The Three Ways of Great Leaders

In a new study, some leading business thinkers identify the attributes of great leadership — and nominate the best bosses of the 20th century.

What are the elements of this alloy we call "leadership"? Certainly, they include vision and integrity, perseverance and courage, a hunger for innovation, and a willingness to take risks. But in building their list of the top business leaders of the past century, Harvard Business School professors Anthony J. Mayo and Nitin Nohria have unearthed an immutable attribute that's shared by all of the giants of business: They had an innate ability to read the forces that shaped the times in which they lived — and to seize on the resulting opportunities.

Henry Ford, Ray Kroc, Estee Lauder, Jack Welch — these business masters had more than their fair share of what Mayo and Nohria call "contextual intelligence." That is, they possessed an acute sensitivity to the social, political, technological, and demographic contexts that came to define their eras. And they adapted their enterprises to best respond to those forces. Their outsized success at sensing opportunities and capitalizing on them had a dual effect: Just as the times profoundly influenced these business masters, they, in turn, profoundly influenced their times.

"We've always treated the historical context of a particular time as a kind of sidebar to any discussion about business leadership," says Nohria, a coauthor of 10 books on leadership and organizational change. "But we've found that context is far more salient than we ever imagined."

Four years ago, Mayo and Nohria set out to fill a void in the field of management thinking: the lack of a canon of history's greatest business leaders. Students of literature read the classics of Shakespeare, Milton, and Joyce; the Harvard professors believed that students of business should understand the history and critical biographies of Sloan, Procter, Disney, and the other business leaders from the past century who profoundly shaped American life. So Mayo and Nohria identified 1,000 great chief executives and company founders of the 20th century; they then surveyed 7,000 business executives, asking them to evaluate and rank the original list of 1,000. Out of this, they produced a ranking of the top 100 business leaders of all time.

As the pair dug into the lives of their 1,000 leaders, they began to glean how contextual intelligence is an underappreciated but all-encompassing differentiator between success and failure. Seeing how context creates different kinds of business opportunities, the authors categorized their business legends by the different types of opportunities they pursued. Their expanded scope has resulted in a groundbreaking book on business leadership, to be published next month by Harvard Business School Press: In Their Time: The Greatest Business Leaders of the 20th Century.

In an interview, Nohria identified three prototypical leadership types — the entrepreneurial leader, the leader as manager, and the charismatic leader — and showed how each used their contextual intelligence to thrive in their times. "Leaders and those who aspire to lead benefit from having a sense of history," he says. "Not because history repeats itself. History's real value is that it allows you to imagine what's possible." Here, in his own words, Nohria shows that there is more than one path to becoming a great leader. In fact, there are three.

1. The Entrepreneurial Leader: C.W. Post

"At the turn of the last century, C.W. Post was an itinerant salesman who traveled through Michigan, which was the Silicon Valley of its time. It was the epicenter of more than 300 car companies, which spawned scores more companies. Entrepreneurship was in the air. Post didn't directly exploit these technologies, but he did sense a gathering of forces that created the possibility for a new business opportunity.

Post developed a caffeine-free health drink, Postum. Because Post had been a door-to-door salesman, he broke through the competition by offering free samples to customers of general stores throughout the Midwest. He used product sampling — a practice that was unheard of at the time — to connect directly with the end consumer. That not only made Postum a success, but also set the stage for a new business practice in the retail sector.

Then Postum became a breakfast cereal. Post and the Kellogg brothers pioneered the first two major cereal companies. But Post's real genius lay in his ability to sense that a new, national consumer was emerging in America. He saw that as the nation was becoming increasingly industrialized — as women entered the workforce and families spent more time on the job — time itself was becoming increasingly valuable. People were willing to pay for convenience.

Post also seized on publications such as Ladies' Home Journal. They were perceived as credible purveyors of information, and Post used them to reach this new national consumer. He started off selling door-to-door, but he used changing demographics and social mores to launch a product that was nationally distributed, nationally advertised, and nationally consumed. He was one of the first to recognize the power of a national brand.

An entrepreneurial leader's genius lies in bringing things together in a combination that no one has ever seen before. Post was one of this country's great business visionaries, but he failed at the managerial act — which is to build a system in the organization that routinizes the entrepreneur's creation. Post eventually disengaged from the business and ultimately committed suicide. But the company he created, Post Cereals, thrives to this day. Another leadership prototype — the manager — stepped into the breach and through discipline, structure, and organization expanded the platform that Post created."

2. The Leader as Manager: Louis B. Neumiller

"Whereas entrepreneurs are company creators and charismatic leaders are agents of change, managers are value maximizers — they make the most out of something that already exists. Such is the case with Louis B. Neumiller, who rose through the ranks of Caterpillar and became its chief executive in 1941. Two months later, Japan attacked Pearl Harbor. Just as C.W. Post used changing demographics to launch the cereal industry, Neumiller seized on the massive geopolitical event that was World War II to build Caterpillar into a global organization.

Soon after the country was plunged into war, the U.S. military called on Caterpillar to retool its operations for artillery production. But Neumiller feared that when the war ended, Caterpillar would be left with the challenge of reconverting itself back to producing heavy earth-moving equipment. He convinced the Army that it was better served by letting Caterpillar continue to manufacture bulldozers and tractors. In the end, his steadfast strategy paid off. The bulldozer in particular was critical to clearing roads and building makeshift landing strips throughout the Pacific islands. Over the next four years, Caterpillar doubled its employment and increased its sales fivefold.

Neumiller volunteered to deliver Caterpillar equipment to all of these different theaters, and several executives inside the company thought he was crazy to do so. But his instinct was to believe that when the war ended, Asia and Europe would become markets for Caterpillar equipment as battered countries set about rebuilding. And he was right. Caterpillar established dealerships and service centers in these areas for maintenance of the old equipment — and, more important, for new purchases. Neumiller took this fledgling infrastructure and used it to build an international presence for Caterpillar in almost every corner of the world.

Neumiller really didn't build anything new. By the end of his era, Caterpillar's product portfolio didn't look all that radically different. What changed was the corporation's scale and scope. Neumiller capitalized on the war effort and then the rebuilding effort to transform Caterpillar into a global giant. And like all great managers, he took his identity out of the business — he let his company become a hero instead of himself."

3. The Charismatic Leader: Lee Iacocca

"Our fascination with the CEO as a celebrity leader dates back to Lee Iacocca. He captured the moment because he saw and seized on a series of secular changes that crept up almost unnoticeably.

By the early 1970s, the major U.S. carmakers seemed unassailable. Then came the OPEC oil embargo and the energy crisis that followed. Many people thought that the oil shock was just a temporary, macro interruption. But this geopolitical event revealed a larger set of coalescing forces that allowed the Japanese carmakers to erode Detroit's dominance. By 1980, Japan had become the world's largest automobile producer and all of the major U.S. automobile companies lost money. The biggest loser of all was Chrysler, which posted a record loss of $1.7 billion.

Then comes this larger-than-life figure, Iacocca. He was the first modern leader to use the force of his persona to turn around an American icon. Iacocca pledged that he would take an annual salary of $1 until he returned Chrysler to profitability. He persuaded the government to authorize a $1.5 billion loan guarantee using taxpayers' dollars. But he knew he couldn't keep going back to that well. And so Iacocca seized on three forces that were reshaping the American business landscape and yoked them to his advantage.

First, there was technology. Iacocca understood that the Japanese threat stemmed from a fundamentally more productive way of managing manufacturing, which he'd have to mimic. Then came labor. Iacocca was among the first to recognize that there needed to be a more cooperative compact between labor and management. Under his leadership, Chrysler was the first American corporation to put members of the United Auto Workers on its board. And finally, Iacocca leveraged America's radically changing demographics. His genius was to see that the baby boomers were starting families, so he bet Chrysler's future on the minivan. Ultimately, Iacocca succeeded at turning around Chrysler because he acted on all three fronts simultaneously.

Some say that we've developed a dangerous infatuation with charismatic leaders. And they're right. But that doesn't mean we were wrong to believe in these people in the first place. You can't put your faith in the institution when it's crumbling. You don't trust Chrysler. But you do trust Iacocca."

. . . and the way ahead

"I can't predict what the next 25 years of business will look like, but I do know that demography, technology, government regulations, geopolitics, labor conditions, and social mores will powerfully influence the opportunities available. And already, we can see some clues to the future. We clearly know that government is playing a bigger role than it used to. We have certainly gone through a major shift in geopolitics. We don't know how this new struggle will pan out, but history teaches us that geopolitics will have a more profound consequence than we might immediately recognize.

In terms of technology, breakthrough innovations in IT and pharmaceutical development may have run their course. We think of these as growth industries, but they might well be maturing. In demographics, what will happen as retiring baby boomers start withdrawing their money from the market? And then there are the dramatic changes in Asia. Just as Japan created lean manufacturing, is there a new management innovation that's coming from India or China, but hasn't yet been given a name?

In each of these dimensions, there are very important changes afoot. They will coalesce and create opportunities for entrepreneurial leaders to launch new businesses, for managers to maximize the value of existing businesses, and for leaders of change to rescue businesses that have fallen into decline. The one thing that we know for certain is that context is vitally important; it will shape the opportunities in these new times."

Click here to see the Top 10 Most Courageous People of 2005 slideshow; or follow this link to take our quiz to find out what kind of leader you are.

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