shreiber, n. and b. chakravarthy (2007). leading paradoxically. ebf 30(1)
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8/16/2019 Shreiber, N. and B. Chakravarthy (2007). Leading Paradoxically. EBF 30(1)
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28 Issue 30, Autumn 2007 EBF
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C
Indepth
EBF Issue 30, Autumn 2007
Corporate leaders face a more
complex world – and must satisfymore competing objectives – than
they did even a decade ago. In
order to maintain competitive
advantage, the firm’s product
and services must be differentiated,
and yet cost competitiveness is
also paramount. Corporations are
expected to play responsible roles
in society, yet demands for the
protection and enhancement of
returns to shareholders are stronger
than ever. Top management must
personally vouch for the numbers
that their firms put out, yet
it is also increasingly necessary
to delegate responsibility.
Leading a business in the
modern world requires the ability
to deal with multiple paradoxes.
“Paradox” is a noun of Greek origin
that describes seemingly
contradictory statements which,
when explained, are not
contradictory at all. In the business
environment, three aspects ofparadox are worth emphasising:
(1) Leaders are faced with
contradictory demands. For
example, there may be the need
to pursue global growth
aggressively and at the same time
contain or reduce business risks.
Or there might be a need to
differentiate a firm’s products and
services while at the same time
improving operational efficiency.
(2) Common sense rebels against
pursuing these contradictory
demands simultaneously. For
example, if top management
tightens corporate controls and
also announces its intention to
increase employee empowerment,
it will have to sell its ideas very
convincingly to avoid scepticism
on the part of employees.
(3) Many of these paradoxes can
be resolved. Our experience tells us
that high-performing organisations
can – successfully – pursue severalseemingly contradictory goals at
the same time.
This article is based on two
streams of research. The first
originates in practice, and comes
from Nick Shreiber’s career first as
a strategy consultant with McKinsey
& Company and then as CEO of
Tetra Pak, one of the world’s leading
packaging companies for liquid
foods. He went on to test his
insights through contacts with
academic institutions including
Emory University, IMD and IESE.
The second stream comes from
Bala Chakravarthy’s research on
leadership dilemmas, which has
been conducted over the course
of ten years, first in the information-
communication industry and
through field research in the
chemical, energy, pharma-
ceutical, food and retail
Modernleadershiprequires theability tomanagethings thatappear atodds, but in
fact are not.
By Nick Shreiber and Bala Chakravarthy
Illustrations:Robert Hunter
Leading Paradoxically
29
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In Brief > Modern business
leadership requires
the ability to deal with
paradoxes – that is,
things which appear
to be contradictorybut in fact are not.
> Creative thinking can help
overcome the problem
of paradox and resolve
apparent contradictions.
> For example, creativity
requires both innovation
and discipline – it is not
a question of either/or.
> Balancing competing
demands is a key aspect
of modern leadership, and
all aspiring leaders must
develop the skills to do so.
Indepth
Issue 30, Autumn 2007 EBF30
industries (see Chakravarthy 1997,
Chakravarthy and Lorange 2007,
for more details of this research).
Resolving paradoxes requires
not so much common sense as
uncommon sense – the knowledge
that apparently contradictory
demands can still be met. This
certainty has to originate fromthe top. As some experts put it:
“Followers want comfort, stability
and solutions from their leaders.
But that is baby sitting. Real
leaders ask hard questions and
knock people out of their comfort
zones. Then they manage the
resulting distress” (Heifetz and
Laurie, 2001). The resulting tension
often provides the spark that leads
to a creative solution.
However, creating stress isnot enough. Corporate leaders
must do four key things in order
to resolve organisational paradoxes:
(1) frame the challenge creatively,
(2) balance the organisational
context, (3) offer thought
leadership to produce solutions,
and (4) provide moral guidance
to the organisation.
Creative framing
A useful way of managing
paradoxes is to find a creative way
to frame the challenge. Paradoxes
can be daunting. The trick is to
embed one of the competing
goals as part of the context, and
offer the other as the primary goal
to be served.
Consider the example of Best
Buy, the North American consumer
electronics retailer. Its current CEO,
Brad Anderson, introduced a new
vision for the company a couple
of years ago, seeking to make
Best Buy one of the first companies
in retailing to be truly customer-
centric. The underlying idea was
to target the most profitable
customers for the company and
increase the company’s share of
their spending. The other goal ofcustomer-centricity was to enhance
value for the firm’s shareholders.
On the face of it, customer-
centricity does not necessarily
translate to better returns for the
shareholder in the short term. For
a discount retailer like Best Buy,
managing inventory turns is very
important. Customer-centricity, on
the other hand, could lead to the
holding of more stock-keeping units
and slower inventory turns. Besides,both the cost of store fixtures
and added employee training that
were needed to support customer-
centricity could hurt store profitability
in the short run.
While employees in the
customer-centric stores were given
a simple goal – delight customers
– the organisational context that
they were placed in helped focus
attention on the other goal, creating
value for shareholders. Through
careful analysis, the company had
identified seven profitable customer
segments. Each store was
assigned one or two of these
customer segments to focus upon,
as appropriate to the demographics
of the markets that they served.
Serving these customer segments
would enhance store revenues
and profitability. Best Buy also put
in place a control system that
measured the return on capital
invested in each of its customer-
centric stores on a daily basis.
Employees were trained on the
basics of how shareholder wealth
was created.
Customer-centricity initiatives
that helped improve return on
capital employed were thus readilyidentified. While employees were
urged to delight customers, top
management had ensured the
targeted customers would also be
profitable customers. This helped
employees recognise that
shareholder value can be enhanced
while delighting customers at the
same time. Asking employees at
Best Buy to be creative in serving
the needs of their customers was
very energising and inspiring.Simply asking them to add value
for the company’s shareholders
would have been far less appealing.
Thus the two goals, delighting
customers and adding shareholder
value, may appear contradictory,
but in reality they are not. By
creatively framing this paradox,
Best Buy has been able to improve
employee empowerment, customer
loyalty and return to its
shareholders all at the same time.
Balancing the
organisational context
The tension between functions and
processes within an organisation
provides another source of
paradoxical discomfort that can
be addressed through good
leadership. It is often debated
whether a company organised
along functional lines can embrace
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31EBF Issue 30, Autumn 2007
cross-functional business
processes. The way to frame
this paradox is to understand that
well-run functions are absolutely
essential to a business; they are
the sine qua non that provide the
capabilities for the smooth
operations and intra-functional
learning without which a companycannot operate. Functional
excellence is part of the operational
context of a company, and senior
executives should focus their
energy on cross-functional
business processes that will enable
functions to work in an integrated
and efficient fashion across the
company – in a way that functions
on their own could never achieve.
Processes improve efficiency
and service quality by documentingand spreading best practices
around a company. Thus they
avoid the infamous re-inventing
of the wheel. And process
improvement can reach into every
corner of a company, from
improved factory floor operations
to better corporate governance.
Many companies’ initial failures
to bring process-thinking into their
organisations can be traced to the
lack of visible commitment by the
CEO and senior leaders, or to their
own confusion regarding whether
priority is placed on functions or
on processes.
Process leaders must
be enthusiastically supported
throughout the change
programme, and visibly rewarded
when successful. The CEO and
senior leaders in a traditionally
functional organisation that is
moving towards a process
orientation are not “just” introducing
new ways of working and modified
organisational charts. Often, theyare fundamentally altering their
companies’ corporate culture, and
they must act accordingly.
The paradox of function versus
process can be resolved with five
key actions that ensure alignment
between functions and processes:
(1) Appoint process leaders who
are recognised as high-level,
respected individuals. Because
they exercise authority over
people not under their direct
responsibility, process leaders
should be vested with “informal
authority” – authority based on
their knowledge and ideas rather
than on hierarchical seniority.
(2) Give the process leader
responsibility over the most
critical function within theprocess. For example, the leader
of an equipment supply chain
process might also be the
functional head of the equipment
assembly plants.
(3) Choose appropriate metrics
with which to measure process
performance. These must be
visible to and understood by all
parties involved in the process,
in order to create true shared
responsibilities.
(4) Conduct process audits.
These assessments will ensure
compliance, but they will also
provide a forum for dialogue that
will improve process design
as well as execution.
(5) Ensure functional excellence
throughout the organisation. This
will remind the organisation that
it is not about process alone, but
about function as well.
Another myth that pervades
many organisations is thatdiscipline and structure are
incompatible with creativity and
innovation. Discipline, it is argued,
is useful to promote productivity,
but it smothers creative work.
Skunk works, the “garbage-can”
model of organising, and similar
popular vehicles are offered as
necessary to support creativity.
In fact, a disciplined innovation
process will improve the chances
of success for new products byweeding out poor ideas early on
and concentrating a company’s
scarce resources on those
innovations with highest potential.
It will also focus creativity where it
is most needed: for example, on
product design.
An innovation process will
also reduce misspent energy by
bringing objectivity to decision-
making through the establishment
of specific milestones, where each
project is evaluated against an
objective set of criteria rather than
“seat-of-the pants” feelings.
While top management should
encourage the generation of new
ideas, it should also curb escalating
commitments to failed ideas.
A carefully designed innovation
process can resolve this paradox
by bringing together elements of
creativity and discipline.
A myth that pervades manyorganisations is that discipline and structure are incompatible
with creativity and innovation
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Indepth
Issue 30, Autumn 2007 EBF32
Thought leadershipResolving paradoxes usually
begins with the state of mind of
an organisation’s leaders. They
must reject the “common sense
rebellion” mentioned in our
introduction. To paraphrase from
Built to Last (Collins and Porras,
1994), leaders of great companies
must embrace the genius of the
“and” rather than rely on the
tyranny of the “or”. However, a
state of mind will not on its own
resolve conflicts. Leaders must
be willing to benchmark their
organisations against the “best
in class” and bring proven tools
and approaches to bear, while
empowering the rest of the
organisation to do likewise.
For example, many “traditional”
manufacturing managers will tell
you that, in order to reduce delivery
lead times, they must maintain
and achieved – simultaneously.
A second area where perceptive
senior executives will exercise
thought leadership is on the rare
occasions when they must resolve
the paradox of how and when to
allow for exceptions to an rigorously
established core business process
such as the innovation processdescribed earlier: how to decide
whether certain development
projects have the potential to be
ground-breaking ideas, even if
opposed by internal scepticism
or unsupportive market research.
Ideas such as Sony’s Walkman
or Tetra Pak’s Tetra Recart package
– a carton-based package that
competes head-on with the metal
can for solid foods – are examples
of products that requiredchampioning by top management.
These situations call for executives
to rely on their judgement shaped
by prior experience, technical
knowledge, the company culture,
availability of financial resources,
and other factors. Exercising this
judgement is more art than
science. The trick is to support
experimentation, while putting a
stop to experiments that are not
yielding desired results.
Outstanding examples of this
type of thought leadership have
been seen over the years. The
Nespresso system would not
have become a reality had the
CEO of Nestlé, Dr Helmut Maucher,
listened to the pessimistic
consumer surveys for the proposed
innovation. Similarly, Dan Vasella,
CEO of Novartis, pushed for the
development of Gleevec, a cure for
Figure 1: The paradox of creativity versus discipline
(3) Time bomb (1) Ensuring
the future
(2) Boomerang(4) Mine field
Discipline
Cr e a t i vi t y
(1) Ensuring the future> Continuous flow of new ideas> Losers weeded out early> Many high-impact winners
(2) Boomerang> Over-structured process stifles creativity> Tight cost control, but few real innovations
(3) Time bomb> Plentiful new ideas, but resourcesspread too thin
> Missed opportunities due to lack of focus
(4) Minefield> Wheel “reinvented” every time – resources
spent on administration> Priority-setting defaulted to most vocal managers
(5) No man’s land> Paradox recognised but not resolved> Can drift into boxes 2, 3 and 4
(5) No man’s land
higher inventory levels to allowgreater manufacturing flexibility on
the plant floor. Reducing lead times
while at the same time reducing
working capital appears to them
an unsolvable paradox. The fact
is, however, that appropriate tools,
such as World Class Manufacturing
(WCM), can result in both goals
being achieved simultaneously.
WCM resolves the paradox
of pursuing conflicting production
goals by mobilising employees
and executives at all levels of the
company. It gathers individual and
group ideas, solves problems by
attacking root causes, shares best
practices across language barriers
by using graphic tools,
systematises work flows and
brings order to the plant floor.
WCM gives machine operators the
opportunity to demonstrate that
conflicting goals can be pursued –
The leaders
of greatfirms mustembrace thegenius ofthe “and”rather thanrely onthe tyranny of the “or”
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33EBF Issue 30, Autumn 2007
an extremely rare form of leukaemia,
despite commercial concerns over
the small number of patients that
would need this drug. Gleevec had
a projected market of only 6,000
patients per year, but it has
reinforced Novartis’ reputation as a
true innovator in the drugs industry.
Long ago, Henry Ford remarkedthat “If I had asked people what
they wanted, they would have said
faster horses”. The successes
of Nespresso, Gleevec and Ford’s
Model T are a matter of record.
Providing moral guidance
Another classic paradox is how a
firm can enhance shareholder value
while championing its core values.
Are these contradictory goals?
They do not have to be. Accordingto the New York Times (September
14, 2005) companies are becoming
more strategic in their approach to
philanthropy, tapping their particular
realms of expertise to make a
difference. When a tsunami
devastated parts of south-east
Asia in December 2004, Tetra Pak
and some of its customers provided
free water and liquid foods
to victims, using the company’s
capabilities in supplying safe
and easily transported beverage
packages. Tetra Pak spent several
million dollars to support relief
efforts in affected countries, notably
Indonesia, Thailand and India. This
was a philanthropic act that helped
save scores of lives. But at the
same time, it also demonstrated
the use of its packages to a
segment of consumers who may
not have experienced them before
– and received positive public
relations benefits in the process.
Following the tsunami, too,
Abbot Laboratories Fund pledged
$4m in healthcare products and
cash; Procter & Gamble provided
$1m worth of its PUR water
purification sachets plus cash
to partner organisations to delivermore than 150 million litres
of purified water;
Johnson & Johnson
distributed medical
supplies throughout
the region; UPS, an
Atlanta-based
package delivery
company, shipped up
to one million pounds of
emergency relief supplies free of
charge; FedEx shipped medicalsupplies to the region on behalf of
several aid groups; and Northwest
Airlines teamed up with AmeriCares
to transport relief supplies. Similar
in-kind efforts were reported in the
wake of the terrorist attacks of
September 11, 2001, and the
Hurricane Katrina disaster of 2005.
In another case, Home Depot
and Bell South teamed up with
Habitat for Humanity to help
revitalise neighbourhoods in South
Atlanta. Both companies were
helping communities while at the
same time promoting programmes
directly related to their core
businesses: do-it-yourself activities
and in-home telecoms, respectively.
It would be cynical to suggest
that these well-meaning acts of
philanthropy had the devious
purpose of boosting product sales.
Rather, they simply illustrate the
positive power of solving a sensitive
paradox. Corporate philanthropy
and shareholder value can be
reconciled if a corporation carries
out philanthropic activities that
support the long-term strategy and
reputation of the company. This is
enlightened self-interest.
Conclusion
In this brief article,
we have highlighted
four approaches
to dealing with
paradoxes. The first
views the leader as
a strategist, helping to
frame the new challenge
creatively, as Brad Anderson
did so successfully at Best Buy
when introducing customer-centricity. The second views the
leader as a balancer in the
organisation, blending function and
process, creativity and discipline.
The third calls on CEOs and senior
executives to act as knowledge
brokers, bringing in expertise and
tools to help resolve difficult
paradoxes and to use judgement on
when to have flexibility in systematic
approaches. Finally, there is the
moral side to a leader, as he/she
tries to respect the core values of
the firm in a manner that also
enhances shareholder interests.
Recognising and resolving
paradoxes requires a leadership
style that may itself be a
paradoxical blend of directing and
listening. Senior executives have
the power to force their decisionson an organisation. Paradoxically,
they should rarely use that power.
The most lasting changes will come
through the use of informal
authority: listening to the
organisation; clarifying the leaders’
views; mounting a convincing
argument for the need for change;
and explaining clearly the benefits
of change programmes as well as
the consequences to the company
of not pursuing them. When theneed for change is fully accepted
by the members of an organisation,
resistance to the pain of change will
be much more easily overcome.
Bala Chakravarthy is professor of
strategy and international management
at IMD, and also holds the the Shell chair
in sustainable business growth. Nick
Shreiber is executive in residence at IMD,
and was formerly CEO of Tetra Pak
and a partner with McKinsey & Company.
References
Chakravarthy, B (1997) “A New Strategy Framework for Coping with Turbulence”,
Sloan Management Review 38 (2).
Chakravarthy, B and Lorange, P (2007) Profit or Growth? Why You Don’t
Have to Choose, Englewood Cliffs: Wharton School Publishing.
Collins, JC and Porras, JI (1994) Built to Last , New York: HarperBusiness.
Heifetz, R and Laurie, D (2001) “The Work of Leadership”, Harvard Business
Review, December: 131-140.
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