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Leadership Is a Conversation

Artwork: Adam Ekberg, Arrangement #1,2009, ink-jet print

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The command-and-control approach to management has in recent years become less and less viable. Globalization, new technologies, and changes in how companies create value and interact with customers have sharply reduced the efficacy of a purely directive, top-down model of leadership. What will take the place of that model?

Part of the answer lies in how leaders manage communication within their organizations—that is, how they handle the flow of information to, from, and among their employees. Traditional corporate communication must give way to a process that is more dynamic and more sophisticated. Most important, that process must be conversational.

We arrived at that conclusion while conducting a recent research project that focused on the state of organizational communication in the 21st century. Over more than two years we interviewed professional communicators as well as top leaders at a variety of organizations—large and small, blue chip and start-up, for-profit and nonprofit, U.S. and international.

To date we have spoken with nearly 150 people at more than 100 companies. Both implicitly and explicitly, participants in our research mentioned their efforts to “have a conversation” with their people or their ambition to “advance the conversation” within their companies. Building upon the insights and examples gleaned from this research, we have developed a model of leadership that we call “organizational conversation.”

Smart leaders today, we have found, engage with employees in a way that resembles an ordinary person-to-person conversation more than it does a series of commands from on high. Furthermore, they initiate practices and foster cultural norms that instill a conversational sensibility throughout their organizations. Chief among the benefits of this approach is that it allows a large or growing company to function like a small one.

By talking with employees, rather than simply issuing orders, leaders can retain or recapture some of the qualities—operational flexibility, high levels of employee engagement, tight strategic alignment—that enable start-ups to outperform better-established rivals.

In developing our model, we have identified four elements of organizational conversation that reflect the essential attributes of interpersonal conversation: intimacy, interactivity, inclusion, and intentionality. Leaders who power their organizations through conversation-based practices need not (so to speak) dot all four of these i’s. However, as we’ve discovered in our research, these elements tend to reinforce one another. In the end, they coalesce to form a single integrated process.

Intimacy: Getting Close

Personal conversation flourishes to the degree that the participants stay close to each other, figuratively as well as literally. Organizational conversation, similarly, requires leaders to minimize the distances—institutional, attitudinal, and sometimes spatial—that typically separate them from their employees.

Where conversational intimacy prevails, those with decision-making authority seek and earn the trust (and hence the careful attention) of those who work under that authority. They do so by cultivating the art of listening to people at all levels of the organization and by learning to speak with employees directly and authentically.

Physical proximity between leaders and employees isn’t always feasible. Nor is it essential. What isessential is mental or emotional proximity. Conversationally adept leaders step down from their corporate perches and then step up to the challenge of communicating personally and transparently with their people.

This intimacy distinguishes organizational conversation from long-standard forms of corporate communication. It shifts the focus from a top-down distribution of information to a bottom-up exchange of ideas. It’s less corporate in tone and more casual. And it’s less about issuing and taking orders than about asking and answering questions.

Conversational intimacy can become manifest in various ways—among them gaining trust, listening well, and getting personal.

Gaining trust.Where there is no trust, there can be no intimacy. For all practical purposes, the reverse is true as well. No one will dive into a heartfelt exchange of views with someone who seems to have a hidden agenda or a hostile manner, and any discussion that does unfold between two people will be rewarding and substantive only to the extent that each person can take the other at face value.

But trust is hard to achieve. In organizations it has become especially difficult for employees to put trust in their leaders, who will earn it only if they are authentic and straightforward. That may mean addressing topics that feel off-limits, such as sensitive financial data.

Athenahealth, a medical-records technology provider, has gone as far as to treat every last one of its employees as an “insider” under the strict legal meaning of the term. Insiders are defined as employees entrusted with strategic and financial information that could materially affect the company’s business prospects and hence its stock price—a status typically accorded only to top-tier officers.

Opening the books to such a degree was a risky move, discouraged by the company’s underwriters and frowned upon by the SEC. But Athenahealth’s leaders wanted employees to become insiders in more than just the regulatory sense; they wanted them to be thoroughly involved in the business.

Listening well.Leaders who take organizational conversation seriously know when to stop talking and start listening. Few behaviors enhance conversational intimacy as much as attending to what people say. True attentiveness signals respect for people of all ranks and roles, a sense of curiosity, and even a degree of humility.

Duke Energy’s president and CEO, James E. Rogers, instituted a series of what he called “listening sessions” when he was the CEO and chairman of Cinergy (which later merged with Duke). Meeting with groups of 90 to 100 managers in three-hour sessions, he invited participants to raise any pressing issues. Through these discussions he gleaned information that might otherwise have escaped his attention.

At one session, for example, he heard from a group of supervisors about a problem related to uneven compensation. “You know how long it would have taken for that to bubble up in the organization?” he asks. Having heard directly from those affected by the problem, he could instruct his HR department to find a solution right away.

Getting personal.Rogers not only invited people to raise concerns about the company but also solicited feedback on his own performance. He asked employees at one session to grade him on a scale of A to F. The results, recorded anonymously, immediately appeared on a screen for all to see. The grades were generally good, but less than half of employees were willing to give him an A. He took the feedback seriously and began to conduct the exercise regularly. He also began asking open-ended questions about his performance.

Somewhat ironically, he found that “internal communication” was the area in which the highest number of participants believed he had room for improvement. Even as Rogers sought to get close to employees by way of organizational conversation, a fifth of his people were urging him to get closer still. True listening involves taking the bad with the good, absorbing criticism even when it is direct and personal—and even when those delivering it work for you.

At Exelon, an energy provider headquartered in Chicago, a deeply personal form of organizational conversation emerged from a project aimed at bringing the company’s corporate values alive for its employees. Values statements typically do little to instill intimacy; they’re generally dismissed as just talk. So Exelon experimented in its communication about diversity, a core value: It used a series of short video clips—no fuss, no pretense, no high production values—of top leaders speaking unscripted, very personally, about what diversity meant to them.

They talked about race, sexual orientation, and other issues that rarely go on the table in a corporation. Ian McLean, then an Exelon finance executive, spoke of growing up in Manchester, England, the son of a working-class family, and feeling the sting of class prejudice. Responding to a question about a time when he felt “different,” he described going to work in a bank where most of his colleagues had upper-class backgrounds: “My accent was different....I wasn’t included, I wasn’t invited, and I was made to think I wasn’t quite as smart as they were....I never want anyone else to feel that [way] around me.” Such unadorned stories make a strong impression on employees.

Interactivity: Promoting Dialogue

A personal conversation, by definition, involves an exchange of comments and questions between two or more people. The sound of one person talking is not, obviously, a conversation. The same applies to organizational conversation, in which leaders talk withemployees and not just tothem. This interactivity makes the conversation open and fluid rather than closed and directive. It entails shunning the simplicity of monologue and embracing the unpredictable vitality of dialogue. The pursuit of interactivity reinforces, and builds upon, intimacy: Efforts to close gaps between employees and their leaders will founder if employees don’t have both the tools and the institutional support they need to speak up and (where appropriate) talk back.

In part, a shift toward greater interactivity reflects a shift in the use of communication channels. For decades, technology made it difficult or impossible to support interaction within organizations of any appreciable size. The media that companies used to achieve scale and efficiency in their communications—print and broadcast, in particular—operated in one direction only. But new channels have disrupted that one-way structure. Social technology gives leaders and their employees the ability to invest an organizational setting with the style and spirit of personal conversation.

Yet interactivity isn’t just a matter of finding and deploying the right technology. Equally if not more important is the need to buttress social media with social thinking. Too often, an organization’s prevailing culture works against any attempt to transform corporate communication into a two-way affair. For many executives and managers, the temptation to treat every medium at their disposal as if it were a megaphone has proved hard to resist. In some companies, however, leaders have fostered a genuinely interactive culture—values, norms, and behaviors that create a welcoming space for dialogue.

To see how interactivity works, consider Cisco Systems. As it happens, Cisco makes and sells various products that fall under the social technology umbrella. In using them internally, its people have explored the benefits of enabling high-quality back-and-forth communication. One such product, TelePresence, simulates an in-person meeting by beaming video feeds between locations. Multiple large screens create a wraparound effect, and specially designed meeting tables (in an ideal configuration) mirror one another so that users feel as if they were seated at the same piece of furniture.

In one sense this is a more robust version of a web-based video chat, with none of the delays or hiccups that typically mar online video. More important, it masters the critical issue of visual scale. When Cisco engineers studied remote interactions, they found that if the on-screen image of a person is less than 80% of his or her true size, those who see the image are less engaged in talking with that person. TelePresence participants appear life-size and can look one another in the eye.

TelePresence is a sophisticated technology tool, but what it enables is the recovery of immediate, spontaneous give-and-take. Randy Pond, Cisco’s executive vice president of operations, processes, and systems, thinks this type of interaction offers the benefit of the “whole” conversation—a concept he illustrated for us with an anecdote.

Sitting at his desk for a video conference one day, he could see video feeds of several colleagues on his computer screen when he made a comment to the group and a participant “just put his head in his hands”—presumably in dismay, and presumably not considering that Pond could see him. “I said, ‘I can see you,’” Pond told us. “‘If you disagree, tell me.’” Pond was then able to engage with his skeptical colleague to get the “whole story.” A less interactive form of communication might have produced such information eventually—but far less efficiently.

At the crux of Cisco’s communication culture is its CEO, John Chambers, who holds various forums to keep in touch with employees. About every other month, for instance, he leads a “birthday chat,” open to any Cisco employee whose birthday falls in the relevant two-month period. Senior managers aren’t invited, lest their presence keep attendees from speaking openly. Chambers also records a video blog about once a month—a brief, improvisational message delivered by e-mail to all employees.

The use of video allows him to speak to his people directly, informally, and without a script; it suggests immediacy and builds trust. And despite the inherently one-way nature of a video blog, Chambers and his team have made it interactive by inviting video messages as well as text comments from employees.

Inclusion: Expanding Employees’ Roles

At its best, personal conversation is an equal-opportunity endeavor. It enables participants to share ownership of the substance of their discussion. As a consequence, they can put their own ideas—and, indeed, their hearts and souls—into the conversational arena. Organizational conversation, by the same token, calls on employees to participate in generating the content that makes up a company’s story. Inclusive leaders, by counting employees among a company’s official or quasi-official communicators, turn those employees into full-fledged conversation partners. In the process, such leaders raise the level of emotional engagement that employees bring to company life in general.

Inclusion adds a critical dimension to the elements of intimacy and interactivity. Whereas intimacy involves the efforts of leaders to get closer to employees, inclusion focuses on the role that employees play in that process. It also extends the practice of interactivity by enabling employees to provide their own ideas—often on official company channels—rather than simply parrying the ideas that others present. It enables them to serve as frontline content providers.

In the standard corporate communication model, top executives and professional communicators monopolize the creation of content and keep a tight rein on what people write or say on official company channels. But when a spirit of inclusion takes hold, engaged employees can adopt important new roles, creating content themselves and acting as brand ambassadors, thought leaders, and storytellers.

Brand ambassadors.When employees feel passionate about their company’s products and services, they become living representatives of the brand. This can and does happen organically—lots of people love what they do for a living and will talk it up on their own time. But some companies actively promote that kind of behavior. Coca-Cola, for instance, has created a formal ambassadorship program, aimed at encouraging employees to promote the Coke image and product line in speech and in practice.

The Coke intranet provides resources such as a tool that connects employees to company-sponsored volunteer activities. The centerpiece of the program is a list of nine ambassadorial behaviors, which include helping the company “win at the point of sale” (by taking it on themselves to tidy store displays in retail outlets, for example), relaying sales leads, and reporting instances in which a retailer has run out of a Coke product.

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The business landscape for companies is changing as a result of global trends such as aging populations in the U.S. and other major economies, corruption, geo-political risks, and the potential of 3-D printing and robotics, among others.

Mauro Guillen, a Wharton management professor and director of Wharton’s Lauder Institute, spoke recently with Knowledge@Wharton about how companies can leverage these trends to come up with strategies to drive profitable growth. Guillen will also teach a free online course on this theme via Coursera starting May 5.

An edited transcript of the conversation appears below.

Knowledge@Wharton: Let’s imagine that we have here with us a group of executives from multinational corporations. What are some of the most important global trends that they should be paying attention to?

Mauro Guillen: Well, there are several of these trends. And, of course, all these trends can be seen as threats on some level. But they actually represent major opportunities. We’re seeing, for example, major trends in terms of population shifts around the world.

The centers of gravity of the global economy are shifting away from Europe, the United States and Japan toward the emerging economies. That is where the markets of the future will be. That’s where the middle class of the future will be. And hence, consumer markets are going to be gravitating towards those parts of the world.

We also see trends in terms of geo-politics where the risks are where the natural resources are in the world. And finally, we are seeing very important financial trends. We’re seeing that there are certain countries in the world that are accumulating more and more reserves.

They are accumulating more and more firepower for the future. That’s going to bring about realignments in currencies around the world. As a result of those shifts, companies will need to change the structure of their operations.

Knowledge@Wharton: These are a great group of topics that you’ve laid out. Why don’t we start with the demographics? In some other contexts, you have referred to the fact that this is probably the first time in history that you have more grandparents living in the world than grandchildren. What are the consequences of the aging population? How does this affect, say, banks or other companies’ products and services?

Guillen: Well, you’re exactly right. Population aging is a very important phenomenon. It has been going on for the last 20 years but at this time and moving forward into the next five or 10 years, it’s going to reach critical levels. For banks, for example, what this means is that they are going to find it harder to attract deposits.

Deposits are the easiest and cheapest way for banks to get funding. So, banks will have to look for alternative sources of funding, precisely at a time when regulators are asking them to maintain higher capital ratios. Also, the kinds of products banks sell to customers are will have to change as a result of older populations around the world. They will need other kinds of savings and investment products.

But companies in any industry will have to watch this trend towards population aging very carefully. And, once again, there are some threats. Some companies will see business lines shrink, [and] their markets disappear. But at the same time, these more graphic trends also create new opportunities that can be measured in the hundreds of billions of dollars.

Knowledge@Wharton: What’s an example of a new opportunity that has been created either for a bank or some other company because of this aging population?

Guillen: Well, for banks, new types of financial products such as reverse mortgages or investment products with downside protection are now so much more popular because we have more customers of banks that happen to be in their 60s, 70s or 80s. And for companies, [it would be] any type of product or service that has to do with the so-called leisure industries.

People in their 60s or 70s or 80s, many of them retired, have more time. They would like to use that time productively. So, as a result, there are huge opportunities for launching new products and services that essentially keep people busy in retirement.

Knowledge@Wharton: For example, would you say that industries like travel and tourism may see an increase [in business] because of what you just said?

Guillen: Absolutely. And in particular, certain segments within the tourism industry are going to grow — for example, cultural tourism. Given that today, grandparents in the world are actually much better educated than say, 20 or 40 or 60 years ago, the tourism industry and the leisure industry need to move away from just beach and sun and toward cultural tourism, for example.

Knowledge@Wharton: What about industries like health care or real estate? How can they come up with products and services aimed at an older demographic client base?

Guillen: Health care obviously will go through very rapid growth in many parts of the world, especially in the American economies. Let’s not forget that population aging is not only taking place in Europe, Japan and the United States but it’s also a very important trend in China.

It’s also a very important trend in Russia. In other words, one should expect major investments in health care, in medical equipment, in health care personnel and so on and so forth in some of the American economies.

Knowledge@Wharton: One of the things that sometimes concerns me is if everybody in the world sees this trend, that the population is aging, and they all rush to create reverse mortgages and products and services for the elderly, isn’t there likely to be a considerable oversupply and actually, people will be worse off because of that?

Guillen: Eventually there will be a lot of companies and a lot of banks interested in providing goods and services for that segment of the population. But right now, way more than half of the current needs are still going unsatisfied in the marketplace. This is true in the United States. This is true, I think, in many countries around the world.

At the same time, just the sheer number of people in their 60s or their 70s or their 80s is going to grow very, very quickly. My sense right now is that supply, meaning the number of companies that are offering these goods and services, is lagging seriously behind the demand. That will continue to be the case for the next five or 10 years.

Knowledge@Wharton: Let us switch to global financial trends. Until now we have had the U.S. dollar almost solely as the reserve currency for the world because it’s accepted everywhere. But slowly, the Chinese renminbi seems to be becoming stronger. What do you think is likely to happen? How should companies factor that into their growth plans?

Guillen: We are going through a transition phase in terms of the global financial architecture. As you pointed out, the dollar has played a dominant role in the global system for the last 60 years or so. But then that … post World War II period was a time when the U.S. economy was the biggest by a wide margin and when the U.S. was the biggest trading nation in the world. Right now, China is already the biggest trading nation. And the Chinese economy may, within five years or at most 10 years, become the largest economy in the world.

So, the global economy needs the Chinese currency to play a role. And we’re starting to see the beginnings of that, especially in East Asia. Countries such as Thailand or Indonesia or the Philippines are starting to think about how to increasingly link their economies to China, not only in terms of trade flows but also in terms of financial flows and currencies.

This is going to change the landscape for all companies, even if they don’t operate in China because companies will need to do hedging, for example, in a different way. They will need to revisit their cash flows around the world. So, the treasury functions at major multinational firms are going to have to do a lot of homework in order to adapt to the new realities in the global financial architecture.

Knowledge@Wharton: What are the implications for the world economy were the renminbi to become a dominant currency?

Guillen: First of all, I don’t think it’s going to become a dominant currency in the sense that [it will] displace the dollar. We are moving into a kind of world in which the renminbi at some point will play a role alongside with the dollar and the euro and perhaps a couple of other currencies. The Indian rupee, at some point in the next 20 or 30 years, will also play a role if growth in India continues.

But the important thing to keep in mind is that multinational firms, because of the complexity of their operations, move money around the world because they generate revenue in one part of the world [and] get funds from another part of the world. They keep their money in certain parts of the world because maybe taxes are lower and so on.

What I’m suggesting is that in the next five to 10 years, most of these companies will need to revisit the assumptions that they have been working with when it comes to making decisions [on] money flows inside of the firm.

If they don’t, that’s going to have a big impact on their profitability and on the amount of money at the end of the year they’ll be able to offer their shareholders in return for the funds they have given the company to operate.

Knowledge@Wharton: That’s clearly both an opportunity and a risk. What are some of the other major risks, especially on the geo-political front? How companies should hedge their risks — or are there opportunities in those risks?

Guillen: The biggest risk now and looking down the road for the next five years or so has to do with a combination of factors. There are certain parts of the world where we see very young populations. The population is growing rapidly. At the same time, we see that corruption is a problem, [especially] government corruption. We also see political instability. On top of all of that, these are countries that happen to have a lot of natural resources — energy, minerals and so on.

I’m referring to some parts of Latin America, but mostly to sub-Saharan Africa, the Middle East and some parts of South Asia. This so-called “long arc of instability in the world” that stretches from Latin America all the way to Southeast Asia and then reaches a climax in sub-Saharan Africa — [is] a major source of volatility and risk to the entire global economy.

One cannot understand, for example, nowadays, the fluctuations in commodity prices or in energy prices [and] the extreme volatility, without taking into account this combination of factors.

Knowledge@Wharton: How do we hedge those risks? What do we do?

Guillen: Well, companies on an individual basis certainly need to be very careful as to where they invest, but more importantly, how they invest. The issue is not, “Oh, are there a number of countries out there that I need to avoid?”

No, I don’t think that’s the right way of thinking about the problem. The right way of thinking about the problem is, “If I want to be a multinational firm, a truly global company, I need to operate in a variety of markets. Based on that assumption, what is the best way of operating?”

I would, in particular, recommend that companies think about staging their investments, [and] keep their options open. If unpredictable events happen, then they can quickly rearrange their operations in such a way that a crisis in a particular part of the world doesn’t affect their operations and their profitability on a worldwide basis.

Knowledge@Wharton: One more risk that we hear about a lot these days is cyber terrorism. Part of the challenge seems to be that very often the threat may come either from some governments or from amorphous groups of hackers that don’t have a state. What is likely to happen as far as that is concerned?

Guillen: Yes, cyber risks or risks related to our increasing reliance on information systems and telecommunications and the transfer of information all over the world are clearly going to be on the increase. We have obtained many advantages from the information and telecommunications revolutions.

We have cut costs. We have enabled companies to essentially pursue opportunities in many different kinds of markets, to relate to their customers in different markets, to look for the lowest-cost platforms on which to manufacture their products and so on.

There are many benefits to information and telecommunications technologies, both [for] the firm and [for] society as a whole. But there are also risks. Increasingly, over the last three to five years, we’ve seen an increase in precisely those kinds of risks that come in some cases from governments, but most likely from individuals who essentially want to make a dent.

[They would] maybe spend a few years in jail and then leave and become consultants to major multinational firms or governments, which is what some of them do — which is a replay of “Catch Me If You Can,” the movie.

The issue here is essentially, what should individual companies do? [They should] ensure that nothing that they view as a strategic asset or resource can be affected by a cyber-attack. Not all resources [or] assets inside of a corporation are equally vital.

The company needs to make sure that it understands where the five or six or seven things are that they don’t want anybody to lay their hands on. And they have to protect those things very carefully.

Knowledge@Wharton: Fifteen years ago if you were to look at the Internet, it would have been very difficult for anyone to predict that social media would become a powerful force. Or that a company like Twitter may come into existence and its platform will have the power even to topple governments. Looking at the next 15 years, what do you see?

Guillen: There are at least two very exciting and promising areas [where we will] see a lot of action. One is the intersection of information technologies and robotics. This is going to transform manufacturing. It is going to transform the way in which we consume goods and services. It is going to transform education.

I wouldn’t be surprised if in five years from now I am redundant as a professor and we can have a robot in the classroom actually doing probably a much better job. This is going to transform the automobile industry, as we know. It’s already transforming surgical procedures at hospitals.

This combination of informatics and robotics … [is where] we see a lot of activity, both in terms of startups and also established corporations that are making big investments.

The other area is more broadly in the use of artificial intelligence. A third area [is] 3-D printing. Right now, most of the visionary applications one reads about strike one as being crazy or outlandish. But we are only at the beginnings of a major trend in terms of decentralizing manufacturing, especially of very specific parts and components.

So, 3-D printing has the potential of revolutionizing quite a few things. [It can also enable] poor and disadvantaged people and countries and communities to perhaps play a more important role in the global economy.

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