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0:00:02.7 Producer: Welcome back, Culture by Design listeners. It's Freddy, one of the producers of the podcast. Today's episode is part three and the final part of our Leadership Journey series, where Tim and Junior discuss leading the business. You'll hear how this stage requires a shift to strategic thinking and running parallel paths by preserving today's value while innovating tomorrow. Tim and Junior explain the modern view of business leadership through a stakeholder lens, share practical tips, like clearly understanding the goal, focusing on fewer things, building adaptive capacity and modeling desired behaviors. This is the capstone episode of this Leadership Journey Series. You can find the previous episodes on leading yourself and leading the team at @leaderfactor.com/podcast, or in this episode's episode show notes. Now, before we dive into this episode, I want to give you one last chance, an invitation to join Tim and Junior live on February 22nd for a live webinar on the future of emotional intelligence. You'll walk away from the event with ways to immediately improve your EQ and a special gift to all in attendance at the end. You'll find a link to register at the bottom of this episode's description. As always, thanks again for listening and enjoy today's episode on Leading the Business.

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0:01:29.0 Junior: Welcome back, everyone to Culture by Design. I'm Junior here with my co-host, Dr. Tim Clark, and today we'll be finishing the series with Part 3 three Leads the Business. Tim, how you doing?

0:01:40.1 Tim: I'm doing well, junior. How are you doing today?

0:01:42.7 Junior: I'm doing great. I feel like I finally got my voice back. Over the last few episodes, I've been struggling. I've had a lot of water on hand, and so today I'm feeling lively. I'm feeling a 100%.

0:01:53.7 Tim: But you persevered and we kept on going.

0:01:57.3 Junior: We had to. We did.

[laughter]

0:02:00.7 Junior: So today's episode, we're gonna jump into the third piece of the leadership framework. And what are those three parts? They've been the previous two episodes, Leads Self, Leads the Team, now today Leads the Business. And in conjunction with those three parts, we've talked about the four levels of contribution. Levels one and two about lead yourself. We talked about level one, contributing dependently, level two, contributing independently, level three, contributing through others. And now we move to level four contributing strategically. So we're going to talk about strategic contribution as it relates to leading the business. There are transitions as we move through these levels of contribution and these levels of leadership. Self, team, and business. And there are fundamentally different from each other, which is why they're explicitly different in the framework. So, Tim, talking about level three today, what is this change like for most leaders moving from leading the team to leading the business?

0:03:03.9 Tim: Wow. Where should we start? There's so many places...

0:03:08.7 Junior: I know it's a lot to cover in one episode.

0:03:11.7 Tim: Yeah. There's so much to say here. Well, let's start with a basic distinction. One big transition is that you move from a tactical mindset to a strategic mindset. When you're leading a team, you're still... The scope of your responsibility is limited to what the team does, why the team is there, what your objectives may be. And so there's still a fairly narrow scope and scale. And now you're... So, now you're moving from tactical to strategic. This means... So the big implication here is that you have to begin... Well, I shouldn't say begin, but you have to think at a systems level even more. What does that mean? It means that you're seeing the big picture. You're up in your hot air balloon, and you're trying to optimize the whole, not a piece of the whole, right? That's not what you do when you're leading a team.

0:04:14.0 Junior: That's fundamentally different.

0:04:14.1 Tim: So now you're... Yeah. You're responsible for... You have enterprise level responsibility. It's a completely different animal. Now, with that comes a different kind of responsibility and there's a psychology that comes with that shift in responsibility. You're now responsible for the viability of the organization. That's what enterprise level responsibility means. The actual viability of the organization, the success of the organization as a whole. That's a completely different thing, right? This means that you have to constantly assess how the organization creates value, where it competes. So you're... And there's no end to this. You have to continue to update your contextual understanding. How is the business operating in its markets, in its context? What's going on with competitors? What's going on with customers? How are we competing? But not only that, how will we create value and how will we compete in the future?

0:05:27.0 Tim: So we talked about this before, Junior, about the fact that when we shift to moving to contributing strategically, we're talking about running two businesses. The business of today and the business of the future. The business of tomorrow. And we run those on parallel tracks. So when we move to contributing strategically, we shift and we spend more time thinking about the future and how we will compete in the future, right? So we're creating and delivering value today, and we're trying to figure out how we're going to create and deliver value tomorrow. So that's just the first comment on what shifts as we move to strategic contribution. Now, having said that, think about the shift in scope and the shift in complexity that happens when we move to operate at a strategic level. Now, what comes with that? There's a major shift in the level of uncertainty and ambiguity that you as a leader must be able to tolerate. And then with that comes an increased amount of risk that you must manage. Wow! So the scope changes. The complexity changes. The risk profile changes. The psychology changes the nature of responsibility changes. How about that?

0:07:05.6 Junior: It's a lot [chuckle] So in light of what you just said, why would someone wanna make this transition? I'm curious as to what you think and what you've seen with leaders. What would motivate someone to go, not just from level one to level two, but level two to level three. And certainly just three levels is oversimplifying things, but what's the motivation once we start leading teams to move even higher and have more influence? Why might someone be interested in doing that given what you've said, the complexity, the ambiguity, the scope. Certainly there are some obvious ones, but what have you seen?

0:07:50.5 Tim: Well, I think it might be a little bit different for each person, but I think that first of all, you need to be... What is the nature of your motivation, right? What is your motivational profile if you would like to move to strategic level leadership? Well, hopefully the first thing is that you have confidence that you can do that and that you have the skills and the motivation to do that. But why are you motivated? If it's simply out of self-interest and you see executive leadership as a glittering path to your own rewards, that's not going to be enough. Remember what we said when we shift from direct to indirect contribution, you're contributing through others now, and you have to be able to rejoice and find deep satisfaction in being able to do that. So I think you have to have a sense of stewardship, enterprise stewardship, and you're motivated to tackle more responsibility.

0:08:57.6 Tim: You think you can add value. You think that you can make a meaningful contribution and that that is the highest and best use for your talents and capabilities and motivation. So I would urge and caution everyone to examine your motives. Examine why you would want to do that, right? Because as we just said, there are many changes that accompany this transition to contributing strategically. And there's just a lot more responsibility and a lot more stress that goes with it. Now, can the rewards be proportionate as well? Yes. They can. There are great rewards in this area, but I would just say really inspect and evaluate your motives as you continue your journey.

0:09:58.7 Junior: I appreciate you spending time on that because it seems to me that a lot of people might think it's just foregone conclusion. Of course, you want to continue climbing this ladder. Of course you want to continue down this path. But it's worth taking a moment and asking why might you want to do that? And there are some obvious answers, as we said, but there are some less obvious answers that I think are deeper that we should ask and answer in order to see if that's really the path we want to wanna go down. Because it requires a lot, and it will require a lot of you, not just in effort and output, but it requires a whole host of things. A lot of humility, a lot of looking in the mirror, and a lot of getting better. So, a lot of people would consider those leading businesses office tower people. You got a quote in here about office tower people. I like it. Would you share it?

0:10:53.8 Tim: Yeah. So this is a statement by Roger Martin, the famous Canadian strategist. He said, "What do these office tower people do? They don't manufacture products or deliver services to customers. Instead, they manufacture decisions." Decisions are their outputs. What to research, how to sell, how much to spend on marketing, who to partner with, where to expand. The managerial infrastructure can be best thought of as a big and expensive decision factory. So if you move to executive management, if you move to contributing strategically, what do you get paid for? Primarily decisions which presupposes that you have the judgment to be able to make those decisions. So you get paid for judgment, right? And as Peter Drucker says, the executive holds himself or herself accountable for the performance of the whole. We talked about that earlier. Enterprise level responsibility and accountability. You are now playing at a different level.

0:12:09.6 Junior: So the performance of the whole, does this mean that you have to be at the very top of an organization? Let's clarify that. Is that what we mean... Is that what we mean by Leads the Business? Who is this relevant for?

0:12:24.6 Tim: I don't think so, Junior. I think it's for anyone that moves beyond leading a team, right? So you have one Intacct team. Well, what if you are assigned to lead a cross-functional team? Well, you've just... You could have just doubled the complexity and the scope. And so now you've gotta be thinking on a different plane, you've got to... All of these things now come into play. You've gotta be able to think strategically. The control environment changes, the risk profile changes, all of these things change. So it's anything above leading an Intacct team, in my view.

0:13:05.3 Junior: So we're not just saying this is the path to CEO.

0:13:09.1 Tim: No.

0:13:10.5 Junior: Okay. I want to wanna be clear about that because this is relevant, I think to more than might assume just because we're calling it Leads of Business.

0:13:19.7 Tim: And I want to wanna point something else out, Junior. And that is that once you move beyond leading an Intacct team, and you take on the complexity and the increased scope that comes with that, think about the nature of consequences from the decisions that you make. There's more complexity and you're going to be spending more time thinking about potential intended and unintended consequences. And not only that, but the train of consequences over time. First, second, third, fourth, fifth, order consequences. You have to start to think that way. You've gotta become a better chess player as you think through several moves ahead. This is what your job is. One of the things that you learn pretty quickly when you begin to contribute strategically is that if you make a poor decision, there will be ramifications that are usually all over the place that touch many aspects of the business. And you're gonna learn to be very careful about that. And this reminds me of this statement by Tolkien in The Fellowship of the Ring. He said, "Shortcuts make long delays." So Junior, I know you're a big Tolkien fan, and we've talked about this before, but in the context of leading strategically, don't you think this is relevant?

0:14:54.2 Junior: Oh, yeah. It's ultimately relevant. Shortcuts make long delays. You're going to have to go through the letters A to Z if you want to get to Z. And there's no way around that. You can't shirk the work that has to be done. Otherwise, what might happen is you'd think you got to Z but then you get found out because you're actually not as good as you thought you were or as you said you were. The skill actually isn't there in order to do the job at hand. So there's no way to fake it over a long time horizon. If you want your leadership to be real and durable, you have to pay the price. So I love this quote.

0:15:41.6 Tim: And I think what happens to add on to what you just said, Junior, is that in strategic leadership, you know that you have to live with the long-term consequences of the decisions that you make. There's no room... The margin for error gets narrower, you see the unintended consequences could really take you down and so you've got to disabuse yourself of the temptation to chase anything that looks like a shortcut because you're going to gonna pay a price. So we just stay away from that.

0:16:22.1 Junior: So to everyone listening, thanks for letting us riff for a few minutes in the setup. As you can see, we've been able to do that really easily just because of how much there is in this transition. Once we reach level four, strategy and competitive... Strategy and competitive advantage are now our focus and in levels one to three of contribution, we didn't have to worry too much about the continuity of the business or higher level strategic decisions. But now that's entirely our job and the landscape is changing. In the first and second levels of leadership, we're very much concerned about the status quo, we're very much concerned about execution. That's our world. Howard Schultz said, "We cannot be content with the status quo. Any business today that embraces the status quo as an operating principle is going to be on a death march." And I think that the organizations that do this fail to graduate to that final level of moving to become more strategic.

0:17:25.1 Junior: And so that's where this transition becomes ultimately important. I want to wanna ask, what does it mean to lead the business? Because it's... I think this is it's a question worth asking. It seems straightforward. It seems obvious, lead the business, but what does that actually mean? What do we intend to communicate when we say lead the business? Well, what's business? What's business for? We have to start there. And I hope this doesn't become too ethereal, but it's important. The traditional view is profit maximization and shareholder value, right? That's where most of this started. But yet that's not just what we mean by Lead the Business. But that's what most people might think, right Tim?

0:18:12.9 Tim: No. It's true. I remember reading Milton Friedman's paper on the shareholder theory of the corporation back in the 70s. He was at the University of Chicago, and this was the conventional wisdom. This was the prevailing thought at the time, that there was this very narrow conception of what the role of the corporation was. So, generate an acceptable rate of return, and you've done your job and that's it. Well, it's not that simple. And we, all of us and all of you, we are living through a gradual and yet massive shift from shareholder capitalism to stakeholder capitalism. What does that mean? It means that we're acknowledging... That's a big part of it, is just to acknowledge that we have other stakeholders that are very important beyond the shareholders.

0:19:06.0 Tim: That's the biggest piece of this. So we have formally brought them into the equation and into the light. So it's not just shareholders, but we have customers, we have employees, we have partners, we have the community, and they all have a vested interest in what we do. They have a legitimate stake in what we do and how we do it. And so we're formally acknowledging that and we're broadening the conception of the corporation. I think that's where we're going, Junior. And in many cases, that's where we are already.

0:19:46.6 Junior: And in recent years social impacts become a much bigger deal. How do we create that value for the customers, the employees, the community, the shareholders, obviously? How do we do that sustainably? How do we do that ethically? You have ESG that's become part of a conversation your environmental impact, what social impact are you having broadly, governance. So people are looking through different lenses as they're choosing where to invest. They're looking through different lenses as it concerns performance. And then maybe you're not working at a for-profit and you're concerned primarily about mission. Impact over profits. Does lead the business still apply to you? Yes, it does. And so it's worth saying that when we say lead the business we're talking about all of this. All of this has to be in your mind because it's more than just creating shareholder value. It's about value creation for all of those stakeholders. It's about mission.

0:20:49.4 Junior: All of those things have to affect our behavior, which adds to the complexity. The reason I wanted to ask this question is to then ask another question, which is what is the purpose of the organization we're in? And how do I contribute to its goal and ensure its continuity? That's the question we're asking as we make this transition to lead the business. So if I were to put it another way, what does lead the business mean? It essentially means influencing others in an effort to accomplish the purpose of the organization. So if leadership is synonymous with influence, I think that using that language is appropriate because now we're contributing through other people. It's not just us. So how do we influence other people to accomplish that goal? That is our job. Twofold. Understand the purpose of the organization and then influence others to achieve that purpose. What would you add to that or take away?

0:21:49.5 Tim: I think what I would add to that, Junior, is that sometimes that's not altogether clear. And so you have to go back and go through a clarification exercise right? Because part of your job as a strategic leader is to create the clarity behind which you can align the organization. If the clarity is not there, you can't align. You cannot align behind ambiguity as far as the mission and the vision and the strategy and the priorities of the organization. So you may have to go through a clarification process first. And that's part of your job, is to create that clear vision and clear direction that we talked about before, right? That the vision, meaning the destination, the portrait of the future the seedling of reality, and then the strategy, the plan to get there. How are we going to get there? And then the milestones along the way that would indicate progress toward the vision and toward the priorities that we have.

0:23:04.6 Junior: So you mentioned at the very beginning that we have two jobs as we move into leading the business, and the first is preservation. And this is something that's often neglected. You have something that's creating value today, and it's your job to preserve it. You can't destroy what's creating value today, but you have to, which leads to disturbing. That's the other part of your job, is to create value tomorrow. You have to pay attention to tomorrow but not to the neglect of what's going on today. And so you can see the push and the pull and this is so much of what makes leadership at this level difficult. When do you do which one? When do you preserve? When do you disturb? And how do you toggle back and forth? Do you see a lot of leaders do this well, Tim, or is it difficult?

0:23:55.0 Tim: It's extremely difficult. As you said, Junior there's this natural tension state between execution and innovation. It's a contradiction and it's a paradox, and yet both of those roles, both of those applied disciplines are part of the job of contributing strategically as a leader. As you say, preserve the status quo, disturb the status quo. It's creative destruction, right? This is what you have to do. But when and how to do it, there's no handbook for that. There's no algorithm for that. There's no formula for that. There's no equation for that. You have to figure that out. All of that is unprecedented every time. It's all uncharted territory. You look at your business, what are you going to do next year? No one can tell you for sure. No one's ever done it. It's not in the corporate institutional memory. No one knows. You have to figure that out. And that's what makes leadership at this level both exciting and exhilarating, but also frightening and challenging, right?

0:25:12.5 Junior: Yeah. So, with that in mind, we want to give four things that we can do that each of us should do as we make this transition from lead team to lead the business. Now, all of these things are still relevant. Let's say you're an individual contributor or you have an intact team that's small, it's frontline. All of this is still relevant. As you do these things, you'll become more effective as a leader and enable yourself to move to that next level to have more influence. So, number one, understand the goal. This is ultimately important and I cannot overemphasize this. Why exactly are we here and what is it we're trying to accomplish? And as you said, if we don't know the answer to this question the probability that we succeed is very low. It's like shooting a basketball at an invisible hoop. If we do not have something clear to aim at, basically everything we do is futile by definition.

0:26:11.4 Junior: So, as you make the transition from lead team to lead the business make sure that this is crystal clear to you. If it is not crystal clear, ask and ask and ask again. Go do the work to figure it out because, Tim, as you said, you can't align an organization behind ambiguity. It has to be clear and if it's somewhat unclear to you, it will only be less clear to those you're leading. And so, it has to be crystal clear in your mind if you're going to have any chance of aligning the organization behind you.

0:26:46.8 Tim: Well, Junior, as we like to say when a misaligned team succeeds, it's an accident. You can't bet on that.

0:26:57.3 Junior: Yeah, you can't. So, understand the goal is the first thing. Number two, do fewer things. This is one that I love. Here's a quote from Tim Cook. We argue and debate like crazy about what we're not going to do because we know that we can only do a few things great. That means not doing a bunch of things that would be really good and really fun. That's a part of our base principle that we will only do a few things. What do you think about that one?

0:27:29.4 Tim: I think it's essential. It's the nature of strategy, Junior, right? Our favorite definition is that strategy is the deliberate reduction of alternatives. This goes back to making tradeoffs, the art of making tradeoffs and prioritizing until it hurts. That's how far you have to go with this. I'm trying to think of the author of Essentialism.

0:27:55.4 Junior: Greg McEwen.

0:27:58.2 Tim: Greg McEwen, yeah. And his subtitle is fantastic. The disciplined pursuit of less. This is what we're talking about. Do fewer things.

0:28:09.5 Junior: Well, I think Tim Cook inherited a lot of that from Steve Jobs. Steve Jobs has a quote years earlier. He said, people think focus means saying yes to the thing you've got to focus on but that's not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I'm actually as proud of the things we haven't done as the things I have done. Innovation is saying no to a thousand things. I love this quote.

0:28:39.4 Tim: Love that.

0:28:43.3 Junior: Now, as Jobs came back to Apple, that's what he spent his time on. What do we cut? There's an interview. I don't know that it's an interview. It's a video clip. I think it's from '97. And he's talking about his transition back to Apple and seeing what had happened in the time that he was away. And he says there's way too much stuff, are the words that he used. Way too much stuff.

[laughter]

0:29:08.8 Tim: And that is technical language.

0:29:12.8 Junior: Yes, it is. And he continues and says that they got rid of 70% of what was in the product roadmap. 70%. So he comes in with not a scalpel, but a chainsaw. 70% of the product roadmap. And here's a couple other quotes. He said, you're going to see the product line get much simpler and you're going to see line get much better. And I love how he puts those two things together in the same sentence. So as simplicity goes up, quality goes up. As complexity goes up, the quality goes down. And here's another quote. He said, the engineering team is incredibly excited. When I came out of the meeting with people that had just gotten their products canceled they were three feet off the ground because they finally understood where in the heck we were going. And they were really excited about the strategy. It's amazing.

[laughter]

0:30:10.9 Tim: Isn't that amazing?

0:30:13.9 Tim: And I wanted to...

0:30:14.1 Tim: It is amazing.

0:30:15.8 Tim: Go ahead.

0:30:16.3 Tim: Well, go ahead and finish your thought.

0:30:20.7 Junior: I wanted to pull in these quotes from this video clip because they embody this principle perfectly of do fewer things. And what also comes with this last quote is the angle of alignment that we've been talking about. There was so much in the product roadmap, it was so bloated that people didn't know where they were going. There was no coherent strategy. And so how can you get excited about a strategy that's incoherent? You can't because you don't see how your efforts affect the outcome. But if it's simple, it's straightforward it's easily understood. Apparently, even if you get your project canceled, you're okay because you know where you're going. So I thought that that was interesting. The alignment provides energy. The alignment provides excitement and things that people can really lean into.

0:31:12.8 Tim: Junior, in all of this, I think we have to acknowledge the fact that organizations left to themselves proliferate. This is what they do. They don't prune themselves. They don't cut themselves back. They don't get out the shears and knock off a branch here and a branch there. They don't do that. They proliferate in products, in procedures in protocols, in processes. They proliferate. That's what they naturally do. And so the leader that contributes strategically has to continually impose discipline and focus and priorities on the organization. And it doesn't just happen. It's not going to self-execute this way. It's not going to stay focused and stay aligned and stay clear. Organizations don't behave that way. You have to impose those things on the organization.

0:32:16.6 Junior: To me, there's this interesting balance. The two words that come to mind are planting and pruning. And, we have to do both of those things as leaders, but we often need to do much more pruning than planting. If all we do is plant and we have new ideas and new initiatives over here we're going to start a new product, it becomes unwieldy. And so pruning is equally, if not more important and at the right times coming in with that lens that Jobs had and saying what is unnecessary? The question is not what do we think won't succeed. That's not the question that's being asked. It's deeper than that. It's a deeper cut than that. It's what are the best ideas that we need to cut? It's not that it's a bad idea. It's not that the quality is low. It's not that the probability of success is low. It's that we need to align our resources behind the very best ideas, numbers one, two, and three, and that's all we're going to do. Yeah.

0:33:21.1 Tim: Can I give you an example, Junior? We worked with an organization a few years ago manufacturing organization, and we analyzed their entire product portfolio and it had just ballooned. It had just gone crazy. And after all of our analysis, after a few weeks, we came back to the executive team and we said, you know, you need to rationalize your product portfolio and you need to lose about 75% of your SKUs. They need to be gone. And this is in the reason that your cost structure is out of control is because you have this proliferating product portfolio with all these SKUs that you can't possibly make profitably, but they didn't want to do that because they love their products.

0:34:16.8 Junior: When you are in isolation...

0:34:20.7 Tim: And they became emotionally attached to their products.

[laughter]

0:34:24.8 Junior: You see how this happens in isolation because you have a product meeting and you say, well these two would go really well together. Let's create a package. And then you do that 100 times. And you don't see the second and third order consequences as it relates to logistics as it relates to customer success and customer support. All of those things are affected. And so you do one thing that adds one unit of complexity at the product level. But then when you get to the support level, you've added like 10 units of complexity because the complexity just multiplies as you move down the organization. And so I would say that the simplicity works equally in our favor. If you kill something at the product level, think of the simplicity that trickles down the organization. And so what type of consequence do you get by killing 70% of your product roadmap? Right? Wow.

0:35:24.6 Tim: Well, and Junior, I also want to point out the fact that psychology, the psychology of business weighs in heavily here, where people become emotionally attached to products. This is real. And we would show cost analysis for SKUs in this business. And the gross margins were absolutely unacceptable. And yet the response back would be don't worry, everything's going to be okay. We're just going to sell more. And the gross margin will climb and it will be where we need it to be. So you could see the loss aversion kicking in right? And no acknowledgement of sunk costs. Like we need to, you need to cut and run. And you need to clean house with this product portfolio. But they were so attached. The loss aversion was so strong and kind of the denial, even though the cost accounting said, what are you doing? Like this, you need to lose this.

[laughter]

0:36:32.9 Tim: Right? So the psychology collides with the evidence and the self-deception would win out often. I thought that was very fascinating.

0:36:46.4 Junior: It's very fascinating. You think of the backbone you have to have to combat that. And let's say that the gross margins weren't horrible and that the numbers didn't back you up 100%. But you still have this intuition that you needed to simplify. That's when it gets even more difficult. And so what could we do? What could the margin possibly be if we still nuked that bottom 20% and reinvested that effort and that money behind what's going really well? Now, it's important that everyone listening interchange the...

0:37:28.0 Junior: If it's products, let's say you're not in product, well, whatever your application is to the idea, use that. If it's a training initiative, whatever it is, the same principles still apply. And so we've been using this language about product roadmap and whatnot, but the principles are universal.

0:37:53.9 Tim: And the last thing I would say here though, Junior, well, it is just to underscore what you said before, I think the litmus test is, you know when you're getting there when you are saying no to brilliant ideas. If you're saying no to mediocre or poor ideas, you're not there. No. You need to be saying no to very good ideas. And you need to feel, you need to feel it when you've said adios to a really good idea and made that difficult trade-off.

0:38:21.8 Junior: Yeah. You mentioned Roger Martin before. He uses the word angst, and that's my favorite word as it relates to strategy. You need to feel angst when you're making these decisions. It needs to hurt a little bit and then you know you're there. Okay, so that's number two, do fewer things. Number three is develop adaptive capacity. Tim, you might have to help me with this name. I don't even know if you can. Elena Ledkina Botello. Hope I'm getting that at least close. You are constantly faced with situations where a playbook simply cannot exist. You better be able to adapt. So you mentioned a couple of minutes ago that everything at this level of leadership is new. There's no precedent most of the time. The environment is fundamentally different than it was six months or 10 years ago. So we have to face that ambiguity and figure out how to move through the fog. There is no playbook. It cannot exist based on the context so we have to adapt. So what do you think about this as number three, develop adaptive capacity? How important is the adaptive capacity of a leader at this level?

0:39:31.7 Tim: It's vital. And this is where we get into the distinction between deliberate and emergent strategy. At a practical level, Junior, what I think this translates into is that at any given time, you should be able to identify your top adaptive challenges. What are those adaptive challenges that you face? You should be able to identify those, spot those, define those, and be able to communicate and analyze those with your colleagues. That means that you are on top of the competitive environment. You're on top of what's going on, you're on top of consumer or customer preferences, buying patterns, trends. You're tuned into what's going on and how things are shifting.

0:40:28.8 Junior: Where are the opportunities, what are the threats? Do we have any crises? And what do we do about each of those? So often we talk about the adaptive capacity of an organization. I think we talk less about the adaptive capacity of individuals. And I've been thinking about this principle as it relates to leadership, that as a leader, you have to embody every attribute that you wish the organization to have. And so if you want the organization to have high adaptive capacity, you as a leader need high adaptive capacity. So how are you with change at an individual level? Because that will bleed into how the organization responds to change, because they're going to cue off of your modeling behavior. And so if change comes down the pipe, which in inevitably will, and you run away or you're scared or you cower, the organization will feel that same energy and likely respond in kind.

0:41:29.9 Junior: And that's especially true at the team level around you. They're going to see your behavior as it relates to adapting. And they're going to say, okay, this isn't that bad. We're going to be okay. Or they're going to say, oh, we're overwhelmed. This isn't going to go well. There's no end in sight. It doesn't seem possible. And so we need to very much pay attention to the way that we personally are responding to change and increasing our adaptive capacity. I think that it's impossible that you be a successful leader at an organization, especially at the level of leading the business and have low adaptive capacity. I think it's impossible.

0:42:13.4 Tim: I agree with that, Junior. As we like to say, teams and even organizations, they don't outperform their leaders. They reflect them. So as you said, I love the way you said it. You have to embody the attributes you wish the organization to have. That's very well said.

0:42:34.5 Junior: Well, and it's a nice segue into number four, design the tone at the top. We use this language, and it's rung for me since the beginning that your modeling behavior at the top is wildly important and arguably it's more influential than it's ever been. Why? I think there are a lot of reasons, visibility not least, the visibility of those at the top of organizations is higher than it has ever been. People in the organizations have insight into the way the organization is led that they have not had before. Before there may have been a big curtain, it was very obscured. It is not that way, at least as much anymore. What does this mean? It means that it requires that you self-monitor and show more discipline than you ever have. It requires incredibly high emotional intelligence and a lot of intentionality. You can't do this by default. The tone at the top has to be done by design, not by default. What do you think about this one?

0:43:33.9 Tim: No, I agree, Junior. If we had a way to measure the overall volatility and turbulence in the market, in the economy, we can measure that, I think we all know that that's slowly but inevitably and inexorably going up. And so, if the environment that you're working in, leading in, doing business in is becoming increasingly dynamic, increasingly turbulent, increasingly volatile, then you have to be the repository of people's fears to a certain extent. They're going to cue off you. And you have to be able to provide that resilience and reassurance in the midst of, as we said at the outset, uncertainty, ambiguity. We're not expecting some spontaneous return to order where the turbulence and the volatility die down. No one is predicting that. So the burden is placed on the shoulders of the strategic leader. That's where it goes.

0:44:52.3 Junior: So there are a few tips that we would give you concerning design the tone of the top, three behaviors that I think are incredibly important. The first is take blame, give credit. You have to be very intentional about the ratio of these two things, blaming and credit. So what do you want to do more of? Take more blame, and maybe blame is the wrong word, but responsibility. Take more responsibility, give more credit. As we move up the organization, I think this becomes increasingly important. And those that lead most effectively I see, give a lot of credit. They're very liberal with credit and they're very liberal with taking responsibility, especially when things don't go the way that we intended. And what I often see too is that you're not fooling people or convincing them that you are solely responsible for all the problems. People understand that you're not.

0:45:58.0 Junior: But when you come out and you take responsibility and you say, Hey, this was on me and we could have done this and I could have done this, it goes a long way with people. It shouldn't be contrived, and you shouldn't go to great lengths to take responsibility for something 20 miles away in most cases. But I think that things that are local, it's important as you move up the organization, and it's not always up the organization, but as your influence increases, I think that it's important to keep that in mind. Take blame, give credit. Would you agree with that as a pattern?

0:46:36.4 Tim: I would. I absolutely would. There's complex causality at the enterprise level, but through your humility, that's the nature of responsibility. And I say be liberal with praise. Make sure it's targeted, make sure it's timely. And if things don't go well, step up and own it quickly.

0:46:58.1 Junior: The next one is control your emotional reaction when receiving bad news. I think that this is a highly leveraged behavior. The three that we've chosen, we hope are highly leveraged. But if there are just a few things that you could do, this would be one of them. People pay attention when bad news comes or when there's an outcome that's less than desirable. And they're going to watch probably four or five times more than they normally do to see how you respond to it. And so think about that. The next time some bad news comes down the pipe or the next time you have something adverse happen, you have a bad outcome, remember that we're having this conversation and think to yourself, okay, create some space. Wait a second, give yourself five seconds countdown, and then respond appropriately to whatever just happened. Because if you are rash and you respond quickly in a knee jerk fashion and it's emotional, people are going to pay attention to that. And they're going to get the impression, even if it's not all the time true, that you are reactive and you are emotional, and those are not the things that you want when you're trying to align and influence an organization. You want to be seen as measured, as having even keel. So I think that that's an important one.

0:48:23.4 Tim: Yeah, I totally agree, Junior. By virtue of your position, when you're contributing strategically, you are scalable, and you just want to make sure that you're scalable in the right way. So are you scaling poise? Are you scaling composure? Are you scaling equanimity? Are you scaling that coolness, that grace under pressure? That's what you want to scale.

0:48:53.2 Junior: And finally, a big bucket, I guess, is reward acts of vulnerability. So when people ask questions, they give suggestions, they make mistakes. You want to make sure that you respond appropriately to those things. And as you do that, you'll design a tone at the top that's healthy for the organization. Tim, any final thoughts as it relates to design the tone at the top?

0:49:13.2 Tim: Yes. My final thought here is that this is inevitable. It's not something that you can choose not to do. You can't say, I don't want to do the tone at the top, and I'm going to delegate that to some other folks. You can't delegate that. You will, as I said, by virtue of your position, you will set the tone at the top. The only question will be, what tone are you setting? So you will do that. It's just a matter of how.

0:49:41.4 Junior: So that's it for the series, Tim. We've gone through the entire leadership progression lead self, leads the team, leads the business. And we've talked about the nature of our contribution changing as we move through those stages from contributing dependently to contributing independently, contributing through others, and finally contributing strategically. So what would you leave people with as we wrap up this series and we consider the leadership progression?

0:50:16.9 Tim: I would come back to something that we talked about early on Junior in the first episode. And that is that the first domain of leadership is to lead self. You never graduate from that. You don't move on. So that is, yes, you add to that, you add the additional domains, but you never lead that first domain of leading self. And it goes back to the principle that leadership is an inside out discipline. It begins in the inner world, it begins with the empire of the heart, and there's no graduation from that. So that is a destination that we never leave and hopefully we're becoming brilliant in the basics when it comes to lead self. I just find myself coming back to that again and again. We don't ever want to lose that focus.

0:51:18.4 Junior: Completely agree. It's our job to move from wherever we are and take steps towards becoming a more effective leader. That's what this whole conversation is about. So hopefully we've given you a few things to think about, a few tools to use. And as Tolkien said, shortcuts make long delays. So pay the price, don't make any shortcuts because they will end in long delays. Do what you need to do. So thank you everyone for your time, your attention. We appreciate your listenership very much. We appreciate your involvement in this series and we look forward to the next episode. We'll catch you later. Bye-Bye.

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0:52:04.1 Producer: Hey Culture by Design listeners, this is the end of today's episode. You can find all the important links from today's episode @leaderfactor.com/podcast. And if you've found today's episode helpful and useful in any way, please share with a friend and leave a review. If you'd like to learn more about Leader Factor and what we do, then please visit us @leaderfactor.com. Lastly, if you'd like to give any feedback to the Culture By Design podcast or even request a topic from Tim and Junior, then reach out to us at info@leaderfactor.com or find and tag us on LinkedIn. Thanks again for listening and making culture something you do by design, not by default.

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