Essays on management: Leadership, strategic planning, and countering short-termism

Effective organisations need leaders as well as managers. Leaders give direction while managers implement. Leaders without managers can direct rhetorically and yet fail to embed in operational practice and to execute. Strategic leadership requires capability as well as aspiration and so leadership direction must be translated into management application.

There are some fields where leadership can be disproportionately more important than management. This is typically where knowledge and learning is fluid and things move too fast to be automated in routine, repetitive processes. Universities and science institutions can to some extent manage themselves. Most people working in such institutions dislike poor management, however they prefer it to lack of intellectual leadership. Science institutions typically need to be led by top scientists whose intellectual leadership overcomes sloppy management. What is needed in science is leadership of new knowledge creation, not management of a broadly-given state of technology or productive assets.
While leadership and management are distinct functions, they can be combined in the same person. However many organisations are over-managed and poorly-led. There are always fewer leaders in an organisation than there are managers. There are even fewer good than bad or indifferent leaders, and so good leaders are a scarce resource.

People can be natural leaders or positional leaders. The former lead by example while the latter by powers vested in positions they occupy. Natural and positional leadership can be combined in people with both innate abilities and the positional powers to make those abilities productive.

Leadership is not charisma or making friends and influencing people, it is lifting people beyond what they would otherwise be capable of achieving. Leaders must be both trusting and trusted because trust is a willingness to make yourself vulnerable to others’ behaviour and in uncertain environments. A leader must be consistent so people know how the leader will behave. This consistency is based on a clear outcome or result desired that translates into a leader’s behaviour. It is not just doing the same thing over and over again even as circumstances change.

Over time consistency builds reputation that creates trust because the leader’s behaviour will be predictable. This emboldens commitment from others by countering uncertainty. Uncertainty is then turned into manageable risk.

Consistency and the trust it builds frees up energy that would otherwise need to be focused keeping a leader compliant with higher purposes. George Orwell noted how Churchill as a war leader was supported across the social and political spectrum because he would not make a deal with Hitler, and so energy did not need to be wasted in keeping him compliant.

Leadership involves working in teams but not being subsumed by the team. Leadership team members should not share the same views but might need to share the same vision. They also need self- awareness. In the public and private sectors, senior management teams focusing entirely on today label themselves “strategic leadership” teams when they are in fact neither strategic in focus nor leaders in nature. Such teams tend to only manage, and it is individuals who lead.

Leadership can be a foul weather job that cannot easily be routinised. It can require the wisdom of a many-minded Odysseus who is on a journey and who adapts cleverly to circumstances as they change. It is not suited to someone who needs a map to navigate between two trees.
Leaders must have followers and the ability to give them direction, yet a leader can be lonely when surrounded by others. Leadership is not for those who feel isolated except in a crowd, nor is it asocial. Leadership means leading a pack and ignoring the herd. A leader must set a direction, know the long-term outcomes sought, and have the reflexivity to adapt to change as it emerges and requires response.
A leader must ask what needs to be done, be able to answer this question, and make sure what needs to be done is understood. This means a leader must be both visible and a communicator. Management as well as leadership requires communication both orally and in writing. Good writing reflects good thinking and is a result of it. Poor writing is both a result of sloppy thinking and a cause of it. Good writing means better decision making and behaviour because people understand the message. Succinct and clear writing saves time in reading. A document editing that reduces length by 10% lifts a reader’s productivity by 10%. If many people read a document and their productivity is enhanced accordingly, then total productivity effects can be enormous.

Good writing should follow the Gricean rules. It should be accurate, relevant, brief, and should respond to its wider context. It should be in active not passive language. If it is possible to cut out a word, do so. Words should be used in their exact and unambiguous meaning. They should be chosen individually and shaped into prose. It is important to write for people, not to write at them, and to use language people understand.
People learn and understand in different ways and it is often valuable to communicate in a range of styles. Don’t assume others know what you know or what you are trying to accomplish. Communicate in a way likely to be understood. Some people learn by reading, others by talking, and some even learn by writing or speaking aloud as ways of thinking through issues and learning from this. Often in a presentation one third of an audience will understand everything, one third will be half way there and one third you will struggle with. Messages may therefore have to be repeated in lots of different ways.
Leaders and managers should not string together clichés, preformed phrases or sentences borrowed from somewhere. They must call things by their right names, and ensure the truth is told politely with no glossing over.

Leadership involves focusing on external results that are sought. Leadership is forward-looking and the future always involves at least risk and often uncertainty. Risks increase in geometric progression the further out we seek to predict and manage them. Over longer time frames we need to manage uncertainty rather than risk. A risk can have a probability distribution attributed to it. In the case of uncertainty, the broad form of the outcome may be known but a probability cannot be assigned to it. Managers can deal with risk, however it takes a leader to manage uncertainty.

A leader needs the ability to connect to people psychologically and shape their behaviour. This ability can be used for good or evil. Some leaders can convey an infallible persona, high self-esteem and over-confidence and others are convinced by this self-valuation. Charismatic leaders such as Hitler and Lenin all taped into the transcendental, into authority bias, and into herding effects, and they perverted this psychology for evil purposes.

Given this, who are good leaders? A leader must be self-aware and this leads to humility. Some who describe themselves as “leaders” are self-deceptive rather than self-aware and invite mockery from others. A leader must relate self-knowledge to positive outcomes for others. Leaders must have the integrity to align their behaviour to wider outcomes rather than to narrowly self-serving purposes.

A leader expects positive results distant in time and requiring action to achieve. This requires intelligence. As W.D. Hamilton said:

“…it is the accuracy of forecasts in increasingly untried situations, increasingly distant in time, that is the measure of the possession of intelligence.”

A leader must declare expectations from followers. A leader must expect positive results and show uncommon commitment to delivering them and must be committed and not just involved. A leader running an explosives business should be surrounded with gunpowder barrels to show confidence in safety procedures.

Leadership is inherently about the future and the strategy needed to lead an organisation into the future. Leadership must therefore always have a strategic dimension and this must involve vision.

Some visionary thinkers can imagine what others would not contemplate or think possible. Some can even make it come true – Steve Jobs is an example. Other strategic leaders may see things others don’t and think through the future ramifications. However, common mortals need systematic rather than inspirational ways of thinking about the future.

The bane of leadership and strategic planning is short-termism and the inability to conceive of the longer term.
There are strong incentives in both public and private sectors to focus on short term rewards and discount and underinvest in the future. We must plan for the future because it will be different to today and that means what we do today is inherently ill-suited to tomorrow.

Short-term behaviour partly results because it is managers rather than leaders in charge and managers may respond only to what will be rewarding during their tenure in a role and are not concerned with enduring impacts. This is a failure of the imagination, and a failure of character. It may result from a dogma that permits of no other scenarios and therefore alternative plans or safeguards. Examples in recent times were the failure to adequately regulate finance company offerings and mining safety. These disasters also resulted from a lack of historical memory of past financial failings and the dangers inherent in mining. A failure to respond to many signs of failure reflects a confirmation bias. All of these failings ultimately reflect sins of omission rather than commission.

Short-termism means people buy cars and build houses without thinking through the energy and the through-life costs. Short-termism often means false economies, such as cheap steel on the Titanic, the budget air fares on a cowboy airline that led to the deaths of several Crop and Food CRI managers, taking short cuts in building that leads to leaky homes or seismic risks, the Pike River disaster, and a school that economised on tree clearing leading to a death because the groundsman wasn’t taught how to stack logs properly.

The nature of democracy and electoral cycles predisposes politicians to the short-term. The short-term thinking in the public service partly reflects democratic systems. It also involves abrogation of leadership responsibility since leadership is about tomorrow.

In the private sector, cutting long term investment always makes short term results look better. In share markets and in business in general a focus on the short term can make traders rich and investors poor. A short-term focus on share trades can destroy value by imposing deadweight transaction costs while taking attention away from the inherently longer timeframes needed to create enduring value.

Economists and organisational theorists may argue that businesses form to economise on transaction costs. However, businesses and other organisations primarily form to encourage people to cooperate over the long-term, and to guard against short term individualistic opportunism and free-riding that damages the long term. Complex organisations therefore exist largely to stop short-termism damaging the future in which we and our descendants must live.

Organisations exist to pursue ends individuals cannot attain alone. They also counter short-term human psychology shaped by our evolutionary psychology. Our hunter-gatherer ancestors faced high effort-independent variance in outcomes and evolved an ethic of sharing to mitigate risk to individuals. They lacked the ability to save and accumulate wealth. They were subject to nature’s capricious hand in seasonality, and extreme variability in hunt and harvest. Meat kills came in irregular and easily spoiled lumps and were shared to avoid waste.

This sharing was remembered and repaid, laying a basis for reciprocal altruism psychology. With no ability to physically accumulate and no banks to save in favours were given and returned in future on a reciprocal basis. This created an ethic of sharing and living for today inimical to the savings, accumulation and future-oriented investment needed for businesses to prosper and economic growth to occur. This evolutionary psychology underpins short–termism and it can only be countered by sophisticated human organisation.

A philosopher may seek to counter short-termism through application of Rawlsian principles. These can play an important role. Ultimately however short-termism can only be countered by formal organisational strategy and its execution. Too many organisations develop strategies and goals rhetorically and fail to think through the capabilities needed to deliver on their strategy.

Strategy means holding a lot of things in your head at the same time. It requires identifying the key issues or variables and addressing them. It requires diagnosis and state description and focused choices addressing critical issues and actions.

While countering short-termism, we must also beware the longevity of the temporary, whether Waitangi Tribunal deliberations, tax breaks or interest-free student loans. There is a need to know how to learn from and capitalise on the past and at the same time prepare the way for the future.

Strategic planning implies the ability to identify, quantify and sequence tangible events and resources that have a bearing on them. It involves understanding the past and today and being able to envisage a better future. However the past and the present are not prologue.

We can predict climate change impacts and its ramifications for our local government planning and infrastructure. However for much strategic planning we are looking through a veil of ignorance about how it will unfold. We know there will be black swans and other surprises, many of them unpleasant ones. Much good strategic thinking and future planning starts with mega-trends already emerging, some only as weak signals or microcosms of future mega-events. Strategic thinking extrapolates forward from existing trends and picks disruptions that interfere with them or move things in different directions. It focuses not on the trends but the changes in them. The key external events and trends may well be qualitative, though many have a partial or wholly quantitative nature.

Sometimes a leading sliver of demand in a discriminating market will be tomorrow’s mass market. Some demographic trends such as ageing populations and rising dependency ratios are predictable and can be planned around. Beyond such broad projections it is best not to try and predict the future in detail and rather to think through how current events will affect the future. The key thing is to pick the shifts in trends and detect the signal in the noise. Spotting a discontinuity can be insightful. An example might be the higher birth rates in less developed countries compared to developed world declining birth-rates and ageing populations.

Strategic planning can start with dispassionate description of today’s world and envisaging what a future one might be. Strategy, like medicine, must be matched to the context. An envisaged future must be set against today and questions asked about what is different. There must then be a commitment to this future state or objective and a pathway to get there. There must be a concentration of resources, and a recognition that feedback and reflectivity is needed as the objective is worked towards. This will both modify the end objective and allow different routes to get there.

Strategies and strategic objectives are directions and not fate, and often an indirect or unexpected route to the objective is needed to achieve them. While the way to success may be oblique, the focus must be on opportunities not problems, and a decision not to follow the mainstream but to choose one’s own direction. When you start to achieve success, it is important to exploit it and this is when management implementation is critical. This is why organisations need managers as well as leaders.

About Peter Winsley

I’ve worked in policy and economics-related fields in New Zealand for many years. With qualifications and publications in economics, management and literature, I take a multidisciplinary perspective to how people’s lives can be enhanced. I love nature, literature, music, tramping, boating and my family.
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