Shreiber, N. and B. Chakravarthy (2007). Leading Paradoxically. EBF 30(1)

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28 Issue 30, Autumn 2007 EBF



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Indepth

EBF Issue 30, Autumn 2007

Corporate leaders face a more

complex world – and must satisfymore competing objectives – than

they did even a decade ago. In

order to maintain competitive

advantage, the firm’s product

and services must be differentiated,

and yet cost competitiveness is

also paramount. Corporations are

expected to play responsible roles

in society, yet demands for the

protection and enhancement of

returns to shareholders are stronger

than ever. Top management must

personally vouch for the numbers

that their firms put out, yet

it is also increasingly necessary

to delegate responsibility.

Leading a business in the

modern world requires the ability

to deal with multiple paradoxes.

“Paradox” is a noun of Greek origin

that describes seemingly

contradictory statements which,

when explained, are not

contradictory at all. In the business

environment, three aspects ofparadox are worth emphasising:

(1) Leaders are faced with

contradictory demands. For

example, there may be the need

to pursue global growth

aggressively and at the same time

contain or reduce business risks.

Or there might be a need to

differentiate a firm’s products and

services while at the same time

improving operational efficiency.

(2) Common sense rebels against

pursuing these contradictory

demands simultaneously. For

example, if top management

tightens corporate controls and

also announces its intention to

increase employee empowerment,

it will have to sell its ideas very

convincingly to avoid scepticism

on the part of employees.

(3) Many of these paradoxes can

be resolved. Our experience tells us

that high-performing organisations

can – successfully – pursue severalseemingly contradictory goals at

the same time.

This article is based on two

streams of research. The first

originates in practice, and comes

from Nick Shreiber’s career first as

a strategy consultant with McKinsey

& Company and then as CEO of

Tetra Pak, one of the world’s leading

packaging companies for liquid

foods. He went on to test his

insights through contacts with

academic institutions including

Emory University, IMD and IESE.

The second stream comes from

Bala Chakravarthy’s research on

leadership dilemmas, which has

been conducted over the course

of ten years, first in the information-

communication industry and

through field research in the

chemical, energy, pharma-

ceutical, food and retail

Modernleadershiprequires theability tomanagethings thatappear atodds, but in

fact are not.

By Nick Shreiber and Bala Chakravarthy

Illustrations:Robert Hunter

Leading Paradoxically

29



In Brief > Modern business

leadership requires

the ability to deal with

paradoxes – that is,

things which appear

to be contradictorybut in fact are not.

> Creative thinking can help

overcome the problem

of paradox and resolve

apparent contradictions.

> For example, creativity

requires both innovation

and discipline – it is not

a question of either/or.

> Balancing competing

demands is a key aspect

of modern leadership, and

all aspiring leaders must

develop the skills to do so.

Indepth

Issue 30, Autumn 2007 EBF30

industries (see Chakravarthy 1997,

Chakravarthy and Lorange 2007,

for more details of this research).

Resolving paradoxes requires

not so much common sense as

uncommon sense – the knowledge

that apparently contradictory

demands can still be met. This

certainty has to originate fromthe top. As some experts put it:

“Followers want comfort, stability

and solutions from their leaders.

But that is baby sitting. Real

leaders ask hard questions and

knock people out of their comfort

zones. Then they manage the

resulting distress” (Heifetz and

Laurie, 2001). The resulting tension

often provides the spark that leads

to a creative solution.

However, creating stress isnot enough. Corporate leaders

must do four key things in order

to resolve organisational paradoxes:

(1) frame the challenge creatively,

(2) balance the organisational

context, (3) offer thought

leadership to produce solutions,

and (4) provide moral guidance

to the organisation.

Creative framing

A useful way of managing

paradoxes is to find a creative way

to frame the challenge. Paradoxes

can be daunting. The trick is to

embed one of the competing

goals as part of the context, and

offer the other as the primary goal

to be served.

Consider the example of Best

Buy, the North American consumer

electronics retailer. Its current CEO,

Brad Anderson, introduced a new

vision for the company a couple

of years ago, seeking to make

Best Buy one of the first companies

in retailing to be truly customer-

centric. The underlying idea was

to target the most profitable

customers for the company and

increase the company’s share of

their spending. The other goal ofcustomer-centricity was to enhance

value for the firm’s shareholders.

On the face of it, customer-

centricity does not necessarily

translate to better returns for the

shareholder in the short term. For

a discount retailer like Best Buy,

managing inventory turns is very

important. Customer-centricity, on

the other hand, could lead to the

holding of more stock-keeping units

and slower inventory turns. Besides,both the cost of store fixtures

and added employee training that

were needed to support customer-

centricity could hurt store profitability

in the short run.

While employees in the

customer-centric stores were given

a simple goal – delight customers

– the organisational context that

they were placed in helped focus

attention on the other goal, creating

value for shareholders. Through

careful analysis, the company had

identified seven profitable customer

segments. Each store was

assigned one or two of these

customer segments to focus upon,

as appropriate to the demographics

of the markets that they served.

Serving these customer segments

would enhance store revenues

and profitability. Best Buy also put

in place a control system that

measured the return on capital

invested in each of its customer-

centric stores on a daily basis.

Employees were trained on the

basics of how shareholder wealth

was created.

Customer-centricity initiatives

that helped improve return on

capital employed were thus readilyidentified. While employees were

urged to delight customers, top

management had ensured the

targeted customers would also be

profitable customers. This helped

employees recognise that

shareholder value can be enhanced

while delighting customers at the

same time. Asking employees at

Best Buy to be creative in serving

the needs of their customers was

very energising and inspiring.Simply asking them to add value

for the company’s shareholders

would have been far less appealing.

Thus the two goals, delighting

customers and adding shareholder

value, may appear contradictory,

but in reality they are not. By

creatively framing this paradox,

Best Buy has been able to improve

employee empowerment, customer

loyalty and return to its

shareholders all at the same time.

Balancing the

organisational context

The tension between functions and

processes within an organisation

provides another source of

paradoxical discomfort that can

be addressed through good

leadership. It is often debated

whether a company organised

along functional lines can embrace



31EBF Issue 30, Autumn 2007

cross-functional business

processes. The way to frame

this paradox is to understand that

well-run functions are absolutely

essential to a business; they are

the sine qua non that provide the

capabilities for the smooth

operations and intra-functional

learning without which a companycannot operate. Functional

excellence is part of the operational

context of a company, and senior

executives should focus their

energy on cross-functional

business processes that will enable

functions to work in an integrated

and efficient fashion across the

company – in a way that functions

on their own could never achieve.

Processes improve efficiency

and service quality by documentingand spreading best practices

around a company. Thus they

avoid the infamous re-inventing

of the wheel. And process

improvement can reach into every

corner of a company, from

improved factory floor operations

to better corporate governance.

Many companies’ initial failures

to bring process-thinking into their

organisations can be traced to the

lack of visible commitment by the

CEO and senior leaders, or to their

own confusion regarding whether

priority is placed on functions or

on processes.

Process leaders must

be enthusiastically supported

throughout the change

programme, and visibly rewarded

when successful. The CEO and

senior leaders in a traditionally

functional organisation that is

moving towards a process

orientation are not “just” introducing

new ways of working and modified

organisational charts. Often, theyare fundamentally altering their

companies’ corporate culture, and

they must act accordingly.

The paradox of function versus

process can be resolved with five

key actions that ensure alignment

between functions and processes:

(1) Appoint process leaders who

are recognised as high-level,

respected individuals. Because

they exercise authority over

people not under their direct

responsibility, process leaders

should be vested with “informal

authority” – authority based on

their knowledge and ideas rather

than on hierarchical seniority.

(2) Give the process leader

responsibility over the most

critical function within theprocess. For example, the leader

of an equipment supply chain

process might also be the

functional head of the equipment

assembly plants.

(3) Choose appropriate metrics

with which to measure process

performance. These must be

visible to and understood by all

parties involved in the process,

in order to create true shared

responsibilities.

(4) Conduct process audits.

These assessments will ensure

compliance, but they will also

provide a forum for dialogue that

will improve process design

as well as execution.

(5) Ensure functional excellence

throughout the organisation. This

will remind the organisation that

it is not about process alone, but

about function as well.

Another myth that pervades

many organisations is thatdiscipline and structure are

incompatible with creativity and

innovation. Discipline, it is argued,

is useful to promote productivity,

but it smothers creative work.

Skunk works, the “garbage-can”

model of organising, and similar

popular vehicles are offered as

necessary to support creativity.

In fact, a disciplined innovation

process will improve the chances

of success for new products byweeding out poor ideas early on

and concentrating a company’s

scarce resources on those

innovations with highest potential.

It will also focus creativity where it

is most needed: for example, on

product design.

An innovation process will

also reduce misspent energy by

bringing objectivity to decision-

making through the establishment

of specific milestones, where each

project is evaluated against an

objective set of criteria rather than

“seat-of-the pants” feelings.

While top management should

encourage the generation of new

ideas, it should also curb escalating

commitments to failed ideas.

A carefully designed innovation

process can resolve this paradox

by bringing together elements of

creativity and discipline.

A myth that pervades manyorganisations is that discipline and structure are incompatible

with creativity and innovation



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Issue 30, Autumn 2007 EBF32

Thought leadershipResolving paradoxes usually

begins with the state of mind of

an organisation’s leaders. They

must reject the “common sense

rebellion” mentioned in our

introduction. To paraphrase from

Built to Last (Collins and Porras,

1994), leaders of great companies

must embrace the genius of the

“and” rather than rely on the

tyranny of the “or”. However, a

state of mind will not on its own

resolve conflicts. Leaders must

be willing to benchmark their

organisations against the “best

in class” and bring proven tools

and approaches to bear, while

empowering the rest of the

organisation to do likewise.

For example, many “traditional”

manufacturing managers will tell

you that, in order to reduce delivery

lead times, they must maintain

and achieved – simultaneously.

A second area where perceptive

senior executives will exercise

thought leadership is on the rare

occasions when they must resolve

the paradox of how and when to

allow for exceptions to an rigorously

established core business process

such as the innovation processdescribed earlier: how to decide

whether certain development

projects have the potential to be

ground-breaking ideas, even if

opposed by internal scepticism

or unsupportive market research.

Ideas such as Sony’s Walkman

or Tetra Pak’s Tetra Recart package

– a carton-based package that

competes head-on with the metal

can for solid foods – are examples

of products that requiredchampioning by top management.

These situations call for executives

to rely on their judgement shaped

by prior experience, technical

knowledge, the company culture,

availability of financial resources,

and other factors. Exercising this

judgement is more art than

science. The trick is to support

experimentation, while putting a

stop to experiments that are not

yielding desired results.

Outstanding examples of this

type of thought leadership have

been seen over the years. The

Nespresso system would not

have become a reality had the

CEO of Nestlé, Dr Helmut Maucher,

listened to the pessimistic

consumer surveys for the proposed

innovation. Similarly, Dan Vasella,

CEO of Novartis, pushed for the

development of Gleevec, a cure for

Figure 1: The paradox of creativity versus discipline

(3) Time bomb (1) Ensuring

the future

(2) Boomerang(4) Mine field

Discipline

Cr e a t i vi t y

(1) Ensuring the future> Continuous flow of new ideas> Losers weeded out early> Many high-impact winners

(2) Boomerang> Over-structured process stifles creativity> Tight cost control, but few real innovations

(3) Time bomb> Plentiful new ideas, but resourcesspread too thin

> Missed opportunities due to lack of focus

(4) Minefield> Wheel “reinvented” every time – resources

spent on administration> Priority-setting defaulted to most vocal managers

(5) No man’s land> Paradox recognised but not resolved> Can drift into boxes 2, 3 and 4

(5) No man’s land

higher inventory levels to allowgreater manufacturing flexibility on

the plant floor. Reducing lead times

while at the same time reducing

working capital appears to them

an unsolvable paradox. The fact

is, however, that appropriate tools,

such as World Class Manufacturing

(WCM), can result in both goals

being achieved simultaneously.

WCM resolves the paradox

of pursuing conflicting production

goals by mobilising employees

and executives at all levels of the

company. It gathers individual and

group ideas, solves problems by

attacking root causes, shares best

practices across language barriers

by using graphic tools,

systematises work flows and

brings order to the plant floor.

WCM gives machine operators the

opportunity to demonstrate that

conflicting goals can be pursued –

The leaders

of greatfirms mustembrace thegenius ofthe “and”rather thanrely onthe tyranny of the “or”



33EBF Issue 30, Autumn 2007

an extremely rare form of leukaemia,

despite commercial concerns over

the small number of patients that

would need this drug. Gleevec had

a projected market of only 6,000

patients per year, but it has

reinforced Novartis’ reputation as a

true innovator in the drugs industry.

Long ago, Henry Ford remarkedthat “If I had asked people what

they wanted, they would have said

faster horses”. The successes

of Nespresso, Gleevec and Ford’s

Model T are a matter of record.

Providing moral guidance

Another classic paradox is how a

firm can enhance shareholder value

while championing its core values.

Are these contradictory goals?

They do not have to be. Accordingto the New York Times (September

14, 2005) companies are becoming

more strategic in their approach to

philanthropy, tapping their particular

realms of expertise to make a

difference. When a tsunami

devastated parts of south-east

Asia in December 2004, Tetra Pak

and some of its customers provided

free water and liquid foods

to victims, using the company’s

capabilities in supplying safe

and easily transported beverage

packages. Tetra Pak spent several

million dollars to support relief

efforts in affected countries, notably

Indonesia, Thailand and India. This

was a philanthropic act that helped

save scores of lives. But at the

same time, it also demonstrated

the use of its packages to a

segment of consumers who may

not have experienced them before

– and received positive public

relations benefits in the process.

Following the tsunami, too,

Abbot Laboratories Fund pledged

$4m in healthcare products and

cash; Procter & Gamble provided

$1m worth of its PUR water

purification sachets plus cash

to partner organisations to delivermore than 150 million litres

of purified water;

Johnson & Johnson

distributed medical

supplies throughout

the region; UPS, an

Atlanta-based

package delivery

company, shipped up

to one million pounds of

emergency relief supplies free of

charge; FedEx shipped medicalsupplies to the region on behalf of

several aid groups; and Northwest

Airlines teamed up with AmeriCares

to transport relief supplies. Similar

in-kind efforts were reported in the

wake of the terrorist attacks of

September 11, 2001, and the

Hurricane Katrina disaster of 2005.

In another case, Home Depot

and Bell South teamed up with

Habitat for Humanity to help

revitalise neighbourhoods in South

Atlanta. Both companies were

helping communities while at the

same time promoting programmes

directly related to their core

businesses: do-it-yourself activities

and in-home telecoms, respectively.

It would be cynical to suggest

that these well-meaning acts of

philanthropy had the devious

purpose of boosting product sales.

Rather, they simply illustrate the

positive power of solving a sensitive

paradox. Corporate philanthropy

and shareholder value can be

reconciled if a corporation carries

out philanthropic activities that

support the long-term strategy and

reputation of the company. This is

enlightened self-interest.

Conclusion

In this brief article,

we have highlighted

four approaches

to dealing with

paradoxes. The first

views the leader as

a strategist, helping to

frame the new challenge

creatively, as Brad Anderson

did so successfully at Best Buy

when introducing customer-centricity. The second views the

leader as a balancer in the

organisation, blending function and

process, creativity and discipline.

The third calls on CEOs and senior

executives to act as knowledge

brokers, bringing in expertise and

tools to help resolve difficult

paradoxes and to use judgement on

when to have flexibility in systematic

approaches. Finally, there is the

moral side to a leader, as he/she

tries to respect the core values of

the firm in a manner that also

enhances shareholder interests.

Recognising and resolving

paradoxes requires a leadership

style that may itself be a

paradoxical blend of directing and

listening. Senior executives have

the power to force their decisionson an organisation. Paradoxically,

they should rarely use that power.

The most lasting changes will come

through the use of informal

authority: listening to the

organisation; clarifying the leaders’

views; mounting a convincing

argument for the need for change;

and explaining clearly the benefits

of change programmes as well as

the consequences to the company

of not pursuing them. When theneed for change is fully accepted

by the members of an organisation,

resistance to the pain of change will

be much more easily overcome.

Bala Chakravarthy is professor of

strategy and international management

at IMD, and also holds the the Shell chair

in sustainable business growth. Nick

Shreiber is executive in residence at IMD,

and was formerly CEO of Tetra Pak

and a partner with McKinsey & Company.

References

Chakravarthy, B (1997) “A New Strategy Framework for Coping with Turbulence”,

Sloan Management Review 38 (2).

Chakravarthy, B and Lorange, P (2007) Profit or Growth? Why You Don’t

Have to Choose, Englewood Cliffs: Wharton School Publishing.

Collins, JC and Porras, JI (1994) Built to Last , New York: HarperBusiness.

Heifetz, R and Laurie, D (2001) “The Work of Leadership”, Harvard Business

Review, December: 131-140.

Documents

Shreiber, N. and B. Chakravarthy (2007). Leading Paradoxically. EBF 30(1)