LEADING ORGANIZATIONS: Moving Up The Leadership Hierarchy
In the book The Leadership Pipeline, Charan et al. described up to six career steps or passages that an executive will pass through while moving up the leadership hierarchy. Each career step is a major life-changing event for the leader.
As visualized in the model above, each career step is triggered by the executive passing from one leadership level to the next, the new level encompassing a completely new set of leadership competencies. In fact, each individual career step immediately invokes a performance gap because the candidate moving up to the next career level/gate does not possess the skills, competencies, or experience required to succeed at the new level. As a result, the candidate is not immediately capable of delivering results. Thus, coaching, training, and support are required to make the candidate decision-making competent.
Awareness about the challenges inherent in each leadership level will help disclose leadership landmines at every organizational layer and potentially help transitioning leaders navigate and avoid the most obvious landmines. Hence, to successfully transition to the next leadership gate/level, the executive must be prepared to take various initiatives to accelerate his/her learning and to develop a whole new way of leading and managing. We term these leadership transition initiatives leadership transition accelerators, and they encompass:
Acquiring new leadership skills – new leadership competencies are required to successfully perform at the new leadership gate/level (e.g. communication skills and situational leadership skills).
Expanding level management navigation – new competencies are required to successfully cross individual levels of management (i.e. from operational to tactical to strategic).
Building value chain understanding – new competencies are required to successfully build a broader value chain understanding (e.g. from functional to business and from group to enterprise).
Growing stakeholder management platforms – new competencies are required to successfully identify, segment, target and interact with the new set of stakeholders that will invariably surround a new leadership gate/level.
Improving time management – executives need to focus on time management, making sure that time allocated to themselves and their employees match the key priorities (Kaplan, 2005). The keyword in this regard is focus, as it is essentially a lack of focus that potentially becomes a key obstacle to success – not a lack of time.
The key to a successful transition from one leadership gate/level to the next rests in the ability of the transitioning executive to learn and integrate the new leadership skills required, cross to the appropriate level of management, expand value chain understanding, undertake appropriate time management, and grow stakeholder management platforms – in accordance with the new leadership gate/level. However, leaders moving up the leadership hierarchy often receive little or no support in this transition. We have seen leaders fail in transitioning from one gate/level to the next – and within six months going from top performer ratings in the prior leadership gate/level to struggling with low performer ratings in the new leadership level.
Feelings of incompetence, confusion, and vulnerability are often connected with leaders transitioning into new roles. In an unconscious re-enforcement of their self-worth and self-esteem, executives begin to drift towards areas where they feel competent, which leave them open for gaps in the required skills and competencies. It is our assertion, that these leaders very well could have succeeded in their transitions had they received the proper support, coaching, and tools from their line manager, HR, and other key stakeholders.
As Michael Watkins (2003) writes in his book The First 90 Days, there is a sort of Darwinian sink-or-swim managerial culture in most companies today in the sense that “…promising managers are thrown into the deep end of the pool to test their evolutionary fitness for advancement. The swimmers are deemed to have high potential, and the sinkers…sink.”. In these organizations, the learning aspect of transitioning is not in focus. Consequently, lessons learned by younger managers will often not equip them for the next level, why they make early mistakes and drown. Others swim, but only because they end up in the right kind of position or have received the right level of onboarding support.
Transitioning from one leadership level to the next
Career Step 1: From Managing Self to Managing Others
Most employees believe that transitioning from managing yourself to managing others must be one of the most difficult of the six career steps. However, from our experience, this is not the case. This is mainly because, at this leadership level (managing others), the team is often so small that the transitioning employee can play a dual role of part manager/part specialist. This will allow the transitioning manager to continue to shine with his/her expert knowledge. Employees becoming first-time leaders typically become so because of their history of good results and skillful individual contributions, and often it is the most professionally respected specialist who has also demonstrated collaborative skills. Before moving this skillful specialist into the leadership gate/level of managing others, it is crucial that the candidate is comprehensively assessed for leadership potential. If the candidate demonstrates little or no leadership potential, it is better for all parties not to proceed or, instead, to consider giving this person a professional leadership role – not a formal people management role.
This leadership level entails building skills within:
prioritization
planning
assigning work
motivating employees and measuring employee performance
Additionally, it should help expand the executive’s focus from being sheer operational, to also including a tactical perspective, assisting the executive in identifying new position-relevant stakeholders.
Career Step 2: From Managing Others to Managing Through Managers
When transitioning from managing others to managing through managers, the leader must expand his/her focus to being more strategic. In our experience, three things, in particular, make this career step one of the most difficult:
1. The leader must communicate through others (i.e. his/her managers) rather than directly to each team member. Complexity increases, as the leader now has to ensure that the communication given to his/her own manager trickles down to the remaining organizational layers, is broadly understood, and contains the content/message originally intended.
2. The leader will transition from a very hands-on leadership role, leading others directly with room for operational and tactical focus, to a more strategic role with a focus on strategic issues and the longer-term implications of decisions. Here, there is seldom room for individual contributions; rather, the focus is on hard-core management.
3. The leader will often find him/herself “swamped” in reporting requirements spending a significantly higher proportion of his/her time in generating reports for local, regional, and global management. In larger companies with matrix structures, the leader will face additional reporting requirements to (e.g. functional heads). We often see that the extensive increase in reporting is a killer for many leaders moving up to this level for the first time. In fact, this is the one career step that takes most casualties. People with brilliant careers excelling in the first two levels, suddenly find themselves in a situation, where their “raison d’être” is lost because what used to make them shine – their ability to save the world with their expert knowledge and skills – no longer is in focus, and a completely new set of (leadership) skills are required.
In sum, the biggest challenges for first-time managers of managers is a continuous short-term, operational focus, lack of setting a clear direction, and problems with delegating to managers.
This leadership level entails building skills within:
communication
delegation
strategy
broader business understanding
budgeting/resource allocation
stakeholder management and reporting
Formal training on how to be a manager is critical at this stage, combined with intensive coaching in the first year (for example by the direct manager and HR). Unfortunately, while most companies have formalized training programs for first-time managers, only few have for managers of managers.
Career Step 3: From Managing Managers to Functional Manager
In our experience, most executives at the previously discussed career step 1-2 are often given quite some operational and tactical support and guidance. They are monitored closely, perhaps even mentored and coached. However, when moving up to career step 3-6 your sources of genuine feedback and support become fewer and you are more or less on your own. Your manager focuses on mainly your strategic KPIs and only little, or not at all, on your day-to-day actions. Mistakes are often caught a stage too late, after they have shown a detrimental impact on your business results.
When transitioning from managing managers to being a functional manager, the leader must expand his/her focus to incorporate a two-layer complexity, while letting go of his/her old silo behaviors. The leader must recognize that he/she is no longer a member of the function but has become the overall leader of the functional area. While still maintaining a role within the functional area, the role is elevated to encompass all functional disciplines within this area, often generating possible blind spots for the leader. For instance, if the leader’s experience comes from running a manufacturing unit and now he/she is put in charge of “operations” (e.g. manufacturing, procurement, logistics, and warehousing), certain blind spots are likely to appear. In theory, this career step does not involve a paradigm shift. However, the complexity has increased as functionally widening aspects have been added. In our experience three things, in particular, characterize this career step:
1. The leader must expand his/her value chain perspective, as he/she will move from reporting to a functional head to reporting to a multifunctional business manager. The functional manager will also enter a cross-functional leadership team with peers and a business manager that will expect the leader to contribute a wider business perspective and who is prepared to transcend functional boundaries. Thus, the leader’s functional strategies must be explicitly anchored in the overall business strategy.
2. The leader is lucky to have team managers in his/her team who will deliver most of the inputs to the reports mentioned in the previous career level. However, time freed from this exercise will often be overtaken by an increased volume of meetings with his/her own management team, the business management team, regional/global functional heads, project teams, etc.
3. As the leader is moving through this career step, he/she will learn that the stakeholder sphere is becoming much wider and that it moves beyond those who seems to have an evident impact on one’s project. This requires increased political skills for the leader to navigate effectively across organizational boundaries. Therefore, the leader must become a skillful interpreter of motivation and the reasons behind the behavior.
To be successful at this level, the leader will need to manage with the entire function in mind and formulate value propositions that explicitly offer win-win situations for his/her leadership peers. The ability of the leader to strike a constructive and value adding cooperation with his/her leadership peers, while “fighting” them regarding budgets, resource allocations, etc., is absolute key.
This leadership level entails building skills within:
political navigation
multi-layer communication
stakeholder management
longer-term thinking
meeting management and consolidating all areas of the function into a whole
At this step, an executive MBA or university classes can be very helpful in order to acquire a broader perspective of the broader value chain of a business. Highly developed analytical skills are also required at this level – particularly the ability to navigate smoothly behind the numbers in a budget – is crucial. At this leadership level, the leader needs to find inspiration outside the corporate context. It is highly recommendable at this level that the leader connects with an external business coach/consultant on a continuous basis or, alternatively, with a confidant who has sufficient insights into personal aspects about the leader as well as the cycles and mechanisms of corporate life.
Career Step 4: From Functional Manager to Business Manager
When transitioning from functional manager to business manager, the leader will head up the integration of functions while having the full business area P&L responsibility. Accountability spans from developing a product to actually commercializing it. The decisive moment in this role often hits when it becomes clear how visible and exposed the leader must become. In our experience, introverted leaders often struggle in this position. As complexity rises exponentially, this is the role that is often perceived to be the most enjoyable, and alternatively, where the leader feels truly alone for the first time. In our experience, four things, in particular, characterize this career step:
1. The leader will need to balance multiple functional platforms and value all functions appropriately. The key is to make the necessary connections between the capabilities (people), structures (functions), systems, and processes. Often, the business manager will originate from a functional area that is rooted in his/her original expertise going back to the first career level. Here, for the first time, the leader’s functional expertise becomes a potential liability. Why? Because it represents a significant personal vulnerability. When judging business problems, the leader will still have a natural – and often unconscious – preference for viewing a problem through the eyes of his/her functional and educational roots and capabilities. In turn, this will create blind spots for the leader, who will need to build a team of loyal contributors, who can compensate for those blind spots.
2. At this level, the leader will need to focus on bridging the business strategies with the corporate strategies – vision, mission, and values. In essence, the leader must focus on ensuring that the business as a whole, and in each of the functional areas, operates in compliance with corporate strategies.
3. The leader must be able to take a full value chain view of the business and the opportunities and challenges faced individually and interdependently by the functional areas while playing out their roles in the value chain. In essence, the leader must ensure that each functional area contributes to ensuring a robust flow through the value chain.
4. At this level, the leader must move up to helicopter view and ensure that the KPIs set for each functional area are clearly aligned with the overall business area KPIs, and direct focus and effort, in the desired direction underpinning continued growth of the business area. The KPIs must reflect a mix of short-term and long-term perspectives.
This leadership level entails building skills within:
multi-functional integration
handling complexity
time management (striking an appropriate balance between spending time working up, sideways and down the hierarchy, with customers, collaborators, industry associations, etc.)
corporate strategy development and implementation
internal and external communication (the leader must inspire)
full P&L navigation
building a strong team (due to the increased complexity, volume, and diverseness of the role)
At this step, training in the deployment of sophisticated financial analytical tools can be very helpful. Additionally, as this level could involve engagement in potential M&As, asset investments, or similar, training within such processes and subsequent integration processes may be similarly beneficial to undergo. Moreover, for instance as country manager, taking an active part in the collaboration with local industry organizations, authorities, press, etc. will be expected, for which reason skills enabling you to navigate these contexts and strike a balance between risks and opportunities are equally favorable. Thus, it is advised to establish relations with external advisors who can contribute to building the business manager’s knowledge and competency level. Additionally, at this career level, increased focus should be on building a strong network, both inside the company at the global or regional level and outside the company with peers in similar roles, who face similar challenges.
Career Step 5: From Business Manager to Group Manager.
When transitioning from business manager to group manager, the leader transitions to head up multiple businesses – rather than merely one business. As a result, focus should be on bringing out the best of each individual business and on determining the focus and resources to be allocated each business, in light of the best overall use of the collective resources of the company. This is often the position that leaders find the least fun, since focus will be on creating an appropriate mix of investments, with limited corporate resources among competing businesses while balancing the egos of the business managers. This will include turning some businesses into cash cows and diverting resources to other businesses with star potential. Additionally, the group manager must demonstrate an ability to align the small kingdoms headed by the business managers, around a common vision, mission, set of values, and culture. It is worth noting that when it comes to smaller companies, the group manager level becomes the end level, and, thus, CEOs of these companies often take on a group manager’s role and responsibilities. In our experience, four things, in particular, characterize this career step:
1. At this stage, leadership becomes very holistic. Mastering the complexities of running multiple businesses resembles the challenges faced by the functional manager transitioning into the business manager role suddenly needing to balance multifunctional platforms. However, the level of complexity is further increased as it could also involve businesses within different industry segments, or businesses at different vertical levels in the industry value chain, etc. Multidimensional thinking is required in integrating a broad portfolio of business needs into an overall plan, and strategy-related work will, as a result, take up a large proportion of time available, including challenging the strategies of individual businesses.
2. A great deal of faith must be invested by the group manager in the business managers for the respective businesses, and the group manager must focus his/her full attention on the development of his/her leaders, their competencies, capabilities, and their ability to deliver the required revenue streams and profit contributions. This involves high-level coaching of business managers and occasional mentoring of talented functional managers. The truly successful group manager is second-to-none at identifying, attracting, assessing, developing, coaching, mentoring and retaining highly talented leaders who can bring their respective businesses to the next level – and he/she possesses excellent judgment.
3. The continuous evaluation of the portfolio of businesses within the group and their fit with the overall strategy takes up a significant amount of the group manager’s focus. Therefore, deconstructing, reconstructing, and continuously fine-tuning the portfolio strategy is core to this career level.
4. The group manager takes a key role in the development of the corporate strategies (i.e. the vision, the mission, and values) in close collaboration with the enterprise manager. It is often the corporate strategies that create the glue uniting the firm’s, sometimes remarkably different, businesses. If developed and implemented well, these corporate strategies can transcend geographical borders and cultural boundaries, and ensure that a sense of common purpose thrives in the organization. Thus, monitoring compliance with corporate strategies, policies, and guidelines becomes a key task. In terms of business strategies, the group manager must also demonstrate an ability to prioritize the portfolio of strategies over individual strategies.
This leadership level entails building skills within:
portfolio strategy
sophisticated data and psychological analysis
multiple-dimensional business management
corporate strategic leadership
corporate funding strategies and tools
corporate strategy development
high-level talent management
One can argue that the group manager becomes the playing coach of a team of individualists, excellent in their own way, and the key challenge is to make this team play effectively together (i.e. set a team of business managers that can take the lead on their own local team, but at the same time take a loyal and contributing role/position in the perspective of the group). Therefore, the group manager must be capable of building his/her personal credibility across a multi-dimensional context of sometimes opposing agendas. The best learning ground for a group manager is gaining experience from leading a variety of businesses in different business manager roles before entering the group manager position. Experience from working with different operating models and in a broad variety of roles across functions and hierarchies – will empower the group manager to better challenge the business managers and ask informed questions that can cut to the core of a business issue. In our experience, having a mentor from early on, who has followed the leader through several of his/her career steps and who can support the transition into the new role, is also valuable at this stage.
Career Step 6: From Group Manager to Enterprise Manager.
When transitioning from group manager to enterprise manager, the focus turns to vision, mission, values, and the general direction of the company. The ability to set the right group leadership team, to ensure successful execution platforms, and to consistently deliver results and build relationships – internally and externally – are crucial skills in the enterprise manager role. As CEO, the enterprise manager is responsible for multiple constituencies (e.g. shareholders, investors, boards, alliance partners, banks, regulatory authorities). The complexity is high – and so is the risk of failure.
Additionally, the enterprise manager must ensure that the bi-annual or quarterly reporting KPIs are anchored in the long-term strategy, while delivering on short-term goals, and finally he/she must demonstrate a superior ability to balance the organizational risks and opportunities, including the 6 Cs:
Customers: Risks, opportunities, and relationships related to the customer base.
Collaborators: Risks, opportunities, and relationships related to key collaborators (e.g. industry organizations, suppliers, allies, and government/regulators/community stakeholders).
Competitors: Risks, opportunities, and relationships related to the competitor base.
Capabilities: Risks and opportunities related to the capability base (e.g. professional and leadership competencies within the organization’s structures, systems, processes, financial, technical, and brand equity).
Conditions: Risks, opportunities, and relationships related to the macro environment (e.g. political/government/regulatory, economic, social/demographic and technological).
Capital: Risks and opportunities related to the financial situation and prospects of the company. How solid is the investor base? What is the debt-to-equity ratio? How skilled is the company at generating EBITDA (Earnings before interest, tax, depreciation, and appreciation)?
The enterprise manager must balance his/her time between internal and external issues. Additionally, the enterprise manager must devote time and focus to shaping the soft side of the business (e.g. talent development). However, since the enterprise manager now reports to the owner(s) and/or board he/she will also be measured on a number of hard KPIs – primarily including the following:
1. Ability to deliver growth in revenue: The ability to deliver revenue growth year after year sends a powerful message to the board about effective enterprise management. It reveals that the CEO and his/her leadership team are able to master the competitive parameters of the market (price, product, place, promotion, people). Revenue growth equals understanding the market and the opportunities offered by the market and the ability to translate these opportunities into results.
2. Ability to deliver on the EBITDA: A continuous growth in operating profits of the company sends a strong signal to the board about effective enterprise management – hereunder effective cost control and continuous optimization of the operation. In essence, it tells the story of a CEO that ensures that the company’s resources are allocated to the activities contributing best to the overall business.
3. Ability to generate cash flow/liquidity: The ability to generate cash flow/liquidity in combination with the ability to ensure a strict controlling of the working capital of the company sends a powerful message to the board about effective enterprise management. This includes:
reducing stock and “lead time”
correct invoicing – sent on time
creditors paid when due
short credit terms to debtors
improved payment terms to creditors
Additionally, the enterprise manager is measured by his/her ability to generate cash flow through tight control of investments – preferably consisting of investments targeting:
growth in revenue
growth in operating profit
improvement in the competitiveness of the company
short payback time
4. Ability to reduce debt: The ability to reduce debt sends a powerful signal to the board and owners as it demonstrates that the enterprise manager is able to take necessary steps to reduce borrowed capital while increasing equity capital value. Especially, companies that have been acquired in a leveraged management buy-out with the backing of a private equity fund, an important part of the investment case is founded on the company’s ability to reduce the borrowed capital base. In essence, the less borrowed capital at the time of investor exit, the more money goes into the pockets of the investors.
5. Ability to improve the quality of earnings: The ability to improve the quality of earnings sends a strong message of effective enterprise management – encompassing the ability to demonstrate a history of continuous growth in market share, revenue, EBITDA, and profit margins while delivering on-target budgeting, cost control, and cash flow.
In general, the enterprise manager/CEO and the management team will place themselves in a strong position toward potential future investors if they can show clear decisiveness, execution edge and deliver on commitments while providing the “how-to” and “why” in relation to the growth of the business. This will demonstrate an innate ability to convert market opportunities to revenue and profit streams.
This leadership level entails building skills within:
Corporate strategic leadership – including developing the ability to take the explicit lead in developing and implementing the company’s vision, mission, and values while mastering insights into the entire value chain – across businesses. In essence, the key task of the enterprise manager will be to create a company direction that the organization will find meaningful, challenging, and motivating.
Soft-side focus – the ability to cater to the soft side and generate energy, commitment, and engagement at all levels of the organization is key to becoming successful in the role.
M&A
Financial modeling
High-level talent management – including succession planning/ management, and how to deal with key stakeholders such as the board and investors.
Enterprise manager skills are often best acquired through companies investing in leadership talent and over time developing them by offering them challenging assignments while building leadership skills. Moreover, having previously gained experience from international assignments combined with experience from a mixture of turnaround, realignment, sustaining success, and start-up business models is also beneficial in gaining a strong foundation for success in the role. Different business models incorporate different cultural challenges. To be successful in the role, the enterprise manager must understand where the organization is and what it will take to bring it in the right direction. If the enterprise manager is facing a situation where a part of the business (e.g. a product or project) has drifted into trouble, realignment is required. If the organization is in denial – the task will be to pierce through this and confront the organization with the need to reinvent the business.
In addition, having gained experience from a staff role can contribute to a broader basis for success as various analytical, planning, and process tools often are gained in such roles. The key challenge of the enterprise manager is how to make the leadership team and portfolio of businesses play effectively together – setting a team of group managers that can take the lead and develop their business groups. Moreover, the enterprise manager must now learn to deal with the board. In our experience, the best way to gain insight into board interaction is by seeking advice from peers outside the company or by participating in board educational programs that offer tools for enterprise managers.
Source:
Caran, R; Drotter, S., & Noel, J. (2011). The leadership pipeline – How to build the leadership powered company (2nd Ed.). San Francisco, CA: Jossey-Bass.
Watkins, M. (2003). The first 90 days. Boston, MA: Harvard Business School Press.