Leading with Intellectual Integrity
One
skill distinguishes the effective CEO: the ability to make disciplined and
integrated choices.
By the time people reach the most
senior levels of a company, they are expected to have a degree of personal
competence and a strong gut feel for making good executive decisions.
Otherwise, they wouldn’t be considered for a top job. But how do they attain this
acumen? At Procter & Gamble (P&G)—where we (A.G. Lafley and Roger
Martin) served as chief executive and one of the senior advisors to the
company, respectively—we developed a systematic approach to cultivating that
skill among emerging and senior executives. We found that business literature
contains a great deal of advice for chief executives about strategy and
execution, but much less is written about how to become the kind of person who
can bring the right judgment to bear on business decisions, especially when
facing a disruptive environment. Thus, many CEOs develop their own form of
on-the-job training, quietly honing their own heuristics for strategic
thinking. That makes it difficult to tease out and develop the personal
attributes that separate successful leaders from less-successful ones.
In our view, leaders would do well
to take a more systematic approach to developing their decision-making
capabilities. The place to start is where we started at P&G: with
intellectual integrity. In common usage, the word integrity means
honorable or virtuous behavior. For our purposes, though, we draw a distinction
between exhibiting honorable behavior (moral integrity) and exhibiting
discipline, clarity, and consistency so that all of one’s decisions fit together
and reinforce one another (intellectual integrity).
In our work with companies, boards,
and government agencies, we see people wrestle with the need to make tough
choices—those critical decisions made in service of a relevant strategic goal
for which there is no fully satisfactory option and every path seems to demand
a trade-off. These are the kinds of decisions for which intellectual integrity
is particularly vital.
Most people, including experienced
executives, don’t like to make choices because it means giving up options.
There is a clear temptation to hedge bets, to try to do everything, to attempt
to keep all doors open at once by refusing to pick from among existing options
or to work to create a better answer. Procter & Gamble was certainly not immune
to this phenomenon. At certain times in the 1990s and 2000s, for instance, it
was tempting to compete in as many markets as possible, as quickly as possible.
Internally, there was a good deal of concern that competitors would make
inroads into important emerging economies that P&G had not yet entered. But
P&G couldn’t be everywhere at once and succeed. Judgments had to be made
about which markets to enter, and in which ways. We explicitly chose to enter
first those promising but underdeveloped markets where none of our global
competitors had a preexisting advantage (for instance, China as it created
special economic zones, Russia and eastern Europe after the fall of the Iron
Curtain) and then to expand thoughtfully in other developing markets. For example,
we entered many Asian countries with our baby-care products first, conscious
that demographics suggested most of the world’s babies would be born in Asia
for the foreseeable future. To fully engage in these countries, we had to defer
or delay pursuit of other markets, in some cases indefinitely.
Intellectual integrity is the
quality that enables a CEO (or any other organizational leader) to set these
kinds of priorities, to articulate the rationale behind them, to stand behind
them even when the outcomes are uncertain, and to provide the support that
others need to stand behind those choices as well. Only a CEO with integrity
can respond to the avoiding-choice temptation appropriately: “No, we can’t do
everything. We must choose to do some things and not others. We just have to
think harder and create the choice that is right for us.”
We’ve seen a lack of intellectual
integrity, and its consequences, in many settings: in large and small
businesses, startups, nonprofits, private equity turnarounds, and government
agencies. Conversely, we’ve seen integrity—on the part of a CEO or other
executive leader—ripple out and deeply affect the culture of an organization.
When a leader has intellectual integrity, the people of the enterprise are
less likely to be distracted by irrelevant considerations, and more likely
to keep focused on the indicators that matter most: those related to customers
and competitors. They are more likely to maintain a long-term view when making
their decisions, and are less susceptible to the dangers of short-term
decisions driven by quarterly financial reporting.
Integrity of this sort is like a
muscle. In a healthy organization, it is exercised often. But if it is ignored
by an organization, the muscle can atrophy, and the organization becomes more
scattered and vulnerable. Such an organization moves in different directions at
the same time, subject to the parochial ideas and priorities of individual
business units and functions. That is why by the time a CEO is appointed, he or
she should have developed his or her intellectual integrity, and should be
prepared to help develop it in others.
Coming
to Grips with Reality
Many company leaders think their
situation is significantly better than it actually is, because they look only
for data that confirms their existing view of the world and listen only to
those voices that agree with them. By contrast, intellectual integrity requires
that one hold oneself and one’s company up to rigorous, challenging
examination. That is the only way to learn to anticipate when reality is likely
to fall short of expectations.
Failure to come to grips with the
reality of the situation led directly to several major competitive losses at
Procter & Gamble in the 1990s. For our oral-care products (including Crest
toothpaste), we invested heavily in overseas distribution in emerging countries
such as Brazil. We thought it would be easy for us to build a business there,
on the basis of our strength in innovation and the brand equity we had
developed in other markets. We didn’t fully recognize that our largest
competitor (Colgate) had far more extensive global distribution, spent twice as
much on oral-care R&D as we did, and had already built up great brand
loyalty in Brazil and other emerging markets.
Because we were distracted by our
expectations, we lost millions of dollars on these investments before we
realized that we needed to change our expansion strategy. We decided to retreat
from Brazil and get our house in order before returning there. We also saw we
needed a broad P&G strategy for scaling up in new markets, building a
sustainable business one core brand at a time. In Brazil, this led us to focus
on our strengths in laundry products and baby care. For oral care, we
explicitly concentrated on winning in North America and China before turning
our attention back to Brazil. When we demonstrated that integrity in our
strategic decision making, things worked much better for us in Brazil and
elsewhere.
Similarly, in our Pampers disposable
diaper business, we held a strong belief that the best way to leverage our
global scale was to install a single, sophisticated manufacturing system, using
state-of-the-art “converters” that could produce all our diapers across all our
different markets. To compete with lower-priced rivals in developing markets,
we assumed, we needed only to switch to less-expensive materials and remove
some of the features. Because, in effect, we let the machines dictate our
strategy, we didn’t see that our technology solution failed to address the real
needs of emerging market consumers. When this became clear, we began to design
new kinds of products, specifically engineered for emerging market
consumers—with consumers, and not the machines, in mind. This meant we had to
reverse course on some very expensive manufacturing systems, and switch to
different machines for different markets.
The
Strategic Choice Cascade
To instill intellectual integrity
throughout a company—as opposed to leaving its development to chance—some kind
of explicit, ongoing decision-making process is needed. At Procter &
Gamble, the method we used was known as the strategic choice cascade. Each
year, we asked hundreds of company leaders, at all levels, to develop choices
explicitly using this framework. The cascade consisted of five interdependent
choices (see Exhibit). We said explicitly that none of these choices
should be treated as “silver bullets” to solve short-range problems. Nor could
they be made in isolation from each other.
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