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In a small white room in central London, a man clad in a Ralph Lauren shirt and jeans stands up, pushes his hair back from his face and tells 11 people seated on plastic seats about the time his rock band emptied a room of partygoers. Then, as he looked around the empty room, he tells the group, he contemplated putting his guitar back in its case and going home. Instead, his band decided to stay, play the best they could and enjoy themselves.

This man is not a rock star (aside from in his head). He is a business psychologist on a one-day course learning how to tell better stories to executives. And the purpose of sharing this memory is not a personal catharsis, rather it is to demonstrate that sometimes at work the best option is to pull yourself together and get on with it.

The one-day course is held by Roger Jones, who advises executives on telling stories. "Every day we are bombarded with more and more information and our business world is becoming increasingly complex," he says. "We need a better way to persuade people, get your messages to stick and inspire people to take action. PowerPoint presentations make audiences doze off, facts and figures often bore people." Stories are not just for speeches, but can be used in company literature or marketing.

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Peter Gubar, the Hollywood producer, has written a book, Tell To Win, putting the case for stories. "Telling a purposeful story in a business environment where vital information is embedded and grows organically in the narrative is singularly the best way to energize a product or service into a call to action."

Jon Moulton, the buy-out veteran, is a self-described "enthusiastic user of parables," who believes stories are better than facts: "Most buy-outs are based on 'sustainable ebitda'" – which in itself may be "implausible" fiction. In fact, he muses: "A lot of CEOs are much safer telling stories than running the business."

"Can you think of anyone who turned around a situation who didn't use a story?" asks Stephen Denning, who, after holding a series of management positions at the World Bank, published five books on leadership storytelling. "If you think of all the great religious leaders, philosophers, generals, [political]leaders, what do they have in common? They were all great storytellers."

In his own experience, he says, telling the right story was "crucial in my success in persuading in 1996 the World Bank – a notoriously change-resistant organization – to make a fundamental shift and embrace knowledge management as a central strategic thrust."

Nonetheless, says Mr. Jones, "few managers and leaders use storytelling as a strategic tool to communicate their organization's values, get their people to embrace change and inspire even higher levels of performance."

Of course, stories cannot always replace facts. For example, when it comes to sharing critical skills, says Mr. Jones, "You certainly wouldn't want a pilot to learn their job by listening to or reading stories."

Storytelling is often dismissed as "fluff" by business people focused on the bottom line, says Mr. Jones, who confesses he does not use the term "storytelling" to high-level executives. Instead, he prefers the loftier tags "executive presence" or "narrative case studies." "They love it," he grins.

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Stories come naturally to employers and employees, he points out. We just do not necessarily identify them as such. A new chief executive may tell stories demonstrating how great the current regime is and how bad the previous one was. Negative stories, Mr. Jones adds, are often more discussed in an organization than positives – for example, those about redundancies and culture clashes due to mergers.

He cites examples of where storytelling has been used to good effect within companies. Xerox, which makes photocopiers and printers, identified that its engineers found it easier to learn how to fix machines by trading stories rather than reading manuals and so created Eureka, a database containing repair anecdotes.

Innocent Drinks, the British soft-drink maker, has an origin story on its website that recounts how the founders decided to take the plunge with their business by putting up a sign in front of their drinks stand asking: "Do you think we should give up our jobs to make these smoothies?" They put out a bin labelled Yes and a bin labelled No and asked people to put their empty bottle in one of the bins. At the end of the weekend, the Yes bin was full so the next day the trio resigned from their jobs. The effect of the story, says Mr. Jones, is to make the company appear "customer-focused, innovative and personable."

It is important to read the audience right, says Mr. Jones. He recalls one chief executive who wanted to tell a funny anecdote displaying his triumph over adversity. The only problem was this story was about the problems he had repairing his leaky country house which was worth millions. The audience was made up of managers unlikely to be earning more than £40,000, who would never in their wildest fantasies be able to buy a country pile. "Great message, wrong audience," was Mr. Jones's verdict.

Storytelling goes wrong, says Gina Rudan, the author of Practical Genius, when it lacks authenticity or truth.

Clarity is also key, says Mr. Denning: "If the leader is unclear, the story will probably reveal this."

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Another common mistake is for leaders to tell a story "that reveals unwittingly that the change will be good for the organization but not so good for some people in the organization, for example the audience."

Worse still is for someone to tell a story that is factually accurate but that omits crucial details, adds Mr. Denning. "An example would be to tell a story like the following: 'Seven hundred happy passengers reached New York after the Titanic's maiden voyage.' End of story."

He is skeptical about speechwriters. "The story is merely the conduit by which the leaders' passion is transmitted. So if leaders are reading a speech written by someone else, it's going to sound hollow and borrowed. There will be no passion to transmit. The story will be ineffective at best and, more likely, counter-productive."

Nonetheless, speechwriters can be useful in suggesting themes, subjects and even wording, he suggests. "But then having received these suggestions, the leader should throw away the written material and practise giving a speech from memory, conveying what they feel about the subject."

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