KARL MOORE – This is Karl Moore of the Desautels Faculty of Management at McGill University, Talking Management for The Globe and Mail. Today, I am delighted to speak to Gautam Mukunda [assistant professor of business administration] from the Harvard Business School.
Should we only look for transformational leaders when we are in trouble, or are there other times we need transformational leaders?
GAUTAM MUKUNDA – So that is one time when you definitely need them. One time is deep trouble, and that's the easy time, but there are others. For example, the trick is, that by the time you are in deep trouble, it might be too late.
Richard S. Tedlow has a great book called Denial, right, where he talks about how, quite often companies fail because the facts are staring them in the face and they just don't want to see it.
So sometimes you need a transformational leader when you are actually doing well, but somebody at the company realizes, somebody in a decision-making capacity, that that is not going to continue.
Wouldn't it have been great for Sears to have had a transformational leader in the 1970s? Maybe he or she could have turned them into something else and not ridden out the path down into failure.
So the second set of circumstances are, if you think situations are going to change, and you have to split that out, right? So [Harvard Business School professor] Clay Christensen's work on disruptive innovation, I think one of the things we can learn from that is that companies are actually much more adaptable and much more innovative than we used to think they were.
They actually can develop new technologies, they can push the pace in ways that people used to think that big companies weren't good at. I think what we learn from that is that they are channelized, they are good at innovating in one direction, they are good at doing certain types of changes but the very fact that they are good at those types of changes makes them worse at other types. So you might need a transformational leader if you are doing really well but you realize, you know what, what we have done is not going to keep [going], is not going to get us to the next step, and that is a problem too.
Even though you are doing very well, this is the hardest thing about business is to see around corners. This is the thing that great CEOs can do; they can see around corners, they can see the curveball that's coming. But if you can see it, then you just might realize that, you know what, the people that we have got, they have taken us straight but they can't take us left, and what we need to do is go left.
So that is the second circumstance where I think we need that.
The third is when you are in an environment where losses are limited and gains are unbounded.
So the way to think about that is you are a startup company, you are a venture capitalist, you are a grant-making institution, this applies to governments every bit as much as it does to companies, right?
Suppose you are, in the United States, the person in charge of awarding grants to the National Science Foundation, okay, and you give out grants to a thousand scientists. So what is the worst-case scenario, what is the very worst thing that could happen to those grants? The answer is it is wasted, you have wasted the grant. Well, okay, that is bad, you don't want to waste grants, but what is the best-case scenario? The best-case scenario is you change the world. You develop the new science, the new technology, that the whole industry could be founded on, and we know that happens because it has happened in the past.
If you are one of these guys, if you are at DARPA [the U.S. Defense Advanced Research Projects Agency] or the NSF [U.S. National Science Foundation], or you are a venture capitalist, and 100 per cent of your investments succeed, then you are bad at your job. That is the way we should think about this. We want people to fail some of the time. If you are not failing, then you are not taking enough risks.