or opportunities. Alignment and adaptability create the environmental conditions for employees to "do the right thing," encouraging the behaviors that drive superior company performance.

The worldwide study suggests that successful companies share several characteristics. Their leaders manage a few enabling systems "tightly," and leave others "loose." These systems are consistently effective at all levels in such companies; at most companies, systems may work at the top levels, but become less effective as one moves down the hierarchy.

Although alignment and adaptability are difficult to achieve simultaneously, they are not mutually exclusive. The key is to achieve the right balance. One way is to align around adaptability by measuring and rewarding agility, responsiveness, and risk-taking. Companies that scored above the mean in both alignment and adaptability outperformed peers on key financial indicators.

In general, executives spend more time and energy on achieving alignment over adaptability. Not all alignment is good, however. Bureaucratic alignment — anchored in the habits and success of the past — can be deadly. And adaptability without sufficient alignment and control of risks leads to chaos.