21 Sep. 2017 | Comments (0)
Most team leaders try to build cohesion on their teams. Through team-building exercises and the careful establishment of norms and processes, leaders aim to create a culture of trust, psychological safety, and good feeling.
But should enterprise leadership teams also pursue cohesion? To explore this question, over the course of six years, we surveyed senior-most leadership teams 99 times at companies representing a variety of industries, including financial services, food and beverage, energy, technology, healthcare, and retail. Each team member responded to over 110 items that focused on their team ‘s capability and performance. The specific domains of capability and performance were based on previous research including:
- Team structure
- Team processes
- Team results
- Team dynamics
Most teams (55 teams comprised of 700+ senior executives) also responded to items focused on organization performance — comparing themselves to industry peers — and included dimensions such as Sales and Revenue Growth, New Product Development, and Market Share.
We expected to replicate the importance of cohesion in this unique context. We were wrong. Results from our research indicate that while concepts like internal cohesion and psychological safety are important to team performance, they are not the most critical at the enterprise level. Rather, it is the ability to manage conflicting tensions — as opposed to seeking cohesion — that is the most predictive of top-team performance.
What are the key tensions?
Top teams need to navigate greater complexity and uncertainty than teams lower on the org chart. Perhaps that ‘s why we found the highest-performing senior teams are those that recognize and skillfully navigate three key tensions. These tensions are embraced as polarities to be managed rather than problems to be solved.
Risk vs. Results. Delivering results in the short term and taking risks that offer payoff in the long term are daily realities for top teams. The highest-performing teams excel at both. More specifically, we examined what differentiated the top 25% of performing teams from the rest of the teams we studied when it came to taking calculated risks to lead the industry. High-performing teams realize 10% greater market share and report 22% better performance when it comes to developing new products. They take a long-term view, place strategic bets, and invest money and infrastructure to systematically pursue them.
They don ‘t just take risks, however. They are also clear and knowledgeable about how to best leverage the core strengths of the business, creating circumstances where both risk and day-to-day delivery can peacefully coexist. Our highest-performing teams reported 6.5% greater profitability against their competitors and 7.5% better sales and revenue growth. As much as they strive to lead the industry and are responsible for delivering results, they also possess an ability to learn and grow from mistakes rather than judge and punish — in essence, they know where best to innovate and what to leave alone.
Although executive teams readily acknowledge this, the two activities often run counter to each other, especially when it comes to financial investment, alignment of resources, and allocation of talent. Dr. Volker Schulte, group director of manufacturing and technology at power solutions company Aggreko, understands well this potential conflict and believes that teams that create a culture of embracing both risks and results are most effective. As he told us, “Creating a culture of performance and results is pivotal. But this culture needs to coexist with strategic bets led by the top of the house that get an enterprise operational plan behind them. Both are pivotal to ongoing success.”
External vs. Internal Pull. An organization ‘s ability to look outward and upward as well as downward and inward is a well-documented success factor and one that takes on even greater importance given the pace with which our world is changing. Based on our research, one of the best predictors of high-performing teams is their ability to consistently scan the external environment for consumer, competitor, and industry knowledge and to use that knowledge to adapt. More specifically, we found that high-performing teams achieved greater sales and revenue growth (10.6%) and better development of new products (8.2%). The best teams do not lose the focus of the external world when getting pulled into internal transformations, change, and turmoil. In fact, they may use external pressures and realities as a springboard for internal execution.
David Craig, president of financial and risk business, Thomson Reuters, and a key architect of the merger between Thomson and Reuters, notes that their customer focus was critical to driving internal execution: “At a time where we needed significant internal transformation, we were lucky in that our largest customers and the financial industry were in crisis and demanding change. Our team leveraged this to align our internal transformation.”
In other words, these high-performing top teams create mechanisms to stay attuned to the internal pulse of the organization. They enable employees to expose barriers to execution that senior leaders can then address, and they are agile in shifting internal resources to respond to changing business situations. Our research found that companies who leveraged core strengths to grow the business achieved better profitability and market share. This is not to say this shift is easy, and further, it is one that requires support and engagement from the top. As Mr. Craig notes, “It was tough, demanding, and required painful choices. We ensured senior leaders took exec-sponsor roles for customers, forcing them to engage externally.”
Top-Down vs. Bottom-Up Innovation. Finally, the success of a top team rests heavily on its ability to innovate. No surprise there. However, the nuance that emerged from our research suggests that top-performing senior teams manage the tension between leading and directing innovation while also engaging and empowering the broader organization. They provide frameworks and make essential decisions but recognize that those closer to the customer often possess the best insights. Enterprise leadership teams that are highly effective at creating conditions for bottom-up innovation benefitted from greater employee engagement (9.5%) and better quality of new products (12%). Teams who effectively drive top-down innovation demonstrated better sales and revenue growth (5%) and market share (4.5%).
Schulte notes that “for innovation to happen, senior teams need to create a culture where those who are closest to the customer can share, challenge, and feel heard.” He also notes that the responsibility of enterprise leadership teams is to “create empowering cultures of micro-innovation in conjunction with clear, top-down plans to best set up organizations for success.”
How can a team embrace these tensions?
We are not tolling the final bell on the long-held notion that cohesion is critical to team performance. Indeed, for enterprise-wide teams to successfully traverse the tensions outlined above, trust and positive team dynamics are foundational. In fact, our results were consistent with this notion, in that teams with high levels of trust, transparency, a team-first mentality, and collective pride perform better along several dimensions (e.g., overall organizational performance, employee engagement).
However, in a business environment that requires a different approach to enterprise leadership, our results challenge the assumption that cohesion is the most critical. On the contrary, embracing, navigating, and living with tension is most strongly related to organizational performance.
So, how does a leader ensure their team fully embraces these tensions? Our experience suggests three key team behaviors that support a full and successful embracing of these tensions.
- Reframe tension and dialogue openly. The best-performing teams view tension simply as a typical part of the job in today ‘s business environment. Well-managed tension is therefore an indicator of strong performance rather than a signal that something is wrong. As such, creating a clear dialogue around conflicts, trade-offs, and compromise is critical. While you want the team to operate from the standpoint of what ‘s best for the enterprise rather than what ‘s best for one ‘s individual function, often the way you get there is by people in each department laying out their concerns. Instead of seeing this as a fight, or assuming bad intentions, be clear that this is a normal part of the process.
- Keep the customer front and center. Best-performing teams and organizations use consumer needs as their North Star. Unified customer focus provides a sense of alignment, clarity, and cohesion needed to navigate inevitable complexities and tensions. Embedding the work of the team in the world of the customer can make all the difference. You can do this through structure (e.g., customer advisory boards, executive sponsorship) as well as culture.
- Hold the team accountable for fostering innovation. For enterprise leadership teams, we see the responsibility of fostering innovation too often taking a back seat to day-to-day minutia and firefighting. This is especially troublesome given that the need for innovation and agile adaptation has never been greater. Paddy Miller and Thomas Wedell-Wedellsborg, authors of Innovation as Usual, note that “focus beats freedom” for enterprise-wide innovation. In other words, senior leaders must first create frameworks and focus for bottom-up innovation to occur in an intentional and productive way.
This blog first appeared on Harvard Business Review on 09/18/17.