Good Leadership Hinges on “Organizational Intelligence” by George Yip and Nelson Phillips

It takes a lot to get to the top of an organization: a high IQ, emotional intelligence, technical competence, and a variety of personal characteristics, such as fortitude and resilience. Even with those qualities, many leaders fail at the top job — often because they don’t know how to get the organization to do what they want.

What they lack — and what successful leaders embody, down to their marrow — is organizational intelligence. OQ, as we’ll call it, consists of five competencies: sending messages that reinforce strategy, fostering an ethos, using “action strategy,” rebelling from the top, and staging moments of theater. Let’s look at each, drawing on examples from our own experience and that of well-known successful leaders.

High-OQ leaders send messages that reinforce the strategy — and minimize other messaging. Strategies are implemented not by CEOs and other top executives but by the many people who choose on a daily basis whether to take actions that support or undermine what top management wants to achieve. One key OQ competency is sending messages that reinforce the strategy. The simpler and clearer, the better; organizational members at all levels suffer from information overload, so leaders need to be selective about what messages to send.

As the dean of Rotterdam School of Management (RSM), one of us, George, set the strategic objective of persuading faculty members to publish in practitioner journals like HBR and MIT Sloan Management Review in addition to academic journals. (Academic publishing, he believed, was a necessary but not a sufficient condition for RSM to be recognized as a top business school.) At the start of his tenure, only 1% of the 300 faculty publications a year were in managerial journals, and those were not the top journals.

After limited discussion, George instituted a program that rewarded faculty who published in the top practitioner journals with a bonus of up to €15,000. He brought in editors from the target journals to help train the faculty on how to write more effectively for them. To reinforce the message, he sent congratulatory emails when faculty had acceptances in such journals (but not for acceptances in academic publications). This selective messaging was not popular, but it was highly effective. Another strategic objective was better cooperation between faculty and staff. A great opportunity arose when one senior professor complained that the teaching program staffers acted as if the faculty worked for them, rather than the other way around. Instead of issuing an EQ response to mollify the professor, George sent an OQ response: “We all work for RSM.”

High-OQ leaders foster an understanding, or ethos, of “who we are.” When leaders move from managing individuals or small groups to leading entire organizations, they need to create a shared understanding of what’s important and what the organization stands for — in other words, an ethos.

China’s Huawei rapidly became one of the world’s most successful telecommunications equipment companies, with revenue exceeding $122 billion in 2019. Its success stems in no small part from its ethos, “the wolf spirit of Huawei,” created by founder and chairman Ren Zhengfei at the start.

Ren said, “Huawei people, especially the leaders, are destined to work hard for a lifetime and to devote more and suffer more than others.” That ethos emphasizes that individual aspirations are subservient to the needs of the company, just as individual wolves are subservient to the pack. Ren described it as a blend of three qualities: extreme resilience, a willingness to self-sacrifice, and sharp predator instincts.

Fostering an ethos requires taking two important steps. The ethos needs to be summarized in an evocative statement pointing to the behaviors desired in the organization’s members. And it needs to be communicated widely.

High-OQ leaders use “action strategy” rather than consensus building to pursue strategic goals. For midlevel leaders, strategy is generally about persuading others of the need to change. That approach may not be an option at the top. It often makes sense to adopt a stealth strategy rather than a formally declared one and to bring people along gradually, as it starts to prove itself. (Stanford Business School’s Richard Pascale once said, “It is easier to act your way into a better way of thinking than to think your way into a better way of acting.”) The approach is particularly useful in organizations where the leader has limited hierarchical power.

When George started as RSM’s dean, in 2008, he was an outsider and a foreigner. The university had charged him with increasing revenue and strengthening relationships with the business community while maintaining RSM’s high level of academic research. He realized he would not be able to institute rapid change through persuasion, because the national culture emphasized slow, intensive consensus building. And he was on a four-year contract and had limited time. So he emphasized action.

He began by abandoning the tradition that the dean chaired all defenses of doctoral dissertations; he made it clear that his priority was engaging with external stakeholders, particularly corporate executives. Academics were reluctant to engage with executives. So George revamped the university’s advisory board meetings. Because the board members were top executives, he brought one or two senior academics to each meeting to present their research, emphasizing that they needed to make it relevant to the audience. And he initiated an annual conference whose panels combined executives and faculty members.

Turning to personnel, George replaced the people likely to generate the most opposition and appointed a new, supportive vice dean from among the existing department chairs. He created a new position, director of external relations, and placed that director and the director of marketing on the management committee.

To give the new changes time to take effect, he delayed a formal discussion of the new strategy until his third year, by which time both revenue and ranking were higher and attitudes had become more favorable.

Action strategy is about making things happen. By taking a set of coordinated actions that add up to a strategic change, a leader can kickstart the process without creating organized opposition.

High-OQ leaders rebel from the top. Strong leaders usually have strong views about how things should be done, which can lead them to take on too many fights too early in their careers. You don’t want to be like John DeLorean, who battled nearly everything on his way up in —and then out of — General Motors. Really effective leaders learn early to target only important issues — and ones they have a fair shot of winning. That requires two skills. The first is the ability to accurately estimate the level of conflict a particular course of action will elicit. (This is where EQ can support OQ. ) The second is the maturity to not engage in unimportant issues. In many ways the second skill is the more difficult one to develop; most top managers are competitive, and their natural reaction to a challenge is to take it head-on. Rebelling from the top means taking on the biggest challenges only when you have the most firepower.

Terry Leahy steadily worked his way up to become the CEO of UK-based Tesco, one of the world’s largest supermarket companies. Along the way he introduced one important innovation: the Clubcard, the UK’s first supermarket loyalty card, which allowed Tesco to leapfrog Sainsbury’s into the number-one retail spot. As CEO, he introduced Tesco’s distinctive online model, based not on the classic centralized warehouse but on existing stores, where employees picked and packed online orders during off-peak periods. The criticism was scathing, including from McKinsey and other top consulting firms. But by 2003 Sainsbury’s had followed suit — by which time Tesco had a five-year head start and an expanding user base.

Leahy succeeded with both dramatic changes in part because he maintained  a modest demeanor throughout. And he left other core aspects of the business, such as steadily improving the retail offer (“Every little helps”), untouched.

To rebel from the top, leaders must strike a difficult balance. They need to recognize what aspects of the status quo need to be challenged — and they need the discipline to avoid wasting time rebelling in ways that are not strategic and won’t move the organization forward.

High-OQ leaders stage moments of theater that will be told and retold throughout the organization. A good theatrical moment reverberates as stories about (and, more recently, videos of) the event are passed along. Effective moments of theater have three important characteristics. They carry a clear message. They are out of the ordinary and unexpected. And they are generally low-cost and relatively easy to execute.

Moments of theater are a potent part of a CEO’s toolkit for communicating and reinforcing an ethos. And care must be taken that they don’t conflict with the desired ethos.

In the Qingdao headquarters of the Chinese company Haier stands a display case containing a sledgehammer. It commemorates the long-ago day when CEO Zhang Ruimin pulled 76 refrigerators off the production line. There was nothing much wrong with them — just a few scratches and other minor defects. But Zhang wanted to send the message that even minor defects are unacceptable and that Haier intended to match the quality of any competitor worldwide. So he and his managers smashed the defective appliances. His message resonated throughout the Chinese corporate world; one of the sledgehammers now sits in the National Museum of China.

When designers showed the first iPod prototype to Steve Jobs, he said it was too big. They replied that they could not make it smaller. Jobs then dropped the device into an aquarium, and bubbles floated up. He said, “Those are air bubbles. That means there is space in there. Make it smaller.”[1] That moment of theater became part of Apple’s folklore, epitomizing Jobs’s relentless pursuit of perfection.

The secret is to take advantage of opportunities to do something symbolic in a surprising, high-impact way that will capture the attention (and, hopefully, the hearts and minds) of the organization’s members. That requires stepping out of the normal flow of organizational life. This is a challenging competency — and a powerful one.

How to Develop Your OQ

First, embrace bureaucracy rather than rail against it. Use the strengths of your organization to achieve your goals. Like a judo master, you must practice getting the maximum effect from your large organization with a minimum effort on your part: the judicious email, the sharp moment of theater. For the rest, let the organization keep doing what it does well.

Second, develop an organizational persona. Do people know what type of leader you are and what to expect when they interact with you? Everyone at GE knew what to expect from “Neutron” Jack Welch. Sheryl Sandberg is well-known for combining social skills and intelligence in a way that allowed her to break up the boy’s club at Facebook. Dong Mingzhu, China’s most successful businesswoman and the head of Gree Electric, has a persona that says, “Where Sister Dong walks, no grass grows” — meaning she is really, really tough.

Third, follow the small rules so that you can break the big ones. Vernon Hill was transformationally successful in leading Commerce Bank in the USA and then Metro Bank in the UK. But in both cases he was brought down partly by accusations of inappropriate dealings with insiders, such as getting his banks to buy services from his wife’s architectural firm. In 2019, soon after Metro Bank revealed an accounting error involving the misclassification of more than $1 billion in loans, Hill resigned. With the accounting error, Hill broke a big rule — but we suspect that had he followed the smaller rules around issues like showing favoritism to family members, he would have had a better chance of survival.

Executives may want to develop these OQ competencies on the way up the ladder — and they’ll certainly need them if they are to succeed at the most senior levels.

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