What is more important: ensuring short-term profitability or the survival of the company?

Written by: Viktor Vetturelli, co-founder of qohubs

In the discussion about the effectiveness of leadership in today’s highly challenging times for the global economy, the following question is first posed: ‘What kind of leadership do we need in these times?’ To answer that question, we must clearly define the function and task of leadership. When a group of managers is asked what the function of leadership is, the usual response is that it is to ensure the success of the company.

However, management guru Peter Drucker sees it differently. In his opinion, the task of leadership is to ensure the survival of the company. This perspective opens up new possibilities for understanding the functioning of the organization and its relationship to the market, and it reduces the pressure to constantly focus on short-term profitability.

Leadership, the known unknown

On one hand, a firm hand is sought, a leader who inspires, motivates, provides support to employees, and communicates clearly about where to go. On the other hand, there is a faction that advocates the view that right now all employees must take responsibility. Flat hierarchies, agile or shared leadership are just some of the approaches in the world of ‘new ways of working’ that are mentioned as solutions. A current example of this is Bayer AG, a traditional global corporation that is eliminating several levels of management and coordination in a major transformation to awaken a ‘sense of ownership’ among employees, as stated by CEO Bill Anderson. And not just declaratively – Bayer is creating structures to achieve this goal, entirely in line with Drucker’s view, to ensure the survival of the company.

But Bayer is still an exception because discussions in companies usually do not go beyond slogans. There is little critical thinking about leadership, and discussions mainly revolve around the characteristics of leaders. However, the discourse on leadership that places the individual at the center is one-dimensional. This lack of serious engagement with leadership is one of the main reasons why the topic of leadership has become a lucrative business that periodically presents alleged new, promising remedies to companies and their leaders.

Returning to the basics

The first step towards a clearer understanding of the concept of leadership is its division into several levels: leading oneself, leading employees, team leadership, and organizational leadership. Each level has its own context and focus. Although this sounds simple and every manager would think it is clear, this step is often overlooked in common thinking. The consequence is an inability to quickly and effectively adapt to the dynamics that develop at different levels and between them.

The role of leadership often boils down to the question: ‘How can I become even more effective as a leader?’ Business magazines have been offering articles for decades with approaches that guarantee success, motivate, and develop employees, but only if one follows exactly a certain five, seven, or nine steps. Anyone who has ever held a leadership position knows that people cannot be forced to learn or develop if that drive does not come from within. This also applies to motivation. Attempts to motivate from the outside are always short-lived and often counterproductive.

Toyota offers a different approach. Toyota’s great CEO Tajiichi Ohno was known for not giving advice to managers who came to him with a problem. Instead, he sent them to the site of the problem to observe the process for two weeks, gain new insights, and develop possible solutions. Ohno did not see his role as a leader who thinks for others or has the task of developing people, but as someone who enables others the necessary time and space to develop new knowledge and competencies. This approach is based on two fundamental assumptions: trust in employees that they can think, learn, and communicate independently, and the understanding that problems in operational business are often overestimated when considering the company’s long-term survival.

Leadership as a circular process

For leadership to be effective at other levels, employee leadership, team leadership, and organizational leadership, a dimension of leadership as a process is added. Public discourse on leadership usually deals with leading employees. However, when we observe organizations, leadership is only partially a hierarchical process, from formally higher positions to subordinates; it is also a circular process between people in the organization, between leading and following. It is a constant circular process of analyzing, deciding, and implementing.

Simplistically illustrated, we can imagine Luka Modrić. When we observe him, according to his head and eye movements, we see how he constantly analyzes the field (with or without the ball), then decides which action should follow, and the team implements that decision or does not implement it. In doing so, he is aware that each unit of players, defense, midfield, or attack has its own dynamics and self-management. This is important because every system, whether a person, team, or organization, manages itself and reacts to external influences (disturbances) depending on the structure. Therefore, the effect of external management is very limited if the dynamics within and between these levels are not taken into account.

Therefore, when we think about the effectiveness of leadership, we cannot overlook the difference between self-management and external management. To recognize the dynamics of self-management, we must continually reassess how far management, or external management, extends. Whether leadership has occurred is ultimately not decided by the subject who made the decision, for example, the leader, but by the unit that accepts the decision or not. This means that leadership is a circular process of leading and following.

If, however, the leader comes to the center of thinking and action, what Niklas Luhmann describes somewhat cryptically can happen: ‘The personality of the leader then appears as a receiver for organizationally unresolved – perhaps even unsolvable – problems; or, differently formulated: it can, within certain limits, be relieved by better organization.’

Irritation can be positive

Niklas Luhmann defined leadership as a key element that builds and maintains the social system. According to him, all processes that provide that service can be considered leadership. Leadership thus involves hard work on the structures of the company, which is clearly visible in the example of Bayer. When problems arise in structures and processes, leadership becomes necessary. This is a demanding task that involves intense communication to work on organization and decision-making. However, it often happens that necessary decisions and adjustments of the organization to the environment are concealed by projects of organizational culture or work on values because these approaches are harmless and do not provoke conflicts.

Adjustments are not simple and bring some instability because changes are dynamic – the ‘old’ and familiar is abandoned, and the unknown ‘new’ is entered. It is precisely this ‘disturbance’ or, better said, putting things into communication that the organization needs for survival, and that is the function of leadership. Therefore, we repeat, the function of leadership is to ensure the survival of the led unit.

Experience or theory: what is more useful?

In the business world, especially when it comes to leadership, the question arises of what is more important: experience or theory. Many claim that theories are unnecessary because reality looks different. However, such statements are thoughtless because every action is subject to some theory. Theory does not determine what is right or wrong, but explains why something happens and why it might happen. The term theoría literally means ‘observation’ of reality from a distance. Kurt Lewin said that there is nothing more practical than theory. Theory allows us to analyze the actual and desired state.

Therefore, the question of what is more important – experience or theory – is not useful. What is more important is the constant reflection on leadership and the theories that shape our thinking and action. The example from Toyota shows that European and American car manufacturers, although they copied Toyota’s tools, never reached their productivity. The reason was not the work ethic of the Japanese, but the misunderstanding of the theories and philosophy that underlie them.

Theory is not an end in itself. It offers an opportunity to step out of practice and provide a new perspective on everyday life and leadership or, as Edward W. Deming said: – Experience by itself teaches nothing… Without theory, experience has no meaning. Without theory, a person has no questions to ask. Therefore, without theory, there is no learning.

Learning, learning, and only learning

What does leadership have to do with learning? Leadership is responsible for creating the time and space in which people feel safe, where they can express their ideas and concerns, or an environment that encourages learning.

The better the organization learns, or the people within it, the faster it can adapt to market changes and actively shape its future. Learning creates the collective capacity to distinguish efficiency (doing things right) from effectiveness (doing the right things), where organizational learning helps in recognizing and making the right decisions. Without continuous learning, organizations remain trapped in past patterns and fail to adapt to the dynamic conditions of the market.

Russell L. Ackoff, one of the most influential experts in systems thinking, emphasizes the importance of learning from mistakes. According to him, if you do the right thing wrong, you have the opportunity to learn, change behavior, and improve the system. On the other hand, if you do something wrong very well, you only further entrench a bad system.

Ackoff also claimed that ‘teaching is one of the worst ways to learn anything.’ Instead, people should engage in mutual conversation and use it to understand each other and gain the ability to solve complex problems.