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Obstacles to Leadership

Let go of certainty. The opposite isn't uncertainty. It's openness, curiosity and a willingness to embrace paradox, rather than choose up sides.

—Tony Schwartz, CEO, The Energy Project¹

In Bonn, Germany, we once sat in on a Deutsche Post DHL executive committee meeting and watched a scene that often plays out in large companies: a vigorous discussion between corporate staff and business leaders. In this case, the combatants were top executives from finance and key divisions. They sparred not because they were quarrelsome people, but because they had two professional perspectives, worked in two different areas, and had two approaches to the problem at hand.

CEO Frank Appel had assembled the executives to discuss a key issue. The question was: How should we close out the year? Should we take some of the year's anticipated earnings and invest for the future? Or should we hold back some to bulk up the bottom line? This discussion was not unique—almost all companies face the same choice as their fiscal year ends. The operations people wanted more investment, the finance people insisted on using the money to report immediate strong financial performance.

Both sides, typical of most companies, wanted the funds to fulfill their view of the proper investment. Division executives wanted to build up cash reserve to start the new fiscal year. They also wanted to invest right away in more marketing and business development for the next year. Finance executives, aware of expectations from analysts and shareholders to beat profit predictions, wanted to use excess cash from operations to bolster earnings. Pressure to do so stemmed from the need to reverse the legacy of the previous leadership group, which had missed expectations.

Appel, in the midst of turning the company around, could easily see both sides of the issue. As in all clashes of this kind in a big organization, each side scored points with persuasive arguments. Each was sure the company's welfare depended on its view prevailing. And as in other companies, the debate became intense. Both sides wondered: “Do you really understand my situation?”

What struck us about this meeting was not that the committee faced a paradox—in this case the contradictory forces of short- versus long-term good. It was that the way Deutsche Post DHL was organized—and more broadly how all companies are organized—can constrain the effective management of paradox. In fact, everything about the way we run organizations is antithetical to managing paradoxical problems: functional groups, reporting lines, measurements, reward systems, and so on.

At Deutsche Post DHL, divisional and functional silos create inherent boundaries. As in all companies, separate organizations are set up to solve puzzles, not paradoxes, and the silos of professional expertise make sense for that task. But when paradoxes are on the table, functional executives invariably face off against one another, becoming entrenched, unable to cross the line between puzzle and paradox.

There is a grand irony here: Organization is necessary for a company to succeed, but when it comes to solving paradoxes, it can actually block success. The well-oiled corporate system, normally an engine of efficiency, becomes the enemy of effectiveness. It spurs people to insist on pat solutions rather than actions that will help manage paradox. This raises another challenge for leaders. Not only do they need to loosen the reins on control, consistency, and closure, they have to overcome obstacles thrown up by the very organization that sustains them. And if they don't, the obstacles will cripple their ability to reconcile the toughest problems facing them today.

In the end, Appel decided to overcome the factional sparring by changing the perspective of the discussion. He decided not to declare for the short term or long term as if he were solving a puzzle. He would not choose either one answer or the other. He would bring his team together to collaborate on a solution for the whole. He urged them to think about the enterprise first, and then decide together where to invest and where to save. He could step over the line in this way, and so could everyone else, by moving from a parochial desire for control to aiding the entire enterprise.

The Obstacles of Organization

Organizational systems in most companies impose severe limitations when it comes to paradoxes. If we do not find ways to overcome those limitations, paradoxes will divide people, just as they did Appel's team. And everyone will view paradox as the enemy, a troublemaking pest best shunned by anyone who wants to keep the peace. This is an ongoing challenge even for leaders skilled at exercising their heads, hearts, and guts in paradoxical decision making.

One of the central problems is that organizational systems encourage a rational approach to everything, whether that relates to organizing the hierarchy, planning for the future, or appraising and rewarding people. And yet you often need to manage paradoxes in ways that do not take a rational, linear approach. In the following sections, we address each of the common handicaps in turn to demonstrate another increasingly critical skill for the complete leader: Recognizing organizational obstacles for what they are—and preparing yourself to overcome them.

The Matrix

The most potent force opposing an effective approach to managing paradox is the one Frank Appel successfully handled: the silos of management. The strongholds of functional expertise, as at Deutsche Post DHL, are not the only silos out there. The silos of product and geography also act in the same obstructive way. Like special-interest groups in politics, they can drive a wedge between people who might otherwise solve paradoxes together.

In a study of 294 top- and midlevel managers in seven large global companies with matrix organizations, people frequently complained about silo-focused employees. Among specific comments about the matrix, they cited misaligned goals, unclear roles and responsibilities, ambiguous authority, and a lack of anyone responsible for making sure the matrix functioned effectively. The proportion of top managers citing misaligned goals as a dilemma, for example, was 67 percent, the proportion citing silos, 69 percent.² In our experience, these weaknesses persist even as companies try to overcome them.

In most big companies, executives work hard to construct an organizational matrix that aligns people's goals wherever they work in the company. But the breakdown of a big organization into smaller units invariably creates rivalry or antagonism between the groups. If it isn't people in finance and operations going head to head, it's the folks in supply chain and product management. As the authors of the matrix study wrote, “Unfortunately, we found that most employees in large organizations tend to be silo-focused: They view their membership, and loyalty, as belonging to a certain subunit in the organization.”³

Frank Appel recognized the competition in the matrix, and he took swift steps to address it. We were in the room observing the debate and noticed Appel managing a paradox: Rather than see the decision as an either/or choice, he viewed it from a broader perspective. Appel asked his team to consider the decision in light of the company's larger purpose: connecting the world and focusing on the three bottom lines of customer, employee, and shareholder satisfaction. This gave the team a way to look at difficult choices in a context that stimulated thinking that would yield a collaborative, consensus-like solution.

Some people may continue to think of paradox as an energy sink. But in the hands of a skilled head-heart-and-guts leader, a paradox becomes an energy source. Its potential for sparking breakthrough change inspires people to come together, to think differently, to act earnestly even in the face of ambiguity. That's ultimately what Frank Appel found as the leader of Deutsche Post DHL. After he brought his team together to reconcile their differences in the interests of their stakeholders, they agreed the right action for the entire organization was clear. Instead of overly responding to the expectations of outside or inside groups, they decided their role as “stewards of the enterprise” required them to deliver appropriate earnings to investors while investing the rest of the money for the future.

Strategic Planning

Strategic planning poses another obstacle to helping people recognize and manage paradox. The barrier stems from the planning mentality, which gives the future an aura of certainty. Neither assumptions nor forecasts nor alternatives can be known as valid, and yet the rigor of strategic planning conveys the impression that they are. We think we're dealing with reality. That's why people get stuck on their views of the way things will turn out, and they close down to other views even when contrary data emerge. The strategic plan gets treated like an architectural plan for a building: It's as if the world stands still while we bring in the workers and materials to build it.

University of California Berkeley professors Horst Rittel and Melvin Webber noted this tendency when they first outlined the challenges of wicked problems. “There is the belief in the ‘makeability,’ or unrestricted malleability, of future history by means of the planning intellect—by reasoning, rational discourse, and civilized negotiation,” they wrote. “Many Americans seem to believe both that we can perfect future history—that we can deliberately shape future outcomes to accord with our wishes—and that there will be no future history.”⁴

The tendency for people to think they can make the future has not changed in the four decades since Rittel and Webber made the observation. And strategic plans unfortunately continue to block skillful handling of paradoxical problem solving—which requires ongoing collaboration on several solutions that are right and impermanent. Strategic planning is nothing more than puzzle solving writ large, a rational system to produce a single best rational answer. This of course flies in the face of real-world demands, which compel us to deal with an often unrational, paradoxical world.

We need planning: It provides a guide as to how to invest and choose alternatives. But we can get locked into our forecasts—even though, if we take a moment to think about it, we know that all bets are off as soon as the first soldiers hit the beach. “Plans are worthless, but planning is everything,” as Dwight Eisenhower once said.⁵

A number of human biases exacerbate the troublesome downsides of planning.⁶ Nobel laureate Daniel Kahneman, a pioneer in the field of human bias and decision making, notes a common thinking error: When we analyze data from the past, we almost always conclude that the world is much simpler and more predictable than it is. This stems from the “hindsight bias” and the “outcome bias”—essentially, the belief by humans who, once they know the outcome, believe they knew more about it all along than they ever did. Echoing our themes from Chapter Two, Kahneman writes: “The illusion that one has understood the past feeds the further illusion that one can predict and control the future.”⁷

The reality is that plans are best guesses in a world where, as Kahneman has shown repeatedly, luck plays a much bigger role than most people will allow. When we imbue strategic-plan forecasts with oracular authority, we make it harder, not easier, to solve paradoxladen problems. Examples of letting forecasts and plans run ahead of reality are common. After Indra Nooyi took over as CEO at PepsiCo, for example, she started to move away from total dependence on sugary drinks and salty snacks.⁸ She committed the company to doubling its revenue from nutritional drinks and snacks to $30 billion by 2020.

Nooyi was personally committed to making healthier foods to fight diseases like obesity. But she and her team also followed trend lines that showed Americans moving toward healthier eating—and surveys that showed customers were more likely to buy from companies acting in socially responsible ways. Nooyi did not, of course, drop the sugary drinks. However, in 2012 the company introduced a mid-calorie Pepsi NEXT, with 60 percent less sugar than normal Pepsi. Pepsi called it a “game changer.” The company also added whole grains, fruits, and vegetables to some of its snacks. It even started looking for new acquisitions to expand its healthy offerings: It bought a majority share in Russia's Wimm-Bill-Dann to expand its share in yogurt and dairy products.

These and other efforts to transform the company have so far led to a swoon in performance. We speculate that, at the least, the healthy-food strategy was too much too soon—akin to McDonald's earlier efforts in the 1990s to go lean with new menu items. Customers have simply not changed their stripes: at the cash register, few are forsaking salty and fattening items for healthy ones. And so PepsiCo, having prepared bold plans to follow the trend line, has seen its sales go flat and profits sink by 5 percent. Meanwhile, Coca-Cola's stock has jumped, more than doubling during the post-financial crisis bull market while PepsiCo's has moved up only a few percent.

Nooyi receives kudos from some quarters for her vision to deliver “performance with a purpose,” improving people's health while also reducing their weight. But shareholders have hit the exits. Nooyi has responded by shaking up her management team and rededicating the company to high-margin drinks and snacks, recognizing that her vision lured her into making changes more swiftly than the market would support. But she has not abandoned the strategy, only learned that PepsiCo could not yet maintain medium- and long-term earnings necessary to make the longer-term transition.

Even if we assume Nooyi's vision eventually matches future reality—and it would be a good bet that it does so only partially—the focus on one future blocked Nooyi and her team from a more workable consensus on how to handle the “good tasting” versus “good for you” paradox over the short and medium term. We don't know if Nooyi's vision will eventually match the future. What we do know is that the company has adjusted its strategy to meet the competing demands of short-term and long-term performance and will probably continue to do so in its ever-changing collaborative work on managing paradoxes into the future.

Review and Reward Systems

Review and reward systems pose a third organizational obstacle to recognizing and managing paradox. Simply put, the systems neither review nor reward paradox management. In our experience, most leaders have earned pay and promotions based on solving puzzle-like problems as they rose up through the ranks. First-line supervisors typically spend 80 percent of their time solving puzzle-like problems—usually technical issues like allocating people and money to a new challenge, fixing a process that is broken or weak, or resolving a customer complaint. To be sure, they may encounter paradoxes more frequently these days—making the quarterly numbers versus maintaining employee engagement, for instance—but that has not significantly changed the negative effect of performance reviews on the skill level of paradoxical problem solving.

In the financial services industry, bankers dealing directly with customers are often encouraged to share leads and clients. Their bonuses and often their promotions are nonetheless based on their individual track records. While leaders are aware they should recognize team achievement, their internal drive sometimes supersedes this awareness. They may not consciously obstruct their people from crossing the line, but they do so nonetheless by keeping the focus on individually based actions—achieving outcomes, generating results, holding others accountable.

Even at the top levels where leaders handle paradoxes most of the time, performance reviews often drive people to stay on the puzzle side of the line. Many such reviews ask for “your top three accomplishments” in the previous year. That's another way of asking you to highlight instances of exercising control, acting consistently, and bringing about closure. Even if you're inclined to wrestle with paradoxes, you will have a have a hard time later arguing that one of your accomplishments was, “I managed a short-term/long-term paradox.” What matters is that you executed an either/or decision well: You cut factory assembly time by twenty minutes. Or you opened a logistics facility on time and budget. What doesn't matter is that you sacrificed time spent on specific accomplishment to, say, manage the paradox of valuing people (with mentoring) versus performance (with metrics).

The message to would-be leaders is to avoid putting any effort into reconciling the forces of paradox. Although lip service is often paid to being collaborative, people at the top only get rewarded for individual behavior. Award certificates come with the name of just one person on them. Promotions single out one person for credit. In one company where we work, top executives receive pay and bonuses based 80 percent on their division's performance and 20 percent on company performance. The CEO hopes to reverse that ratio, but in the meantime, the system motivates people to put their parochial concerns above company concerns, dissuading executives from working together on paradoxes that cut across the company.

A complicating factor is that many leaders don't have the authority to manage the opposing forces of the paradoxes they face. They are authorized to control only one factor—someone else in the organization is responsible for each of the others. Supervisors might be responsible for client or customer satisfaction, but labor under cost and investment decisions made above. Even if they want to manage the paradox, they lack the control to do so. In addition, although they are charged with making something happen, they have no responsibility for managing rewards and recognition. That key aspect of employee motivation often belongs to the human resource department.

The Obstacles of Stakeholders

Another set of obstacles to managing paradoxes comes from stakeholders, both internal and external: employees, board members, customers, shareholders, regulators, the community, politicians, and others. These constituencies create the same difficulty as internal silos: one special interest vies with others to serve its ends. Each constituency, like each party in an election, presses its leaders to make extreme, either/or decisions. By pressing hard enough, they actually block the collaboration needed to reconcile contradictory forces.

Recall the example of Andrea Jung at Avon (mentioned in Chapter One), the CEO who launched a global strategy required to grow the business. She led the effort to create global brands and achieve cost efficiencies that would fuel innovation and meet the bottom line expectations of investors. As prominent as any other obstacle in reconciling Avon's global/local paradox, however, were the local leaders in key markets around the world who were unwilling or unable to execute the strategy. Ironically, the majority of Avon's six million representatives around the world recognized the need for rationalizing the product portfolios in local markets. Many complained that the brochure, describing the array of products they sold locally, was just too crowded. Most welcomed the idea of global products that would simplify and focus their offer to customers. But resistance came from local leadership, in particular the general management teams in key Avon markets. Many viewed the changes as eroding their power and authority. After all, the shift would mean that many of the decisions they had controlled in the past would now be made at or shared with corporate headquarters. Complicating the challenge for Jung and her executive team, local leaders would often nod their heads and express understanding in meetings. But they didn't follow through with the actions in their local markets to build the brands as anticipated or expected.

Among the obstacles to reconciling global and local forces, her base of six million representatives around the world was a major factor. From Jung's perspective, the way to rejuvenate sales at Avon was to splash a stronger, consistent brand around the world. Unfortunately, people in multiple far-flung markets resisted. They didn't necessarily disagree. They would nod their heads and express understanding in meetings. But they didn't follow through with the actions in their local markets to build the brands as Jung anticipated.

Jung discovered that she might have moved too quickly, before local organizations were ready to accept and implement the changes required by the global strategy. She and her team confronted yet another paradox, this one involving the pace of change. If they moved too quickly, the company would not be ready to execute the strategy successfully. If they moved too slowly, Avon would be out-maneuvered by competitors eager to take sales and market share away from them. In retrospect, while the rationale for change was clear to people, Avon may have moved too fast to allow people to gain the new capabilities needed, and too fast to move new people into place to execute the change. This doesn't mean that the vision and strategy were wrong. As we pointed out earlier, they were essential to Avon's ability to grow.

The challenge was determining the right pace of change and overcoming inevitable resistance. Some of the resistance to the change came from people who saw themselves as losing coveted authority and control. Others simply did not have the capabilities and experience to do what they knew needed to be done. Interestingly, the leaders of outside stakeholder groups strive for the same control, consistency, and closure that company leaders pursue. They, too, get caught in solving puzzles, seeking clear and permanent answers. This mentality then drives them to lock horns with company leaders. Neither side is then able to jump over the line to manage paradox. Until both sides get beyond the puzzle mentality, nobody will enjoy the fruits that come from—and only from—bringing people to a consensus over how to manage the paradox.

The Obstacles Within Ourselves

A third set of obstacles to managing paradoxes comes from within each of us. The fact is, paradoxes bring out all kinds of dysfunctional behavior in most people, and that behavior sabotages progress toward reconciliation. The first behavior, covered in Chapter Two, is a desperate striving for control, consistency, and closure. By nature, most people cling to all three, unable to let them go, unable to see another way to approach problem solving.

We observe this in company after company. The behavior becomes self-reinforcing. In one of our engagements, the complaint we heard was simple but hard: We can get people to understand how the matrix organization works, but people won't let go of control to make the most of it. Anyone even sniffing the possible loss of control gets twitchy. This is a reality: You can't go far in managing paradox in an organization without people gaining more experience—experience working with each other, meeting multiple expectations, and building trust in their colleagues and stakeholders.

At one large manufacturing company, we spoke with a CEO who longs for a collaborative, vulnerable, open culture where leaders can solve the paradoxes that come up all the time. He tries to make the change, but he and his team regress repeatedly to managing through hierarchy, order, and control. We asked the CEO to think about designing a process that didn't have an outcome in mind, some kind of open-ended way of discovering what leaders need to learn to reconcile contradictory forces.

The CEO had no idea how to construct something so messy and undefined. He wanted openness but also wanted a logical, linear approach. He wanted spontaneity but also predictability. The instinct to control the universe is very strong, especially when performance evaluations affect compensation and rewards. In this case, the CEO began to emphasize qualitative descriptions of accomplishment, asking for “one-page stories” rather than bulleted slide presentations describing goals and accomplishments. He began to describe the transformation of the company as a journey rather than a series of transactional problems to be solved. By changing his rhetoric, he shifted the mindset of his team and much of the organization.

Ambition often reinforces reluctance to let go of the command-and-control approach to problem solving. In the face of a paradox, leaders may ask, “How can I use the confusion to accelerate the course I'm already on?” Or “How do I manipulate paradox to fit my personal objectives?” Or “How do I use paradox to get more of what I want done?” Or “How can I use paradox to look smart, get ahead, and look like the latest kind of leader?” Such questions are symptoms of a leader committed to control—and ironically not to bringing people together to reconcile the contradictory forces plaguing them.

One of the aspects of facing up to paradoxes is facing up to ambiguity, and many people don't respond to ambiguity in a productive way. Studies show that people vary widely in tolerance for ambiguity. If you're intolerant, you are someone who “experiences stress, reacts prematurely, and avoids ambiguous stimuli.” If you're tolerant, you're a person who “perceives ambiguous situations/stimuli as desirable, challenging, and interesting and neither denies nor distorts their complexity of incongruity.”⁹ Relatively few leaders naturally tolerate ambiguity, in which a situation can be interpreted in many ways and contains many contradictions and conflicts.

We can confirm from our experience that not knowing how to reconcile paradoxical forces raises the stress level. This is the common situation: You can't get the answer to a problem, and you want one badly. You can't get all the facts because nobody knows them. You can't accept that no long-term solution exists. You can't figure out how to reconcile warring factions, whether inside the company or inside the family. Under the stress of these unanswered questions, you become vulnerable to expressing deeply ingrained negative behaviors. You can default to personality characteristics emerging from your lesser self.

We call this “derailing,” and the behaviors that emerge, “derailers.” We described these in our earlier book, Why CEOs Fail. The derailers differ for every person, but no matter what they are, they undermine the ability to make decisions and lead. The greater the stress, the more prevalent the derailers—and the more destructive their impact.

Maybe you're like some people we know who, when faced with the discomfort of paradox, become arrogant and refuse to consider any viewpoint but their own. Or maybe you're like others, who upon hearing discussion of possible decisions they don't like, become distrustful, immediately questioning other people's motives. Or maybe you're like still others who become volatile under the pressure of a tense discussion. Instead of being open to fresh opposition positions, you react reflexively, which limits your capacity to consider anything outside a narrow range.

One CEO we consulted with was stunned when a client surprised him with news he should have already heard. In response, he exploded in an executive meeting and upbraided the executive who should have passed him the news. The CEO's derailment created an atmosphere of paranoia among his entire team, and the likelihood that it could happen again posed a persistent obstacle in his getting his team to deal with paradox effectively.

Our experience has shown that people exhibit one or more of these eleven derailers:

• Arrogance: You think you're right, and everyone else is wrong.
• Melodrama: You need to be the center of attention.
• Volatility: You're subject to mood swings.
• Excessive caution: You're afraid to make decisions.
• Habitual distrust: You focus on the negatives.
• Aloofness: You're disengaged and disconnected.
• Mischievousness: You believe that rules are made to be broken.
• Eccentricity: You try to be different just for the sake of it.
• Passive resistance: What you say is not what you really believe.
• Perfectionism: You get the little things right and the big things wrong.
• Eagerness to please: You try to win the popularity contest.

Recognizing which derailers apply to you is essential for developing as person as well as a leader. If they are operating beneath the level of consciousness, they may cause you to crash and burn before you become a good manager of paradox. Derailers may also become a kind of self-defense mechanism when people criticize your actions. Unfortunately, they stop you from being honest with yourself about how you're reacting.

We ran into an extreme form of derailment in an executive who was hoping to land the CEO post when his boss retired. The executive was brilliant and tough, with a stellar career at the company. He had succeeded with an inordinate insistence on control. As long as a problem fell under his command, he delivered results. But he had trouble collaborating, because he would try to exert control even over other executives' responsibilities. He would make a decision and wouldn't back off, even if he couldn't defend his solution. He would not concede a point to anyone.

Under pressure to collaborate in the resolution of paradoxes, he was derailed by arrogance. He was unwilling to consider feedback. He closed himself off from other people's points of view. People accused him of withholding information to control a decision. “I'm not withholding information,” he would protest. But he held reports, data, and consumer insights he would not share or would share only belatedly. Although one senior colleague said, “If I had to go to war, this is the guy I would want to follow,” others called him a control freak who hoarded data and information. His derailer of arrogance utterly blocked his ability to work with others.

Complete Leaders Over the Line

We all face a long list of obstacles to jumping over the line to action in the face of paradoxical problems. If you're a leader, you have a choice: You can let paradox continue to divide your organization. Or you can mitigate the obstacles and open the gates to developing a more capable, paradox-savvy organization. That is both the risk and the promise for complete leaders today, and we can predict that it will stay so, as the world becomes relentlessly more complex, the nature of problems ever more ambiguous, and the solutions increasingly less permanent.

Some people may continue to think of paradox as an energy sink. But in the hands of a skilled head-heart-and-guts leader, a paradox becomes an energy source. Its potential for sparking breakthrough change inspires people to come together, to think differently, to act earnestly even in the face of ambiguity. That's ultimately what Frank Appel found as leader of Deutsche Post DHL. Once he brought his team together to reconcile their differences in the interests of their stakeholders, the right action for the entire organization was clear to everyone. Instead of responding solely to the expectations of outside or inside groups, they decided their role as “stewards of the enterprise” required them to deliver appropriate earnings to investors while investing the rest of the money for the future.

In the remainder of the book, we describe our advice for how leaders like Appel can quiet the conflicts created by paradox, generate the energy to solve them, and gain consensus on what actions to take. Taken together, the chapters in the rest of the book are a guide to acquiring the crucial mindsets and skills of a complete leader who can readily jump over the line to manage paradox.