By Manuel “Bobby” Orig, Director, ApoAgua

A summary of the book of the same title.

If you are looking for definitive answers to the question: “what does it take for a  leader to  produce consistently superior performance for his or her organization?” you will find them in this book.

Praise for the book:

In Executive Intelligence, Justin Menkes does a great job of defining and dissecting Executive intelligence – the ability to analyze and process information and solve problems in a business environment. In a book rich with real-life examples and compelling commentary from leading business executives, he shows readers how to identify, measure, and acquire this key ingredient for corporate and individual success.

-James M. Kilts, Chairman, President, and CEO, THE GILLETTE COMPANY

What differentiates a “star” executive from his or her peers? This is no idle question because experts like Peter Drucker, Jim Collins, and Jack Welch agree that great talent builds great companies. So, finding and assembling a critical mass of the very best people should be the first priority of every business. But how do you recognize a star? What differentiates them?

Based on eight years of research on intelligence tests and cognitive skills, Executive Intelligence reveals the set of aptitudes that all brilliant leaders share. The author, Dr. Justin Menkes, verified these findings through hundreds of interviews with senior executives, including thirty of the most celebrated CEOs in the world.

Managerial work can be broken down into three subjects: accomplishing tasks, working with other people, and self-evaluation. Within each of these categories there are identifiable cognitive skills that determine how well an executive performs.

Though these cognitive skills play a profound role in determining a manager’s success, they are not what most employers focus on when recruiting or promoting executives. Instead, nearly everyone fixates on personality type, style, or other irrelevant characteristics. This book seeks to refocus attention on what really determines leadership aptitude.

About the author:

Justin Menkes has built a reputation as a thought leader with deep expertise in coaching and assessing senior leaders. His research led him to the discovery of Executive Intelligence and the creation of a methodology to measure it.

Justin has been featured multiple times in Harvard Business Review. His books are currently published in 28 languages, and include: Executive Intelligence, which was a Wall Street Journal bestseller, and Better Under Pressure. He continues to serve as a faculty resource for Harvard Business School Publishing.

After graduating with honors from Haverford College and receiving an M.A. in Psychology from the University of Pennsylvania, he went on to complete his doctoral work at Claremont Graduate University, studying under the father of management thinking, Peter Drucker. He holds a Ph.D. in Organizational Behavior from Claremont Graduate University.

INTRODUCTION

The Unmistakable Signs of a Rising Star

Andrea Jung graduated from Princeton University in 1979 with a bachelor’s degree in English literature, and took a job at Bloomingdale’s, participating in its management-training program. After distinguishing herself at Bloomingdale’s, she eventually took executive positions at I. Magnin and then Neiman Marcus. But in 1993, Avon “came calling,” asking Jung to work as a marketing consultant. Within a year she was made head of Avon’s product marketing division, with a primary mission – to help modernize the company.

Avon had been a successful, profitable company since it had been started in 1987, but by the early 1990s, the cosmetics company had badly slipped in the marketplace. Company research pointed to a persistent, potentially serious problem that had developed with the brand, which was viewed by many as a line of “cheap” cosmetics that only grandmothers wore.

This public perception and the company’s lagging sales required that Avon make significant changes to improve its product lines and brand image. But one of the first, most crucial steps was to communicate this strategy to the local Avon sales representatives in order to help them understand and buy into the changes.

Andrea Jung knew this was where her mission had to begin. She had to help the Avon saleswomen understand and buy into the plan to upgrade the brand’s positioning in the market. But this was no easy task. One of the first major changes to be instituted was the replacement of an older line of fragrance with a new, more expensive one. Andrea explains further:

“When I first came to Avon, the consumer research said that we were seen as being cheap. Cheap and inexpensive are different things. According to our research, this difference regarding our products had become blurred. So we needed to correct this image problem.

One of the first things we did was to introduce a new, higher-end fragrance line. The average Avon fragrance was selling between $10 and $12, and our sales representatives were selling millions of units every year. And here we were coming to replace that with a new fragrance line that sold for $18.50.

There was tremendous negative resistance. All of our Avon Ladies worried that it was too expensive, and that they would lose all their Christmas money. But we needed them to take this leap to modernize the company.”

As a result, Jung was in a difficult position. She knew that forcing the change through top-down edicts was likely to backfire, because she needed these Avon Ladies, “the faces of the company to the customers,” to actually buy in, otherwise there was little hope that this strategy would be successful in the field.

So Jung and her team personally met with groups of Avon Ladies and tried to explain the need to make these changes. Despite their rigorous presentation of market research data showing that the reps would make more money if they sold a more upscale product line, there was tremendous resistance. As Jung recalls:

“I was looking around the room at all these frustrated faces and it suddenly dawned on me that these women were no different from our customers. After all, they were selling our products to their friends and family. So I asked a simple question:

‘How many of your really wear our fragrance? Forget about what you sell. Do you even use our products? Compared to the fragrance classics, do you keep coming back and using Avon?’ The room was silent.

Once we explained our reasoning from a perspective that our representatives could understand, they realized what we were trying to do and why. They had to face up to the fact themselves that ‘We’re not even proud to wear the products we sell.’ That was key to getting them to see the need for our new strategy.

When we later heard that these same representatives had started saying to others around the company, ‘I get what they [management] are trying to do’ – that was the most important communication we could achieve. Because the spreading of support for this initiative had to come from them – only they could do it.

From there, a cascading understanding of the issue and the soundness of our solution began to flow through the company. That was a crucial turning point.”

Jung’s handling of this situation showed her to possess a particular, rather uncommon ability, and her talent was not lost on Avon’s senior leadership. It was this type of highly skilled thinking that ultimately landed Jung in the top spot, becoming Avon’s CEO after only six years as the company. Since Jung took charge in 1999, Avon sales have jumped 45 percent, from $3.5 billion to nearly $8 billion; the company’s stock has risen 164 percent, with five consecutive double-digit growth. Avon’s turnaround is obvious and impressive.

So what is it about Andrea Jung and other exceptional executive that gives them such brilliant, instinctive business acumen? They obviously possess a rare kind of intelligence, one that is at the heart of star managerial performance.

It is that intelligence that this book is all about.

What Every Business Needs

Jim Collins, one of the world’s most influential management researchers and commentators, calls them the “right people.” Jack Welch, arguably the most successful CEO of the twentieth century, says they’re “stars,” while famed author and professor Peter Drucker, pictures them as “masterful conductors.” These experts are describing the people who truly determine whether an organization thrives or fails.

But what makes this “star” executives so effective? If we knew, we could identify these traits in others and, develop them within ourselves. The problem is that nobody has accurately identified the fundamental characteristics that make someone a “masterful conductor.”

There have been literally hundreds of books and thousands of theories that have tried to answer this question. At various times we’ve been told that the secret of management success is the ability to:

• Lead
• Anticipate change
• Be entrepreneurial
• Break all the rules
• Communicate
• Be compassionate
• Compensate for one’s weaknesses
• Foster diversity
• Express empathy
• Encourage teamwork
  

… and that’s just a partial list.

It’s a mind-numbing inventory, yet it does nothing to illuminate the core drivers of success. As a result, these theories constitute a costly distraction from identifying what really causes leadership excellence. So, if we are to effectively populate our executive ranks with the “right” people or if we are to become one of them ourselves, we need to discover the essential components that makes someone a” star.”

It turns out there are specific cognitive aptitudes that to a large extent determine whether an executive succeeds or fails. And it is these aptitudes that form the foundation of a new theory of intelligence. Not the type of intelligence that determines success in school, but rather the cognitive skills specific to the business environment.

We call this theory Executive Intelligence.

Where Things Went Wrong

Cognitive ability tests have repeatedly been proven to be a highly effective means for predicting work performance in virtually any profession. Moreover, research has demonstrated that as the complexity of a job increases, so does the predictive validity of these tests. So for managerial positions, considered the most complex of all occupational groups, cognitive-ability measures have been shown to be among the most powerful predictors of success.

Yet nobody has attempted to first determine what makes IQ tests so predictive and then to build upon that understanding as the basis for a theory of business intelligence. Of course, managers need other qualifications. There are thirty-year olds who score in the genius range on intelligence measures, but it would be irresponsible to make one a CEO of a Fortune 500 company just on that basis.

And yet we almost never measure how much intelligence someone has before we either hire or promote them.

The reservations many hold about the validity of IQ testing for professional assessment have created a situation where IQ is almost never used as a screening tool for executives. This has created a dilemma: businesses are demanding a means to identify and develop star talent, yet they have been provided with no tools to ensure that individuals have the smarts required to excel.

The key to solving this problem is to bring the concept of intelligence back into the business arena in an acceptable form. This is what has given life to the notion of Executive Intelligence.

Making the Invisible Visible

In today’s workplace, an individual cannot become a star executive without possessing a unique type of business “smarts” that we call “Executive Intelligence.”

How do we define Executive Intelligence? In its simplest form, it is a distinct set of aptitudes that an individual must be able to demonstrate in three central contexts of work:

1. The accomplishments of tasks,
   
2. Working with and through other people, and
   
3. Judging oneself and adapting one’s behavior accordingly.
   

On the job, executives are constantly pursuing a variety of goals. They must decide which tasks to accomplish, in what order to do them, and how best to carry them out. They must find ways to meet their goals through the efforts and cooperation with other people. And always they must actively evaluate themselves, identify their own errors, and make adjustments to correct them.

The more proficient an individual is in all three of these areas, the higher his or her level of Executive Intelligence. Obviously, Executive Intelligence does not consist of a single ability or isolated skill. Rather, it is a blend of critical aptitudes that guide an individual’s decision-making process and behavioral path.

Executive Intelligence is an expanded and applied type of critical thinking; specifically it is how an individual skillfully uses the available information as a guide to thought and action.

This type of intelligence permeates every aspect of managerial work. A close analysis reveals a set of consistent, interrelated skills that form the very foundation of smart executive behavior.

Executive Intelligence in Real Life

• Accomplishing Tasks
  
  
  

Do you think most senior- level leaders demonstrate the Executive Intelligence required to make good decisions? Think again. When it comes to accomplishing tasks, the lack of Executive Intelligence is a pervasive problem in the most senior ranks of corporate America, and it is responsible for some of its most catastrophic business failures. Here’s one real-life example:

In the 1980s General Motors was struggling with terrible labor relations. Strikes and the high costs of unionized labor were taking a terrible toll on GM’s profitability. At the same time, U.S. manufacturers were losing market share to more efficient Japanese competitors. GM’s CEO, Roger Smith, boldly decided to confront this problem head-on. Rather than submit to a long-term erosion of GM’s competitive position, he decided to transform the way GM built cars. Smith believed that by making use of the latest robotic technology, he could replace much of the labor force throughout all of GM’s plants. He thought this would allow him to address both his labor relations and his plant efficiency problem with one elegant solution.

By the end of the 1980s however, GM had spent more than $45 billion on plant automation – a sum at that time would have been enough to purchase both Toyota and Nissan – yet more market share had been lost and plant productivity had fallen every year following automation.

How did this seemingly logical solution go so wrong? Roger Smith demonstrated a severe lack of Executive Intelligence in his analysis.

First, he failed to consider that while labor is indeed expensive and often problematic, relying upon machines alone may not be less so. In Executive Intelligence terms, he failed to question his underlying assumption: robots equal cheaper cars. Even a quick glance at readily available data would have revealed that machines require huge capital expenses and call for highly skilled support technicians.

Second, he failed to anticipate the unintended consequences of his initiative: plant automation can severely limit flexibility and the ability to change product lines.

When Robert Lutz, a senior executive in the auto industry, later examined the issue, he determined that the best answer to GM’s productivity problems would, in fact, have been a combination of man and machine that maximized the value of each.

Now let’s look at how another CEO confronted serious challenges to his company’s long-term viability.

In 1996, when Keith Grossman was hired as Thoratec Corporation’s CEO, the medical services company was losing money and struggling to survive. Grossman was charged with helping the company to profitably produce and market their flagship project, a cardiac arrest device. What he quickly realized, however, was that even if he achieved this goal, Thoratec’s business model was not sustainable.

As Grossman put it, “The challenge was to turn Thoratec into an enduring company. It was clear that we could get to profitability, but in the context of our industry, we didn’t have what it took to sustain.”

Without a diversified and integrated product line, Grossman knew it was only a matter of time until Thoratec’s market share eroded and its profits were eliminated. He saw only two possibilities for his company’s survival – “to acquire or be acquired.”

At the end of a two-year process to determine in which direction to go, a competitor, Thermo Cardio Systems, was identified as a desirable acquisition. There was just one problem. Thermo Cardiosystems was more than three times the size of Thoratec, and it had a rival product that was doing very well in the market. How, Grossman wondered, was he going to convince Thermo Cardiosystems to accept Thoratec’s stock, management team, and a minority position on Thoratec’s board as terms of the deal?

But Grossman’s presentation to the Thermo Cardiosystem’s board was unassailable in its logic. He pointed out that “in this market there are big companies that don’t just work on a single device, they focus on whole diseases. They are combining drugs and devices, and advertising directly to doctors and consumers. They are releasing third- and fourth-generation products. It becomes unrealistic to think that as a small company you are going to be able to just build your way into that market, compete with that, and remain relevant.”

Faced with this logic, the Thermo Cardiosystems board began to recognize that they suffered from the same vulnerability as Thoratec, and that rather than seeing each other as competitors, they needed to recognize that the two companies could be much stronger as a single one. They were also very impressed with Grossman’s exceptional clarity regarding the fundamental realities of their industry and how best to confront them. Thermo Cardiosystems agreed to the acquisition and Grossman’s terms. Today, Thoratec is a thriving, highly profitable company with a virtual monopoly in its medical niche.

What did Grossman do that was so impressive?

First, he recognized the flaws in his industry’s conventional wisdom. Start-up medical companies were always so focused on the challenge of taking their product from idea to market that they assumed that success in these areas would automatically result in a viable business. Grossman helped them understand this this underlying assumption – successful product necessarily equals successful company – was not sound.

He also pointed out that this model created a very costly unintended consequence. Namely, it required the creation of an expansive infrastructure to produce and sell the product. Single product companies suffered from severe cost handicaps, since they had to create the same infrastructure whether they sold a single device or a hundred different one. Accordingly, they could never compete with companies offering vast and integrated product lines.

This kind of intelligence represents the cornerstone of effective leadership. Grossman’s articulation of facts and conclusions was so sound in its logic that others willingly adopted them as their own.

Executive Intelligence in Real Life

• Understanding People
  

The second essential context in which executives must demonstrate intelligence involves working with other people. But instead of focusing on an individual’s likability, and manners, and calling that a form of intelligence, Executive Intelligence focuses on the specific cognitive skills that allow an individual to understand and navigate the complexities of interpersonal situations in an intelligent way.

Let’s look at a real-life example from the Boeing Company of a CEO fighting to restore his company’s profitability, but lacking the intelligence to do so.

The story of Philip Murray Condit’s seven-year tenure as chairman and CEO of the Boeing Company is a tale of a manager promoted beyond his abilities. The skills that had made him a successful engineer – brilliant academic success and technical problem solving – were less of use in his leadership position. A severe lack of Executive Intelligence, particularly in the area of social awareness, caused him to be repeatedly blindsided by public scandals.

Condit was ineffective and isolated as a CEO, unable to read the complex interpersonal politics surrounding him or to respond effectively. His lack of social perceptiveness blinded him to the “ends justifies the means” sales culture that was welling up around him, as senior members of his team became involved in highly questionable dealings – practices that a more aware CEO would have discovered and stopped early on. As a result, a company that had long been a paragon of American industrial excellence ensnared itself in one scandal after another under his watch.

For example, Boeing’s CFO Michael Sears negotiated to receive inflated prices from a Pentagon official, Darleen Druyun, in exchange for Druyun’s future employment at Boeing. In 2004, Michael Sears pleaded guilty for his personal role in the scandal, and was sentenced to several months in prison. Further, in 2003, Boeing was banned from bidding on certain Air Force contracts because it improperly obtained and used competitors’ information to gain advantage over rival bids.

“Condit booked a huge amount of defense business by allowing his subordinates to play business close to the edge,” said Loren Thompson, a defense analyst at Lexington Institute. The effect on the bottom line was that in 2003 alone, Boeing took more than $1 billion in deal-related write-offs. And the scandals ultimately forced Condit to resign in November 2003.

How did Condit go so wrong? His failure to recognize how far some of his employees might be willing to go to procure contracts demonstrated a severe lack of Executive Intelligence regarding people. Specifically, he never understood that the underlying agendas of some of his executives could easily put them in direct and repeated conflict with ethical business practices.

Condit’s decision to allow his people to police themselves, without clear oversight, demonstrated a lack of interpersonal awareness that cost Boeing enormously. Further, he never appropriately considered the probable effects of his actions. By failing to rein in his subordinates’ activities, despite warnings from his some of his staff, Condit underestimated how short-term financial gains could be eclipsed by the massive costs – in money and reputation – that these practices would incur.

Let’s consider how another CEO confronted a complex interpersonal situation that threatened his company’s ability to survive.

Van Johnson tells of a watershed moment in his tenure as CEO of Sutter Health, one of the nation’s leading health-care networks, providing services to more than one hundred different communities. One of Sutter’s largest players, Blue Cross, was the source of many difficulties that threatened to bankrupt Sutter’s hospitals and physician groups. It was a crucial but delicate issue.

“Virtually everyone at Sutter was having a problem with this particular player. We weren’t getting paid or we weren’t getting paid on time.

Johnson was faced with a dilemma: take on Blue Cross in a battle that would risk having his hospitals and physician groups removed from Blue Cross’s list of providers, or sit back and watch much of his network sink into bankruptcy. Unfortunately, other providers that had taken aggressive stances and gotten into protracted battles with insurers had not fared very well. In fact, for a number of them it had led to a total collapse of their health-care system. Johnson feared the same fate for Sutter.

However, everyone in Sutter was screaming for a fight. The staff saw Blue Cross as an evil and greedy corporation, bent on squeezing out profits even if it meant forcing community medical care groups into insolvency.

But Johnson saw the situation differently. He recognized that “taking the fight” was likely to erupt into a costly battle that would hurt everyone involved. He knew he had to find an alternative, and that the first step was to better understand Blue Cross’s perspective.

To that end, he called Dan Crowley, former CEO of Foundation Health, another insurance player that Johnson had done business with in the past. Over lunch, he and Crowley discussed the situation from the insurer’s point of view.

“Dan looked at things from the eyes of the health plan. The business for a health plan is very different from our business. You’d think they were similar, but their motivations are very different. He helped me understand how. I had to find someone outside of my own business that understood it. He had been a CEO of an insurer, and he knew their perspective.”

Standing in Blue Cross’s shoes helped Johnson see the problem in an entirely new light, and it opened up an alternative path to resolving the conflict. He studied Blue Cross’s administrative systems and tried to understand the ways the insurer’s procedures were failing to meet Sutter’s needs. But he also took a look at Sutter’s own systems, to see how they were contributing to Blue Cross’s difficulties.

I then sat down with Ron Williams of Blue Cross and we were able to talk about the fundamental issues. But it wasn’t about fighting with him, or saying Sutter isn’t going to take this anymore. It was trying to find a common ground.

“You can’t assume someone out there is a bad guy. You create as many problems for them as they do for you. You better figure out what role you have in the problem, take responsibility for that, and offer to change, if you are going to turn around and expect them to change for you.

Johnson’s approach to these negotiations yielded impressive results for Sutter. The new terms and the standardization processes that they implemented have allowed Sutter to avoid any cost increases for more than six years following the talks.

“Today Blue Cross is one of our most fair players. They pay on time. They fixed some of their internal procedures. We addressed our internal issues that also needed to change. Not that everyone is happy, but it’s much fairer now. It brought balance into things.”

How did Van Johnson bring about such a favorable outcome to a seemingly unwinnable situation?

First, he recognized the probable effects of a fight with Blue Cross. Such an approach would be so costly that it would likely spell doom for Sutter. Johnson knew he had to find an alternative. By enlisting the help of Dan Crowley, a CEO of another insurance company, he was able to better understand the likely underlying agendas of Blue Cross. And by viewing the situation from Blue Cross’s perspective, he was able to skillfully construct an approach much more likely to yield a successful result.

Executive Intelligence in Real Life

• Judging Oneself
  
  
  

Executive Intelligence is also essential when it comes to assessing oneself and correcting one’s own errors, as the following example shows.

Wolfgang Schmitt was Rubbermaid’s CEO when it was named Fortune magazine’s “Most Admired Company” in 1993. Just five short years later the company was in such bad shape it was acquired by turnaround specialists, the Newell Corporation. What went wrong? During the 1990’s Rubbermaid’s market changed dramatically, as retailers began focusing on lower cost over innovation. But Schmitt refused to respond to these market pressures. He was quoted as saying, “In the past we have always had a good history of implementing price increases. We must focus on making sure the customer understands the necessity of these price increases.”

When his executives and sales people repeatedly pointed out the fundamental changes in the market, and the need for Rubbermaid to cut their prices in order to remain competitive, Schmitt refused to listen. Even when Rubbermaid’s largest customer, Walmart, warned Schmitt that they would not accept Rubbermaid’s price increases, Schmitt chose to stand his ground. Walmart responded by giving much of Rubbermaid’s shelf space to lower-priced competitors.

Wolfgang Schmitt suffered from a severe lack of Executive Intelligence about himself; specifically he failed to encourage and use information that revealed an error in his judgment.

In today’s fast-paced environment, leaders constantly have to make on-the-spot decisions with limited information. Even the sharpest executive makes frequent mistakes, and oversights are sometimes unavoidable. While nobody can expect managers to get it right every time, what is important is they actively seek and welcome information that identifies flaws in their own thinking or actions.

Schmitt’s inability to look critically at his own biases or limitations in perspective caused him to devalue the essential information that those around him were trying to provide.  Because superior action-planning requires the use of multiple perspectives, leaders who lack Executive Intelligence about themselves – those who resist suggestions that force them to reconsider their own thinking – will never reach the best decisions.

Effective execution always calls for an individual to be able to turn a critical eye on his or her own thinking and behavior. A leader must be able to test the limits of his or her own ideas against those of others. This is not to suggest that skilled executives are robots who do not feel emotions such as defensiveness, but rather that they can recognize their own mistakes without being blinded by their reactions to them.

Consider how another CEO more skillfully addressed his own significant oversight and acted quickly to minimize its costs to his organization.

In his twenty-five-year tenure with Cedars-Sinai Medical Center, Tom Presilac had made a special effort to establish and maintain personal relationships with managers and staff throughout the hospital.

But in late 2002, as Cedars’ CEO, Presilac confronted a situation that opened his eyes to a troubling reality; he was in actuality quite out of touch with many of the people in the organization. This was reflected in a union effort to organize the hospital’s nurses. The union recruiters had taken advantage of a growing animosity and a lack of trust between the nursing staff and the administration. For instance, there was a tremendous concern among the nurses about their retirement plan. The administration was taking steps to improve the plan, but the antagonism was such that people did not believe the administration would do the right thing.

The lack of trust was particularly distressing to Presilac, a CEO who prided himself on being connected with both manager and employees. He began an aggressive organization-wide initiative called “Lessons Learned” to figure out how the executive team, managers, and staff had grown so far apart, and what needed to be done to repair the problem. Presilac also insisted that the effort focus on how his own actions had allowed this rift to occur despite what he thought were his best efforts to the contrary. With the help of the medical-center’s organizational-development staff and personal conversations, Presilac came to terms with his role in the crisis.

How could he have missed this serious problem? Although Presilac had made an effort to stay connected with colleagues and staff, he realized that he had not worked to maintain the quality of relationships with people he had known for a long time.

“It was not a conscious thing.” Quite to the contrary, he had long utilized employee-satisfaction surveys and followed traditional best practices for tracking employee attitudes. “A lot of the objective measures looked fine. Employee satisfaction looked reasonable in some aspects but in the aggregate it didn’t show (or, better said, I didn’t see) the depth of the problem. The red flags looked yellow, not red.”

In retrospect, though, Presilac acknowledged “that people did not know me. I began to lose the value of the frankness these connections gave me.” He took responsibility for his mistakes that led to the problem.

Presilac then set out aggressively correcting his behavior. “I changed the way I am visible in the organization, meeting privately and with small groups of directors managers, and employees in a much more frequent and focused way. The purpose was to create the kind of venue to have the right kind of contact with people. By doing this on a regular basis, a continuing dialogue developed, and it has created a more effective feedback loop.”

Today, approximately 85 percent of Cedars-Sinai’s 8,000 employees who responded on the employee survey rated top management as fair, honest, and trustworthy, and 92 percent would recommend the organization as an employer. These statistics represent a 30 percent increase in employee satisfaction. In late 2004, the union that had been attempting to represent the nurses completely withdrew their petition.

How did Presilac engineer such an impressive turnaround in such a short period of time?

His exceptional Executive Intelligence about himself was an essential factor. He actively encouraged and used information that revealed errors in his own judgment. In undertaking the “Lessons Learned” initiative, he asked that the analysis start with an intense focus on his own role in the breach with employees. Further, he looked critically at limitations in his own perspective, namely how over time he had unintentionally become isolated. Presilac’s earnest effort to understand his own role in the problem reflected his willingness to make rapid changes that would correct the situation as soon as possible.

Critical Thinking

• The Foundation of Executive Intelligence
  
  

After studying leadership for more than thirty years, Professor Henry Mintzberg of McGill University, the author of such landmark studies as The Nature of Managerial Work, began to question the importance of business school training. “I ask people who know American business well to name three or four executives who really made a difference,” Mintzberg said, “not short-term, but who really sustained superb performance. Almost never does anybody mention a Harvard MBA, let alone any MBA.”

Andrea Jung, the CEO of Avon made a similar observation:

“Clear thinking in senior leadership is a primary attribute we look for: at Avon, we even test for it. I’ve seen little correlation between those who have a formal business education and those that possess clear thinking. Some of our best ideas and thinking have been generated by people with the least formal training. It comes down to the fact that there are some people that have a knack for this and some that don’t. And a business education is not a determining factor.

Quinn Spitzer and Ron Evans, of Kepner Tregoe, an international management-consulting firm, also noted this pattern in their research regarding the world’s most successful leaders. How, they asked in their national best-seller, Heads You Win, could Sam Walton build WalMart without an MBA, Jack Welch make GE into the most admired company in the world without ever going to business school, and David Packard make HP an industry leader without “business process reengineering?”

None of those men had the formal training that is meant to ensure business success. So, there could be something more fundamental to performance than the theories taught in business schools and management books?

Spitzer and Evans identified that there was, in fact, a basic determinant of executive success that was totally distinct from the knowledge gained in a business education: an intellectual capacity that they called “critical thinking.”

They discovered that the great executives throughout recent history were not just people of action, but also people capable of thought – critical thought. With the precision of hindsight, Spitzer and Evans concluded that the critical thinking that leaders such as Jack Welch, Sam Walton, and David Packard brought to bear in their business was fundamentally more effective than that of their colleagues and competitors.

Their superior thought processes enabled them to better assess complex economic environments and identify appropriate responses to central business issues. When problems arose, they could accurately identify the causes and quickly take corrective action. They make good decisions, balancing the benefits and risks associated with their choices. And they implemented their chosen course of action effectively circumventing problems and seizing opportunities.

Spitzer and Evans more precisely discovered that it was an executive’s capacity for critical thinking that determined how well he or she executed these essential tasks. They concluded that while executives my hold degrees from the most prestigious schools, be experienced practitioners of the most celebrated theories, and receive advice from respected consultants, it was their aptitude for critical thinking that determined whether leaders would fail or succeed. The researchers’ findings suggest that critical thinking is indeed the stuff that makes intelligent executive behavior.

Critical Thinking Applied to Business

So what is critical thinking and how does it determine an executive’s effectiveness? Although Spitzer and Evans identified critical thinking as the essential mental ability behind business success, they offered no detailed description or explanation of how it occurs. In order to make their abstract concept more concrete, we need a working definition of critical thinking and a better understanding of its role in business.

Professor Michael Scriven, a former Whitehead Fellow at Harvard University and one of the most published authors in this area of research, offered a definition of critical thinking that suggests its essential business role. He described critical thinking as:

“The skilled, active interpretation and evaluation of observations, communications, information and argumentation as a guide to thought and action.”

In other words, critical-thinking ability determines how skillfully someone gathers, processes, and applies information in order to identify the best way to reach a particular goal or navigate a complex situation.

A basic example of this might be how the manufacturers of the Segway Human Transporter could have analyzed their product’s market potential. The upright powered vehicle was heralded by its  makers as a revolution in human mobility. Despite its impressive hype, however, the Transporter has been met with lukewarm reception from consumers and has not transformed urban transportation as its inventors touted it would.

Using critical thinking, a simplified analysis of Segway’s business plan might look something like this:

For a number of years a mode of transportation has existed that is functionally similar to the Segway, namely the powered scooter. These scooters sell for a fraction of the cost of a Segway, yet they have not been widely adopted, and cities have not altered their infrastructures to accommodate this mode of transportation.

Why would the Segway succeed where the scooter failed? The Segway has two advantages over the scooter: the user can 1) stand and balance completely upright while moving or stopped, and 2) go backward. The basic question remains, though. Is it the lack of these two features that kept the scooter from being widely adopted? If not, there is little reason to anticipate any greater demand for Segway’s product than for scooter. In fact, because of Segway’s dramatically higher cost, there may be less demand.

This type of thinking – the skillful use of information to reach a conclusion – represents the foundation of sound business decision-making.

Jack Welch noted:

“Great leaders share a lack of naiveté. There’s a rigor in their thinking. A questioning. You need to build self-confidence in people while at the same time challenging the hell out of their assumptions.”

!n its simplest form, critical thinking in business involves skillfully working out the best answer you come up with by identifying and using all information that has value for that purpose and resisting irrelevant or unreliable considerations, however tempting they may be. This is not easy, but then again, there are no shortcuts to finding the optimal way to handle a particular situation. Critical thinking is the best guide we have for discovering the “right answers” when it comes to accomplishing tasks, dealing with people, or evaluating and adapting our own behavior.

Recognizing that there is a type of critical thinking that is directly relevant to business has made possible the discovery of Executive Intelligence, which refers to one’s capacity for critical thinking in all aspects of executive work.

Because of their superior critical thinking, star executives arrive at the right answers more often than their peers. But what is the magic behind their success? Is there some secret formula?

Theorists and business professors have tried for years to answer that question, touting their work as “the” guide to sound decision-making. But the truth is there is no magic formula.

This is exactly why so many MBAs trained in the best decision-making paradigms fail in the real world. The secret behind a star’s success lies in their ability to create a solution tailored to suit each situation at hand.

It’s the ephemeral, constantly evolving nature of this process that makes schematic descriptions or step-by-step decision-making guides inadequate. Those tools are only effective to the degree that they are intelligently applied. Critical thinking simply cannot be diagrammed in black and white. Whereas decision-making guides require one to force a given situation to fit a particular model, star thinkers are capable of adapting their analysis to fit any situation.

Rick Lenny, the chairman, president, and CEO of the Hershey Company, who has been widely credited for that corporation’s impressive turnaround, explains:

“I think something is forcing us to be formulaic. There’s a want to make everything simple and put in a matrix. There’s this desire to follow models rather than think. It’s how many executives have been taught to do their jobs, and it’s tough to get them to act differently.”

But, perhaps the best way to understand the thinking processes of star performers is to compare them to ancient scientists, alchemists who sought to transform base metals into gold. When confronted with a decision, star executives – essentially modern-day alchemists -start with the same base metals as their peers. However, they mix these basic ingredients in a superior way, leading to consistently better results. By customizing their analysis to suit a particular situation, stars yield decision-making gold.

The key to their success actually lies in the means by which they reach a conclusion, rather than in the final conclusion itself. If you dissect an exceptional executive’s decision-making process, his or her superior cognitive skills become obvious.

For instance, these leaders consistently ask perceptive questions that identify core issues. They discriminate among different sources of data and discard the less reliable. As you trace their thinking to see how they arrived at successful answers, these mental actions are revealed as crucial. but no single activity, or even sequence of activities, can be pointed to as a map for others to follow. At different phases in the analysis, different activities take center stage. The process is shaped by the circumstances, and the solutions the executives identify are uniquely tailored to address each situation.

These people have what some people call an uncanny sense of direction. Not a geographic one, but rather a highly developed intuition for the analytic path that will get them to their destination. To an outside observer, the sequence of steps followed in their decision-making process seem hard to pin down. And, indeed, it is a fluid, elastic procedure that changes to suit whatever problem they confront. This is why it has been difficult to understand or replicate.  

The key is to stop looking for paradigms to solve business problems and recognize the inescapably organic nature of on-the-job decision-making. It is an individual’s aptitude for critical thinking in business that determines the quality of the approach and of the results, not his or her training in the latest, best-practice problem-solving techniques.

In reality, business critical thinking is a form of intelligence – an organic, adaptive, ever-evolving set of cognitive skills in the business arena. But until now, the cognitive skills  that make up Executive Intelligence have not been identified or fully understood.

Discovering Executive Intelligence

When Alfred Binet was commissioned one hundred years ago to create a measure of academic excellence, he first identified the school subjects that students needed to learn, such as arithmetic and language skills. Then he set about identifying the specific cognitive skills that determined a student’s aptitude for mastering each of these subjects. His worked formed the basis for what today is known as the IQ test. Still recognized as the standard for measuring academic excellence, the test remains the most powerful predictor of a child’s academic potential.

But while we readily accept that there is a set of cognitive skills that constitute academic intelligence, until now we have labored under the mistaken notion that there is no such thing as intelligence unique to executive skill. In other words, unlike in the case of academic success, we have assumed that no distinctive set of cognitive skills determines business or leadership aptitude.

Yet the work of Quinn Spitzer, Ron Evans and Michael Scriven suggested that a defined set of cognitive skills did indeed exist. So clearly, what was needed was a test that could isolate these skills. Following Binet’s lead, the author set about creating a measure of leadership excellence, one that would be as predictive of leadership performance as Binet’s IQ measure was of academic intelligence.

The first step was to identify the “subjects,” or contexts of executive work.

Professor Robert Sternberg of Yale University, author of Practical Intelligence in Everyday Life, determined these to be: handling tasks, working with and through other people, and assessing/adapting oneself. These three broad categories cover the totality of executive work, and even a cursory look at what managers do on a daily basis reveals their all-encompassing nature.

Almost every day all business leaders are faced with decisions relating to:

• Tasks – managers must formulate strategy, oversee logistics, provide direction, propose new initiatives, and execute plans.
  
• People – executives are required to anticipate and manage conflicts, oversee and manage teams and subordinates, communicate and work well with superiors, and deal with customers.
  
• Oneself – leaders must integrate the suggestions or criticisms of others, recognize changing circumstances, and adapt accordingly.
  

The next step in developing a measure of leadership intelligence relied upon the findings of the most respected minds in management science. From these findings were pulled together a list of the specific cognitive skills that were independently cited as essential to effective leadership. These skills have been noted separately in business and management-science literature as being common to top performers.

Though the compilation of skills was very expansive, there existed overlap, so it was necessary to identify the core aptitudes common to the group, and then sort these skills into the three categories of managerial work identified by Sternberg. Interestingly, all of the skills fell naturally into the three subject categories, and this confirmed the initial premise that the three basic subjects or contexts, of executive work were an accurate representation of real-world leadership.

By distinguishing the subjects that managers must master and then pinpointing the cognitive skills that determine an individual’s aptitude in each subject, a theory of leadership intelligence has emerged. Validation of this theory was accomplished by evaluating real executives for the cognitive skills of interest. A pattern became obvious: star executives consistently outperformed their peers in employing the cognitive skills. What is more, all of these aptitudes were found to be interdependent and necessary for effective leadership decision- making.

A full list of the cognitive skills, classified by work-subject category, is shown in the table below.

This list makes explicit the cognitive skills that underpin smart executive behavior.

For instance, while we frequently hear how essential it is for someone to think “outside the box,” what actually determines one’s ability to do so? In other words, what skills make someone a creative thinker? Typically, creative thinkers can view the same issue from multiple perspectives. They are able to define a particular problem in several different ways, anticipate likely obstacles, and identify sensible options for overcoming those obstacles. Someone’s aptitude for these skills determines how well he or she will perform as a creative thinker.

Or, we often say that someone has exceptional political or social savvy, but what exactly does that mean? What specific cognitive skills allow these people to handle interpersonal situations effectively?

Typically, socially skilled people are exceptional at recognizing underlying agendas, gauging how the agendas may conflict with one another, and anticipating the probable effects and likely unintended consequences of a chosen course of action. They understand how those involved will likely react, and they weight this information appropriately in their response. These specific capabilities determines one’s “people smarts.”

Nearly everyone acknowledges that executives must be able to recognize their own mistakes and minimize the costs of their missteps. But what allows someone to be “self-aware” and adaptive? Generally such people are highly sensitive to the cues that suggest that they are making a mistake. They seek out and encourage this constructive criticism and use it to make appropriate adjustments to their plans of action. When they blunder, they are quick to see their mistake and change course to correct the problem. People who do these things well are “smart” about themselves.

To better understand how all of the cognitive skills are interrelated, it is useful to revisit Michael Scriven’s definition of critical thinking, the foundation upon which the theory of Executive Intelligence is based:

“The skilled, active interpretation and evaluation of observations, communications, information, and argumentation as a guide to thought and action.”

In studying the cognitive skills chart as a whole, one fact becomes inescapable. All of these cognitive skills that have been cited by management experts as crucial to executive performance have something in common – they all determine how well someone gathers, processes, and applies information in order to identify the best way to reach a particular goal or navigate a complex situation.

In other words, these are the skills that allow someone to achieve the highest level of critical thought. It is the combination of these individual skills that allows leadership critical-thinking to occur. And it was this observation that validated the notion that critical thinking was the foundation of leadership intelligence.

Though most executive possess strong skills in one or two of the subject categories (tasks, other people, and oneself), it is the exceptional ability in all three that constitutes a star.

For instance, some individuals can understand and navigate complex interpersonal situations but are hopeless when it comes to analyzing a new strategic initiative. Others might have tremendous analytical skills but when it comes to dealing with other people, they say or do blundering things at inopportune moments. Still others are simply blind to their own shortcomings and unable to correct for their own missteps.

It is the rare and highest performing executives, however, who possess a combination of skills that allows them to be successful in all of these essential areas of executive performance. It is the blend of aptitudes that enables them to consistently outperform their peers.

Pat Russo, CEO of Lucent Technologies explains:

“Great leaders have a number of abilities that all must work together in order to accomplish the complex job of a CEO. At one moment you may be using analytics, culling and pressing to get useful information to develop your strategy. In the next moment you may be using your interpersonal skills to effectively motivate and guide your people. So you are constantly switching hats.

It is also important to be open and honest with your team. This lets people know that you are in the boat with them, that you are interested in the truth, and that when they tell you the truth, you would never take it out on them even if it’s not exactly what you wanted to hear.

To be good at all these things is rare, but they are critical contributors to great leadership.

Russo points out how the complexity of senior managerial responsibilities requires a combination of all of the attributes that compose Executive Intelligence. To be good at only one of them is not enough, since they all work interdependently with one another.

Executive Intelligence is the essential internal compass that ultimately determines how skillful an individual’s actions will be. This does not mean that the star executives do not listen to their instincts or to outside expertise; it’s just that they use their Executive Intelligence in deciding when to listen and how much to pay attention. After all, one’s own instincts or someone else’s opinions may help point the way to the right decision or they may not. Executive Intelligence is the ultimate guide to knowing the difference.

While it is useful to learn from the successes and mistakes of others, Executive Intelligence is not just another template or paradigm that instructs people in the steps to make a decision. It is more of an explanation of how exceptional minds think and how brilliant decision-making occurs, not just in business but in real life.

University of Experience is a special Aboitiz Eyes section that focuses on leadership insights from the unique experiences, perspectives, and wisdom of leaders who have stood at the helm of Aboitiz over the years.

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