Tag Archives: Freakonomics

The Case for Versatility

David Ransburg
David Ransburg

If you read my post earlier this week, you will see that I began to explore the keys to effective leadership in a family business, and that one of those identified keys is a deep understanding of the family business’ culture.

Effective leadership does not, of course, rely solely upon cultural understanding, and one of the most prominent features I see in effective leaders of family businesses is versatility. By “versatility,” I mean that a leader can modify his or her behavior depending on the circumstances at hand. If the situation calls for focusing on strategy, a versatile leader will be able to do so effectively… and then switch to being more operational when circumstances demand such a shift.

This support for versatility is certainly not mine alone – there’s some powerful research that supports this claim. An article from the Summer 2003 issue of the MIT Sloan Management Review reports on a research study where senior leaders were assessed in terms of their versatility as well as their organizations’ effectiveness. The correlation between versatility and effectiveness indicates that approximately 50% of what separates effective leaders from those who are not effective is versatility. In other words, while versatility is not the only factor that contributes to effective leadership, there is nothing more important. If there is only one other factor – and reason suggests that there are multiple other factors such as industry experience, functional knowledge, and cultural understanding – then at best that one other factor can only be as important as versatility. If there are multiple other factors, then this research suggests that each of them would be less important than versatility.

In your personal experience with family businesses, what do you see as other key characteristics of leadership?

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Slothful, Indeed

David Ransburg
David Ransburg

The December 18, 2013 blog post on Freakonomics discusses recent research on family firms and draws the conclusion that non-family CEOs drive better performance for their companies for the simple reason that they work more hours than do family CEOs. Strikingly, the term they use to describe these family CEOs is “sloth.” While you’ll find no bigger fan of Freakonomics than me, their use of this term misses the mark by a wide margin.

My quarrel is not with the underlying research – it does come from Harvard, after all – but instead with the simplistic conclusion drawn from this academic paper. While the number of hours worked by a CEO may be one useful indicator of a CEO’s effectiveness, there is much more to consider when evaluating their performance. For starters, the old adage about “working smarter rather than harder” comes to mind. It is too often the case that activity is mistaken for productivity… and that seems to be part of the problem here.

I would also like to point out an often-overlooked element when considering the performance of any CEO, whether a family member or not: Do they understand the culture of the business. Culture is key. Perhaps the greatest authority on management practices, Peter Drucker, once said, “Culture eats strategy for breakfast.”

And, when it comes to a family business’s culture, who will understand it better, a family member who has grown up from childhood within that very culture, living it every single day… or a non-family CEO who has joined the family business from the outside?

Clearly, even a family member who “gets” the culture must also possess strong management skills… but, to look at two candidates for the CEO position – one who is a member of the family, and one who is not – and to assume that the non-family candidate is superior just because they might log more hours at the office would be not only simplistic and short-sighted, but it would also be potentially damaging to the family business long term. This is what the authors of the Freakonomics blog would seemingly have us believe, and there’s a term for that kind of thinking: sloth.

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