This is the seventh article in our series on leadership. We will now focus on the fourth essential element of leadership: resilience: 'The ability to respond effectively to unforeseen problems'.
Addition or multiplication?
In the first six articles we covered three essential elements of leadership: vision, strategy and engagement. By the way: what is the relationship between these elements? With these first three, the one is a necessary requirement for the other to function. A vision is basically useless without a plan, a strategy. And a strategy is equally useless without people to execute it. To estimate the strength of leadership you would need to multiply these factors, rather than add them up. Vision X Strategy X Engagement. If one of them is zero, the resulting product is zero. No matter how great the vision, the leadership effect is zero if the strategy is zero. An even the greatest strategy will fail if the engagement is zero. In other words: if any of these three elements is missing, or very weak, the leadership won't work. With resilience it is different. If resilience is dealing with unforeseen circumstances, then unforeseen circumstances are the necessary context for resilience. In other words: if there are no unexpected problems or opportunities, there is of course no need to handle them. In a sense, this fact sets resilience apart from the other three. On the other hand, when are there no unforeseen problems?
Let’s look one more time at the Clinton definition. “Leadership”, Clinton says, "also requires the ability to respond to unforeseen problems and opportunities when they arise.”
Resilience, flexibility and tenacity
Originally - embracing the less-is-more principe - I had decided to focus on four main elements: vision, strategy, engagement and resilience. That meant putting aside three elements in the Clinton definition:
Staying with it until the goal is achieved.
Being able to deal with and appreciate a wide variety of perspectives.
Making use of unforeseen opportunities.
Now that I am looking at resilience, however, I want to include these three, after all. Why? Resilience is fundamentally different, in the sense that it presupposes a special type of context. Envisioning, strategic thinking and engaging people are useful in any situation. Even when the sailing is smooth, you still need and idea of where you want to go and to plan when to call at which port. But resilience presupposes crisis. When a gail is blowing, you might need a new strategy.
What is resilience?
Psychologists define resilience as adapting well in the face of adversity, trauma, tragedy, threats, or significant sources of stress. It involves ‘bouncing back’ from these difficult circumstances (APA, 2012). In a crisis, being resilient you maintain your commitment to a certain direction. That’s tenacity. Even though - as we will see later - the logical level at which you define this direction may change, as well as the practical goals that arise from it.
Plus, you are finding new ways to achieve these goals. Which requires letting go of outdated strategies. That is flexibility. Which - by the way - is by not automatic. Research shows that prior knowledge can interfere with the ability to appreciate what is happening when the situation changes. Wood and Lynch investigated whether consumers with greater pre-existing knowledge about products were less apt to learn about a new product. People primed to know about a given product, did substantially worse at learning about a new product. Many leaders pride themselves on their expertise. Which is precisely what may hamper their ability to be resilient.
Fortune 500 companies: 88% disappeared
"When you always do what you always did, you’ll always get what you always got". You've probably heard that expression. But it is not always true. When the system changes, under new circumstances, if you do what you always did, you won't be getting what you always got.
Mark J. Perry, professor of economics, has noted that only 12.2% of the Fortune 500 companies of 1955 were still on the list 60 years later. Mostly they were doing what they always did and they had disappeared (who has heard of Armstrong Rubber, Pacific Vegetable Oil or Riegel Textile?). And this turnover is picking up speed. Corporations in the S&P 500 Index in 1958 stayed in the index for an average of 61 years. By 1980, the average tenure had fallen to about 25 years. In 2012 it was just 18 years. An outdated vision or strategy will exhaust your resources ever faster. That is why resilience is an essential ingredient of the leadership mix.
Disappearing political parties
Not only companies disappear. Political parties do too. During the first two decades after the collapse of communism, 37 political parties won seats in the Czech, Slovak or Hungarian Parliaments. By 2012, 22 of these parties had failed (Bakke and Sitter). Political parties want to survive as organisations. But 22 out of the 37 failed.
Kodak invents the digital camera
Organisations diminish when they stick to outdated strategies. Kodak is a good example. They actually invented a working digital camera as early as 1975. But then decided not to launch it. And not from ignorance either. The team that developed this camera understood full well that they had a game changing innovation. Kodak invested millions of dollars to get their digital camera ready for mass production. A few years later they were ready to offer it to the general public. However, higher leadership decided against it. They did not want to hurt their physical film roll sales, an important source or revenue. They did not want to endanger short term revenues, disappointing the shareholders.
Nokia focusses on voice
If you are from Europe, your first mobile phone was probably a Nokia. A Finnish company, they were the first ever to operate a cellular network. There were theories on how the unique Finnish culture had produced such an outrageously successful company. The word ‘Nokia’ was almost synonymous with ‘mobile phone’. With the emergence of the internet, however, data became more important than voice. And data meant mobile operating systems, apps and visual information. Nokia didn’t understand that. They kept developing hardware that gave their customers ever clearer voice communication. When finally they did decide to develop a smart phone, it was too late. They couldn’t get their phones competitive enough in time.
The TOTE model
The old TOTE-model from cybernetics (Test > Operate > Test > Exit) is relevant here. It shows the basic elements of goal directed behaviour.
The first requirement is knowing where you want to go. In leadership, that’s your vision. This is Clinton’s ‘pursuit of a common cause’. Then you need to know where you are. How far away are you from the goal? That’s the test.
Then you operate. You do things to get closer to the goal. How you organise your actions is your strategy. Here we have Clinton’s ‘developing a plan to achieve the goal‘.
You keep testing: Am I getting closer? As long as you are, you basically keep repeating that same operation. You maintain the strategy. You keep producing physical rolls of film. You keep producing better audio for phones.
But when you don’t get closer, that’s where resilience (tenacity with flexibility and creativity) comes in. You need to let go of your strategy and start doing something else. Something new. You exit from the present strategy. You start selling digital cameras. You start developing smart phones.
A dramatically effective strategy change
Kodak and Nokia were examples of non-resilience: not responding well to unforeseen changes. But there are plenty of positive examples. Harvard Business review describes how in 2012, Denmark’s biggest energy company, Danish Oil and Natural Gas, had a crisis. The price of natural gas went down by 90%.
They hired a former LEGO executive, Henrik Poulsen, as their new CEO. Poulsen saw the moment as an opportunity for fundamental change. “We saw the need to build an entirely new company”, he said. He renamed the firm from ‘Danish Oil’ to ‘Ørsted’, after the Danish scientist Hans Christian Ørsted, who discovered the principles of electromagnetism. “It had to be a radical transformation; we needed to build a new core business .... We looked at ... climate change, and we became one of the few companies to wholeheartedly .... go from black to green energy.”
Under Poulsen, Ørsted managed to cut the cost of wind energy by more than 60%. Net profits have increased by $3 billion since it began the transformation, and Ørsted is now the world’s largest offshore wind company.
Similar stories can be told about Netflix (moving from just distributing content to becoming a leading producer of original content), Philips (moving from producing household appliances to medical equipment) or Ecolab (moving from selling industrial cleaners to supplying hardware, software, and chemistry for a more efficient use of water). They all moved beyond short term profits towards a strategy inspired by a greater mission. Which in turn was linked to goals not just for the company, but for society - or even the planet - as a whole.