Book Excerpt: Leading Outside the Lines

Values are beliefs about what's important, and what kinds of behaviors reflect that importance. Since companies can't—and shouldn't—dictate every move an employee makes, values can serve as the North Star that guides actions and decisions. They come to life through the actions of leaders, and leading people to make the right choices when no one else is around.

At McKinsey & Company, for example, it has been common for senior directors to ask themselves in difficult situations, "What would Marvin do?" Marvin Bower was the firm's legendary founder, who died in 2003. His values of professionalism and excellent client service plus the way he demonstrated and lived them every day continue to exert influence—not only at McKinsey, but throughout the consulting profession.

Values are both formal and informal. They are formal in that they can be written down, displayed throughout an organization's physical space and fleshed out in elaborate memoranda. They emanate from on high and are disseminated through the hierarchy. However, it's the informal organization that is responsible for elevating values from admirable statements to a way of life. In a value-driven organization, the values are shared and promoted not just through formal means but by people who act consistently and communicate constantly, simultaneously "walking the talk" and "talking the walk." They are espoused and enforced among peers as well as superiors at all levels. Values help organizations outperform their competitors, and success further reinforces the values. Not surprisingly, very few organizations can legitimately claim to be truly "value driven". ...

People often seek out people who are like themselves. Having common values is part of what keeps groups together. Whereas timeliness may be seen as critical to one group; flexibility is critical to another. And people are attracted to groups that share their values, prejudices, and circumstances.

When we survey informal networks, we're able to ask respondents who they spend time with. We're also able to ask them to prioritize among a list of commonly held values. We often find that small communities within networks share similar values. For example, executives who prioritize "creativity" as a value are likely to have many connections among others who say the same, more so than with executives who share "no wasted time" as a value. This is a principle known as "homophily"—we tend to associate and bond with those who are like us. This suggests an important interrelationship among the value mechanisms and the network mechanisms in the informal organization.

An article in The New York Times magazine described a phenomena known as "social contagion"—the startling behavior changes that can happen among those in close social proximity to each other. The author probes the dynamics behind the widely-reported New England Journal of Medicine article by Nicholas Christakis and James Fowler that describes the finding that if your friend is obese, there is a 57 percent chance that you will become obese, as well. More startling, there was a 20 percent chance of becoming obese if a friend of a friend became obese, even if the intermediate friend did not gain weight. The authors hypothesize that the behaviors spread because, subconsciously, we calibrate our sense of normal according to what we see others do.

This is an important phenomenon for managers to consider when thinking about how to change values in an organization. By focusing on observable behaviors that the company's values suggest, and encouraging the demonstration of those behaviors, managers can transmit these signals through networks and redefine what is normal. "Walking the talk" is important, particularly for senior leaders who transmit messages to a wider audience, and with a more powerful signal, than others in the organization do.

At times, shared values and the underlying network relationships can be difficult to detect. A story in the Economist highlights a surprising example of this in a firm called Cataphora, which specializes in e-discovery: the mining of electronic records in the discovery phase of a lawsuit to "provide the clearest, most accurate insight into individual and organizational behavior based on the extensive trail of 'digital footprints' including email, text messages, documents, phone calls, and instant messages that we all create each day."

In one example, Cataphora's solution detected an unusual sign-off phrase used by several executives at a firm that had been issuing fraudulent invoices. This phrase was associated with a college fraternity with which the executives were associated. This highlights the subtle webs of networks that we all belong to, and how they each may transmit different values to differing degrees. Recognizing these kinds of subwebs not only increases our understanding of how information transmits, it also enables us to both use and shape them to advantage.

Reprinted by permission of the publisher, John Wiley & Sons, Inc., Leading Outside the Lines by Jon R. Katzenbach and Zia Khan. Copyright (c) 2010

by John Wiley & Sons, Inc. All rights reserved.

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE