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 / Second Quarter 2002 / Issue 27(originally published by Booz & Company)


Yellow-Light Leadership: How the World’s Best Companies Manage Uncertainty

  • Where are we making all of our profits?
  • What businesses should we get out of?
  • Are our organizational processes undercutting the value of our strategy?
  • Do we really need to manufacture our own products?
  • Why aren’t the ideas coming out of R&D put  into operation?
  • Why does it take us two years to introduce a new product when our competitors do so in six months?

Of course, the true advantage of a flashing yellow light is not that leaders have permission to ask such questions, but that they have the power to act on them. Fully 54 percent of the companies in our study say that they are “focused on execution.” Only 6 percent say they are coping with the recession by introducing a new vision or grand strategy (and only 9 percent are going the route of a major acquisition).

Focus on Execution
If reframing works, why isn’t it the preferred strategic approach of all leaders? Because its success depends, in the final reckoning, not on style or charisma, but on old-fashioned management skills, in particular the unglamorous ability to implement effectively and swiftly. History shows that CEOs who dither over tough decisions cause companies to get stuck in adversity and, ultimately, to drift into crisis. Polaroid’s decade-long inability to implement several new strategies stands as an astringent warning to leaders tempted to play Hamlet. The secret appears to be to “get on with it”: The game is won in the long term based on successful execution of a strategy, even a flawed one. As Intel’s Craig Barrett told Fortune, “If you ask…what keeps me awake at night, I’ll say the same thing I’ve been saying for more than 10 years: I worry about the internal execution of our product road maps. If we do that, we win. If we stumble there, we give the competition a chance.”

Whether they are at Intel making computer chips or at Frito-Lay making potato chips, analytical leaders are focused on execution of their strategies. In practice, execution means clarifying down the line who has the rights and responsibilities to make what decisions. It also means closely managing capital allocation, goal setting, and performance appraisal systems to create the two prime attributes needed for long-term success: alignment and adaptability. And it means measuring everything, setting challenging improvement goals, and meeting those goals. At Cisco, leaders are trying to get the company back on track by refocusing on a key metric from their early days — revenue per employee. Again drawing on past bad experience, Frito-Lay Inc.’s managers today are measured simultaneously on both increases in revenue and decreases in the cost of manufacturing and distribution.

If yellow-light leadership sounds like a return to old-fashioned leadership by the numbers, there is one major difference: Yellow-light’s central rule is no winging it. And no excuses, either. Over the years, nearly every leader we have worked with has talked about the need for “accountability,” but precious few have practiced what they preached. Today’s adversity appears to be changing that. Accountability means making good on promises and meeting targets, or paying a price if one doesn’t deliver. This may sound hard-nosed, but when it is done objectively and by the numbers, it actually creates a sense of fairness in organizations. If people have to be laid off, almost everyone believes that the fairest criterion for being chosen is poor performance. Retaining and motivating high performers lays a healthy basis for future growth, and morale is kept high in the interim.

One of the ways analytical leaders prepare their companies for the future is by carefully examining and learning from past experience. Intel executives remember the 1980s, when the Japanese captured the computer memory business Intel had invented (and thought it owned). Caught by surprise, the company had to lay off thousands of employees. Since then, Intel has insisted on continually redeploying assets and people: exiting businesses that aren’t doing well in an orderly way so displaced workers can compete for new jobs internally, and fanatically using financial controls to prevent new external hiring without volumes of supporting rationale.

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  1. Bruce A. Pasternack, “Leadership: Dreamers with Deadlines,” s+b, Fourth Quarter 2001 Click here.
  2. Gary Hamel, “What CEOs Can Learn from America,” Fortune, November 12, 2001 Click here.
  3. Jerry Useem, “What It Takes,” Fortune, November 12, 2001 Click here.
  4. James O’Toole, Leadership A to Z: A Guide for the Appropriately Ambitious (Jossey-Bass Inc., 1999)
  5. Alec Levenson, Leveraging Adversity for Strategic Advantage, Working Paper, March 2002, Center for Effective Organizations, Marshall School of Business, University of Southern California
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