Level 5 Leaders - Characteristics and Operating Style
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Jim Collins, level 5 leaders, Kimberly-Clark, Darwin E. Smith, Sam Walton, Wal-Mart, Iacocca, Chrysler, George Cain
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Discipline Vs Freedom
Level 5 leaders perpetrate a culture where disciplined people involve indisciplined thought and disciplined action. According to Jim Collins, when an organization has disciplined people, it does not need hierarchy and an organization with disciplined thought does not need bureaucracy. An organization with disciplined action does not need excess control. And when a culture of discipline is combined with a spirit of entrepreneurship the organization performs extraordinarily. (Refer Exhibit 9.5 for a culture of discipline at AbbottLaboratories).
Exhibit: 9.5
The Culture of Discipline at Abbott
Under the leadership of George Cain (Cain), Abbott laboratories (Abbott) adopted a system called "Responsibility accounting" in 1960s. Under this system the managers were held responsible for all the items of the cost, income, and investment which come under their sphere of activities. Every manager, no matter what job he is responsible for, was assessed for return on investment (ROI). The organization was more like an investor and the managers were like entrepreneurs. This system promoted rigor and discipline while stimulating creativity and sprit of entrepreneurship. George Rathmann, the former Cofounder & CEO of Amgen who was a former employee of Abbot, says "Abbott developed a very disciplined organization, but not in a linear way of thinking. It was exemplary at having both financial discipline and the divergent thinking of creative work. We used financial discipline as a way to provide resources for the really creative work." As a result of these creative efforts, the company's administrative costs as a percentage of sales declined to the lowest in the industry. The company also highly innovative. By early 1980s, 65% of revenues flowed from new products that were launched in the previous four years. |
Adapted from "Onward and Inward", Across the board, Sep/ Oct 2001, Vol. 38, Issue 5.
In the example mentioned above, Cain recruited entrepreneurial leaders and gave them enough freedom to follow their own ideas in attaining objectives. However, he expected tremendous commitment from them, and made them rigorously accountable for their objectives. Leaders thus recruited had freedom, but within the specified boundaries. He discouraged ideas that did not fit with Hedgehog concept (contributing to cost-effective health care) of the organization. Cain thus retained entrepreneurial zeal, discipline and opportunistic flexibility in the organization.
Adopting technology
Under the leadership of Ken Iverson (Iverson), Nucor pioneered mini-mills steel manufacturing. Nucor made significant investments in slab casting, and electric arc furnaces. The company then went on to become the biggest steel manufacturer in the US. This example is seen as a classic case of a small company overthrowing old order through application of new technology. When Iverson was asked to rank the top five factors that contributed to the transformation of Nucor from good to great, technology figured nowhere. According to him, consistency of the company, and ability to project its philosophies throughout the organization (made possible by the lack of layers and bureaucracy) were the major factors that made it possible.
His executives also felt the same. They rated right people (applies to both laborers and key managers), and performance culture of the organization far above technology.
As the example shows, technology is just an accelerator of momentum in the organization. It can never create that. Hence, level 5 leaders never emphasis on technology first in their quest for transition in their companies. They believe that in order to use the technology appropriately, they should first understand how relevant the technology is.
Once they understand its relevance, and ensure its conformity with organization's Hedgehog concept, do they apply the technology. Thus level 5 leaders adopt technology based on calm equanimity and appropriateness. From the above study it seems that Level 5 leaders are
indispensable for creating great companies. But how to find them and where to find them? Jim Collins suggests two ways. First is to stop looking for leaders who are bigger than life size. In majority of cases, they are good at ensuring only short-term returns, and are known for harming long-term interests of organizations. Second is to look for a place where extraordinary results are a norm and where no single individual claims the credit. There surely hides a level 5 leader.