Consider the following:
In 2000, the United States was the world’s strongest economy. Even so corporate America set a new record for failed businesses.
• In 2000, 176 companies with $95 billion in assets failed.
• In 2001, 257 companies with $258 billion in assets failed.

How could this happen?
Charan and Useem (2002) concluded that the majority of these company failures occurred for one reason; leadership error. The question of how this happens can elicit extensive and complex conversations. However, for the purpose of this article, only the following two questions will be considered:

Question #1: With the abundance of data, consultants, and programs available to predict success, how is it that such talented leaders could fail so profoundly?
The annual value of corporate mergers grew one hundredfold between 1980 and 2000 (Renner, 2000). Research about the success of mergers indicates that “83% of mergers were unsuccessful in producing any business benefit with regard to shareholder value” (KMPG, Mergers and Acquisitions: A global research report, 2000). Despite the evidence to the contrary, the majority of managers who engineered mergers believed they were successful.

Question #2: How can leaders continue to make such monumental mistakes and have such inaccurate perceptions of their businesses?
Organization Strategy Institute (OSI) has been researching answers to this type of question (and many other business-related studies) since 1990. Findings from OSI research have yielded a complex set of answers. Distilling these, the simple answer is that if a system of business logic is built upon a set of faulty assumptions, the outcomes will be flawed.

Making assumptions is necessary for business and life. The question is not should we make assumptions; the question is, “What assumptions should we make?”
1. Leaders must know the strengths and weaknesses of both themselves and their team. Not knowing one’s strengths and weaknesses results in blind spots that surface in the form of problems such as lost opportunities, false starts, morale problems, and wasted resources.
2. Leaders must know why data and numbers (i.e. units of information) are the lowest sequence of information and that data must be related to higher levels of information. Consequently, leaders need a mental map to help them quickly assess what is going on in the overload of information.
3. Leaders must know how to quickly organize diverse, yet complementary thinking patterns of team members and global partners. They must know how to utilize this information to achieve productive outcomes.
4. Leaders must be able to select the most competent person to perform within a particular situation and know why they are selecting such a person. This cannot be entrusted to accidental chance, intuition alone, or rank, title, or position. This kind of decision-making cannot be a ‘best guess.’ Precision thinking yields advantage.
5. Leaders must know how their team’s competencies play a role in not only thinking smart but also in acting faster than their competitors. Strategic advantage must be tailored to the situation. There are no successful universal strategies. There are no strategies that last forever. Strategic intelligence involves the ability to think within the relevant context. Strategy must change as context changes. One of the great failures in today’s executive teams is that they do not understand their context. Without context, strategy is a best guess.

Success involves the ability to think within the relevant context.
For example, a nonprofit organization was facing a potentially crippling lawsuit. I was asked if I could negotiate a reduction in the potential financial damages to the organization. My line of reasoning was guided by S-3L (three dimensions of leadership logic developed by OSI)*. During the process of assessing the situation with the executive team, the executive team members learned that the make-up of their team had been the product of unknowingly hiring executives similar to themselves. In other words, this was not a stated objective, but instead a consequence influenced by ineffective recruiting and hiring practices, ineffective given the requirements of strategic leadership.

As a result, the specific skills required to avoid lawsuits did not collectively exist within their team. Awareness of their strategic blind spot allowed them to make choices based on S-3L logic that linked their thinking to corporate advantage (they now knew how to select leaders and why those choices were best for their situation). S-3L equipped them to make strategic choices for selecting executive talent as well as quickening their decision-making and problem-solving skills.

The pattern of lawsuits greatly diminished once S-3L logic was implemented. The competence of decisions greatly improved. Problem-solving was quicker and more effective. The advantage of their newly acquired knowledge extended beyond this example about a lawsuit. It extended into the daily operations as well as the future survival of this organization. In essence, their strategic intelligence increased as their team competence increased.

*to find out more about S-3L Three Dimensions of Leadership Logic, watch for the upcoming article ‘S-3L, Changing How Leaders Lead’ or visit Leading for Greatness on this Web site.

© 2006 OSI, Inc. All rights reserved.