This thoughtful, articulate, former occupational psychologist turned associate professor of organisational behaviour and dean of the full-time MBA programme at the London Business School, is global authority on the people implications of strategy. She writes, teaches and consults across the world on human resource strategy. She is, in other words, an HR guru.
Gratton’s LBS Executive Programme, ‘Human resource strategy in transforming organisations’, and her dynamic research portfolio and compelling presentations are profoundly influencing the way global organisations think about HR strategy and leadership. She consults to some of the world’s largest companies including ABB, Lufthansa, SKF, Standard Chartered Bank and BT, and has trained managers all over the world in her ‘Living Strategy’ process. Her latest book, The Democratic Enterprise, was published last year by Pearson.
Gratton has over the past decade led The Leading Edge Research Consortium (www.london.edu/lerc), major research initiative involving companies such as Hewlett Packard and Citibank. The initial results from the research were published by Oxford University Press in the book Strategic Human Resource Management: Corporate Rhetoric and Human Reality. Her most recent research initiative is on flexibility in organisations.
She spoke with Management correspondent Des Dearlove in London.
It seems the CEO’s job has never been tougher. Why do you think this is?
If I were to take shot at it, I’d say the sheer scale of change in consumer expectations is driving new industry dynamic. And the other thing that strikes me is that CEOs are continually bombarded by one crisis or another. It’s almost impossible for the CEOs to avoid these (crises). But at the same time, employees value continuity and stability of meaning. One of the real challenges of the CEO is to bridge (the gulf) from the turbulence of the marketplace across to employees who want some sense of continuity.
The really successful CEO somehow manages to hold the tension between the outside, which is turbulence and crisis, and the inside which needs stability and meaning.
If you look at British Telecom for example, the former CEO wasn’t able to manage that tension so lot of the crises and drama of the marketplace invaded the enterprise and that resulted in continual reorganisations and changes in product strategies. Consequence – people lost the plot. They had no idea what they were supposed to be doing.
Is the CEO shock absorber?
It’s more than that. Shock absorbing suggests they simply absorb. They have to do more than that. They must manage the tension. Picture them standing between the tension of rapid changes on the one hand and human nature which craves continuity and meaning on the other. Human beings like to have some sort of link between the past, the present and the future. The CEO must provide that.
Are expectations of CEOs unrealistic?
I’m not sure. But I am concerned that we put them under enormous pressure to deliver in the short-term and to turn organisations around. We know that organisational transformation takes time. Look at the CEO of Sainsbury at the moment. Newspapers suggest that he’s got five days to turn the company around. That’s ridiculous.
The more you look at how organisations transform themselves the more you realise that you have to be exceptional to do the CEO’s job well. There is this enormous emphasis on CEOs turning companies around quickly. Shareholders should encourage organisations to develop people internally. Not all CEOs should come from inside, but there should be significant group of senior managers who really understand the industry and who help executives build that competence around them. That takes time. But the pressure for short-term results doesn’t allow that. That’s where you get outcomes like the Enron debacle where executives cut corners to deliver to shareholder expectations.
Are CEOs viewed differently outside the US?
Yes. I don’t have the data, but the tenure for European multinational CEOs tends to be bit longer. There isn’t the same expectation that someone will come in from outside and suddenly turn things around.
Having said that, it’s difficult to talk about an American model. For instance, our research shows that Hewlett-Packard, even under Carly Fiorina, is as values-driven as any European company we’ve studied. It’s hard to generalise because there is an enormous diversity among American CEOs.
Our Leading Edge research looked at number of American companies operating in Europe and at number of European multinationals. What differentiated them was that in the main the Americans were much better at performance management. They were better at setting targets and measuring the performance of individuals against those targets.
How can we judge whether CEO is doing good job?
Ultimately, performance is measured by company’s survival, growth and its continued profitability. But they are end results. They happen when everything else is right. Looking internally, there are two things the CEO must do. They must have well-articulated and complex view of how their industry is going to change and point of view about how their organisation will change. You see this very clearly with Fred Goodwin at Royal Bank of Scotland (RBS) and John Browne at British Petroleum (BP). John Browne has an incredibly insightful, complex view of the industry changes in the oil sector. The same is true of Fred Goodwin. He really understands banking, financial services and the role that RBS can play. The articulation of long-term strategy coming from clear point of view is crucial measure of CEO’s success.
Then there’s another thing. Nokia uses this phrase that leadership is both “fact-based and values-based”. The second internal measure of CEO is their capacity to live the values of the organisation. It sounds simple but in practice it is extremely difficult.
Provide an example.
The Nokia values are about respect and continual renewal. If you look at Nokia’s CEO Jorma Ollila, he lives them on day-to-day basis. He’s extremely respectful in his dealings with employees and even more importantly, he and his team build up highly respected relationships with partners and suppliers.
Is the length of time the senior management team is in place important to company success?
Our research into companies like Nokia, BP and the Royal Bank of Scotland, suggests that the longevity of CEOs and the teams around them, is crucial to building up conversations about where the organisation is going. Over time the team goes through recurrent crises and they learn how to deal with them.
If you look at Nokia, the senior team there has been through about four major crises in the past 12 years. Things like industry crises; saturation of the telecoms marketplace; issues with supplier relationships and so on. Their ability to keep going and learn, as team, from these events is absolutely crucial. And at BP and RBS, which are both turnarounds, the CEOs have been in place for more than decade with an intact team around them.
Why do CEOs sometimes falter after making initial gains?
The more you look at how organisations must transform themselves, the more you see how exceptional CEOs must be to perform well. They must have point of view about what the transformation can be. And they have got to be good with data. Fred Goodwin is great example of that. He transformed National Westminster Bank. That was one of the world’s great transformation stories in my view. (Note: Royal Bank of Scotland succeeded in $30 billion takeover of the much larger National Westminster Bank in March, 2000.) He did that through both very strong point of view about what would make NatWest successful and extreme commitment to detailed analysis of how they were progressing. He meets all his senior management team every morning. There’s this huge personal
