Why Great Leaders Focus on the Details

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0:59Nitin Nohria:I'm Alison Beard. And I'm Adi Ignatius, and this is the HBR IdeaCast.

1:10Nitin Nohria:Adi, if I asked you the top three things that a CEO or senior leader needs to do to be successful, what would you say? Three things. Okay. So one has to be to be able to communicate a vision. Another has to be the ability to execute on strategy. And then I guess a third would be to have the empathy to connect with staff to be able to hire and retain top talent. Yeah, I think I would say something along the same lines, you know, setting the direction, making the most important decisions and hiring good people to do the rest. You know, because we know delegation is a big part of being a leader and you can't micromanage.

1:53Nitin Nohria:But today's guest, Scott Cook, the co-founder and former CEO of Intuit, who is now its executive committee chair, offers a bit of a counterpoint. He says that in a lot of organizations, success actually depends on senior executives caring not just about what is being worked on, but also on how it's getting done. And he argues that you do have to dig into the weeds of execution pretty routinely to make sure that everyone's following the same process. And he has examples from not just Intuit, but several other companies in different industries. I mean, it reminds me there's not just one way to run a company effectively.

2:28Nitin Nohria:And this sort of top-down approach has obviously served a lot of companies well. But something has to give, right? So I assume at the end of the day, this is a prioritization question. Yeah, it's a balance, right, between the big picture and the nitty-gritty. And Cook and his co-author, Nitin Noria, they have a playbook for how to find that balance. They wrote the HBR article, The Surprising Success of Hands-On Leaders. And in today's episode, Scott will outline those best practices. Here's my conversation with Scott Cook.

3:02Nitin Nohria:So there is this prevailing view that the job of the CEO at a business of size, mid to large size, is to focus on vision and strategy and building a great team and then to trust that team to do the execution. So why is that wrong or at least not entirely right?

3:20Scott Cook:I think it's well-founded in that what you want to avoid is where the CEO of a larger organization falls prey to micromanaging, to going in and actually making a bunch of the decisions for people up and down. And also there's a limited amount of time that you have as a leader. And yet there's vastly more calls on your time than you'll ever be able to satisfy. So I think the intent of that was to help leaders, senior leaders, focus on what's most important. It's just I think we need to take a slightly broader view about what's most important. Because strategy alone, without the ability of the organization to execute well, means the strategy will fail.

4:03Scott Cook:So it's crucial to build the strength of a company to actually execute well, to have the systems and processes by which people can do their work exceptionally well. And if that's essential for success, then that's essential for the CEO.

4:19Nitin Nohria:Was that your experience when you were leading into it, even as it grew into a very large organization, that you had to be in the details on those systems and processes?

4:33Scott Cook:I'd say my experience is one where I oscillated a lot between actual micromanaging and lifting up to higher levels of strategy, not always in a productive way. This has really come from my study and self-reflection, both on my experience and on the experiences of other companies. I guess it's a little bit of a hobby interest or research interest, finding companies that should never have succeeded but became hugely successful. And when that happens, it's not an accident. There's something that explains it. And what I found that explains it is this ability of CEOs to be watchmakers, to be building the systems by which their companies work, by which the people at all levels work.

5:23Nitin Nohria:So what are those examples? What companies have you studied where the leaders have managed to blend this big picture thinking with hands-on leadership?

5:33Scott Cook:One of the canonical stories is the story of a loom maker in the rural parts of Japan. And they decided rather late in the late 30s to go into a new business, the auto business. And that company was Toyota. And from that start, and of course the 40s were not the best time in Japan, so really starting in the 50s, by the 90s, in 40 years, they became the world's preeminent automaker, making cars at a cost and quality that no one else could match. Well, how did they do that? General Motors had a plant in the East Bay, just about a 30-minute drive from here. And the plant was the worst in General Motors.

6:14Scott Cook:The car quality was the lowest. The costs were the highest. the union grievance rate, the absenteeism rate were the worst. The plant was so bad that GM shut it down. A little while later, Toyota came by and said, we'd like to reopen your plant, but let us run it. So GM said yes, but GM said you have to hire back the same union and the same union workers. So they trained them in the Toyota way and reopened the plant within a year of opening. The plant using the same workers in the same factory, building the same kind of cars, was the highest quality plant in General Motors, the lowest cost plant in General Motors, with the lowest union grievance rate and the lowest absenteeism rate.

6:58Scott Cook:In other words, it went from worst to best. And this is one of those rare scientific experiments in business. It's a single variable experiment. You kept all the variables the same, but one, you took out GM management approach, you inserted Toyota management approach, and that took the plant with the same workers from worst to best. That's an example of a power of process.

7:23Nitin Nohria:And that shift happened because of leadership from the top.

7:28Scott Cook:Oh, absolutely. This was very much a collaboration in the early years between a plant manager and the president of the company, the CEO of the company, who collaborated on building dramatically different systems. For example, in a conventional auto plant, The only person who can stop the line is the plant manager. In a Toyota plant, the assembly line worker can pull a cord, and that calls the supervisor over, and the team leader, within a minute, can stop the whole line.

7:58Nitin Nohria:It does seem, though, that once you've set up these processes and systems and cultures, the senior leaders could step back and be less hands-on. Is that the ultimate goal?

8:11Scott Cook:Well, two thoughts on that. One, I think one of the tests of a culture and a system that you put in place as a leader is what happens when you're not in the room. And if the right things are happening more and more when you're not in the room, that means you're building the system well. So the goal is that people don't need you there to be making the decisions. At the same time, no system's ever perfect. Every system can be made better. Processes can be constantly improved. Several of the leaders in the article go out of their way to say it's the leader's role to constantly be reinforcing, constantly teaching the methods of success.

8:51Scott Cook:Because you hire new people, you hire new leaders. So the role for the leader is very active to stay close to the work, not to make the decisions for the people, but to be seeing how they work and reinforcing the methods they should be using so that they can make those decisions.

9:08Nitin Nohria:Some of your examples include founders like the founder of Toyota, whose name is Toyota with a D, and Jeff Bezos, the founder of Amazon. Does a founder have an easier time doing that than a CEO that has either risen through the ranks in a company or been brought into a company?

9:26Scott Cook:Of the four companies that we studied for the article, two either were run by the founder or the descendants of the founder because it was a family-run business, namely Toyota, and the first is Amazon. Two, however, were essentially managed during the periods we studied by hired guns. And in both cases, the leaders have that same impact on the culture and work systems because it's where they choose to focus. It's where they spend time. And when it produces success, they spend more time, or they get the right to continue to spend time there. saying, hey, I'm a hired manager, thus I can't improve the systems by which we work.

10:07Scott Cook:That's, of course, baloney. Of course, you can figure out what it takes to help make the work go better and help your people be more productive. That is part of your role.

10:17Nitin Nohria:You and your co-author, Nitin Noria, the former dean of HBS, identified five ways in which CEOs can be hands-on without micromanaging, and I want to just walk through them one by one. So let's start with this idea of obsessing over customer value. That does feel pretty high level, but how does a leader sort of take it down to the ranks in a hands-on way that is more effective?

10:43Scott Cook:A key pattern that I see in this aspect of the company's behaviors is they do not delegate the selection and definition and precision of how they measure what's important to the customer. This is something that they manage at the CEO level. So Jeff Bezos used to get involved with, okay, how are we going to measure how fast a package arrives? What's the start? What's the stop? What's our data source? He would personally get involved on how those metrics are designed and executed because he knows that once you have the right metric in place and you focus people on it, people will be manic to achieve and drive that metric up.

11:29And if it's the wrong metric, then they're driving in the wrong direction.

11:34Nitin Nohria:Yeah, notably, that's not sort of profit margin. Right, right.

11:38Scott Cook:First of all, to make sure that you have key metrics set on what the customer cares about. And the customers don't care about your profits. They care about what's in it for them. So it's not that they exclude financial metrics. It's just they have a focus before that on what's most important to the customer. In Amazon's case, it was things like speed of delivery and reliability of delivery, lowest price, and vast selection. In Toyota's case, it's the quality of the car, the defect rate in the automobile. In Relics' case, which I think is most instructive, they're in a wide variety of information and data businesses bought by companies for insurance companies, law firms, etc.

12:24Scott Cook:And so they'll have a different metric of success of what the customer cares about. It's different from insurance than it is from law firms. but Eric Engstrom, the CEO, spends an immense amount of focus, first and foremost, on, okay, how does the customer for your product or service measure value? Okay, and how do we know? Now, how do we measure value so that we're measuring it the same way they do? And now, how does our value delivered compared to that of competitors? And how do we know? So he has a set of questions he goes through. That he talks you through in order. These are the questions in this order.

13:05Scott Cook:And they're all about refining and focusing the team and knowing exactly the way to measure customer value. And it also evolves over time. He said for the legal work, we used to evaluate the time it would take to do a search to find a law article or a reference. But that's actually not the end goal. The end goal is, is it the right reference? and how do you get it in your legal argument? So we're now measuring that as opposed to measuring just the time to find things.

13:37Nitin Nohria:Yeah, I think that's an important note. You can't just set it and forget it. And forget it, right? You have to stay hands-on to know that those metrics are still relevant given you're changing portfolio of products and services and consumers changing preferences.

13:51Scott Cook:Changing preferences, exactly. But these companies are manic about getting that defined up front and the CEO being personally involved in that.

14:00Nitin Nohria:So the second principle is that CEOs architect the way work gets done, and that's a very careful verb selection. Is architect different than dictate?

14:10Scott Cook:Not necessarily. A dictation can be needed at times, but you have to know what to dictate. The architect verb is to imply that you design how work gets done very carefully, and then to implement it, you may well dictate parts of it. But if you're dictating something that's truly a superior method, then that can work out just fine. So this is not to say that the CEO never dictates things. So when Jeff Bezos rolled out the concept that we're not going to use PowerPoint anymore, no slides in our internal meetings and decision making, he had to dictate it. And when he said we're going to rearrange how we construct software to be in a high services mode with clean APIs between the services, that was dictated.

15:01Scott Cook:There was no ifs, ands, or buts. The issue is before you dictate, you have to be able to figure out often through experiments what's the better way to work. And then from those experiments, you then conclude the better process and then dictate that.

15:15Nitin Nohria:Well, that brings us neatly to our third principle, which is experiment. and that's what all good organizations do at every level. So how does that become a more hands-on activity for the CEO to make sure that the company is choosing the right experiments and then gleaning good insights from them?

15:33Scott Cook:Most companies do not natively have a good experiment system. The ability to groom up sets of test customers easily, rapidly, to be able to construct a test group and a control group, to be able to administer the test just to the test group, while holding the control group, the ability to get the right data to read the behavior of people in the test, usually that's either not available, difficult, requires negotiation. In the top companies, this is virtually automatic. Jeff Bezos invested in a team that worked for years just to build systems to make it drop-dead easy and fast for individual teams to run tests.

16:15Scott Cook:The CEO has to put in the systems that makes testing easy and high volume. Otherwise, you can't expect people to do it. So that's one. And the second is, in the decision-making process, the COS has set the culture that we're going to test before making big decisions whenever possible. Sometimes in an emergency, it may not be possible. But boy, I find increasingly across our company, decisions can be tested. And so you can make decisions based on scientific evidence rather than make decisions on somebody's gut feel or analysis. And then the CO has to expect that. If people are coming forward with a decision, he'd say, okay, he or she should ask, well, what experiment did you run and what were the results that you're basing your decision on?

17:07Nitin Nohria:So that's a hands-on piece of it, not involving oneself in every experiment, but ensuring that the process has been followed.

17:16Scott Cook:At Toyota, even the senior-level executives' decisions are typically done via experiment. experiment. So two of the Harvard Business School researchers that I worked with who were studying Toyota told that they were in one of Toyota's plants and they were running two experiments on the production line opposite each other, testing the same concept but different interventions. One was the solution proposed by a team leader. The other was the solution proposed by the plant manager. In a U.S. plant, plant manager would have made their decision their own way and dictated it, but not Toyota. And in fact, that example, that story we talked about earlier, where Toyota opened up a plant together with General Motors, or reopened a GM plant here in the Bay Area called the New United Motor Manufacturing, Inc.