Anyone who has participated in team sports knows that it’s not the “hero” who gets to be captain. Great teams are usually not led not by the best player—the hardest hitter or the top goal scorer—inspiring and important as they are. Rather, the captain is someone who has the ability to effectively work with other team members to reach a common goal, which often requires adapting to changing situations.

Leadership is no different in business, where the finest leaders tend not to be financial wizards or experts in mergers and acquisitions. Instead, the best CEOs have outstanding people skills that enable them to engage subordinates in confronting challenges by adopting new perspectives, values and habits.

In fact, the long-standing idea of “visionary” CEOs who have the technical expertise to “strategize” and steer a company toward awe-inspiring success is fundamentally bankrupt if not a myth.

The world’s business landscape is littered with companies that were once market leaders but who died a gradual or sudden death because they failed to grow or adapt to changing situations. So what does it mean to adapt? And why is effective leadership essentially an act of collective learning?

 

Intelligence is the ability to adapt to change.
Stephen Hawking

Let’s take the real-life example of a British tea company in India that used to be the talk of the plantations for the first half of the 20^th century. With time, it fell to the bottom of the tea estates heap because of weak leadership and mismanagement. To become profitable once again, the company’s owners sold majority shares to an Indian conglomerate that promised to turn things around.

The first thing the new co-owners did was to recruit two top-level managers from two of the leading tea companies in the area. Those managers then began restructuring the company. Then they sacked several incompetent assistant managers who had been collecting paychecks from London while slacking off on the job. A new team of young, energetic and essentially inexperienced assistant managers was hired—and then trained from scratch. With time, a set of best practices was gradually instilled in employees, which helped bring the company out of the red.

An even more striking example of leadership as a learning process that occurred in China at the state-owned Tsingtao Beer Company. The story begins in 1995, when Tsingtao bought another government-owned company called Hans Brewery. As often happens in the business world, the acquisition was riddled with pitfalls, and Tsingtao ordered one of its best assistant managers, a 39-year-old man named Jin Zhiguo, to rescue the deal.

On his first day at Hans in the city of Xi’an, Jin came across a financial statement on his desk.

“Daily production: 1,000,” read the cryptic note.

Thinking that the company was producing 1,000 cases of beer a day, which wasn’t too bad, Jin went to meet his staff—only to be told that the thousand figure referred not to cases but to bottles. Jin could scarcely believe his ears. For a company that had more than 1,000 employees, that was less than a measly bottle per day per employee—an abysmal performance. No wonder Hans couldn’t compete with Yellow River Beer, a private company, and Baoji Beer, a township enterprise.

It didn’t take Jin long to figure out what was wrong: Bad leadership. Because managers at China’s state-owned enterprises owed their jobs to their political connections rather than their business track record, they spent most of their time trying to please their superiors instead of focusing on the needs of consumers.

Jin gave each member of his sales team a daily beer allowance of three yuan (about 50 cents in today’s prices) so that they could accompany him to drink and dine out in an effort to determine why Hans was not a popular brand. Sure enough, the team discovered that the market had a saying: “Hans is bitter, Yellow River is light, and Baoji has lots of sediment.”

Realizing that Hans’s competitors were far from perfect, Jin told his assistants that they need to produce beer that’s not bitter, not as light as Yellow River, and free of sediments. Jin also decided to lower Hans’s alcohol content from 12% to 10% so that the beer would pair better with the spicy local cuisine. There was one last problem to resolve: Because of the spicy cuisine, people preferred their beer chilled—but most beer distributors delivered it warm, leaving it to the restaurants to do the chilling.

So Jin turned an empty hop house at the Hans brewery into a giant refrigerator where beer could be chilled. And because China didn’t have refrigerated trucks at the time, Jin had the cold beer transported to restaurants in three-wheeled carts covered with thick quilts. It was a creative, low-cost practice that also turned out to be an exercise is branding: The carts became known throughout the city.

By the end of Jin’s first year on the job, Hans was earning 10 million yuan—a dramatic increase over the 25-million yuan losses that the company was making annually when he arrived. In four years, Hans was producing 790,000 bottles a day and making a 50-million yuan annual profit—the highest at any of the breweries owned by Tsingtao.

Partly because of his success in turning around Hans Beer, Jin became president of Tsingtao in 2001, following the sudden death of the company’s chief from a heart attack while swimming. Almost immediately, Jin was presented with a new challenge: how to handle the pressure from capital markets because. Tsingtao had expanded wildly. It now owned 47 breweries, which, Jin’s predecessor believed, would allow the company to access new markets. The problem was that the new markets didn’t necessarily have sufficient demand for beer. And so, as he done at Hans Beer, Jin emphasized the importance of looking at what customers want instead of focusing exclusively on production capacity.

After shutting down several breweries to reduce Tsingtao’s rising costs, Jin went about explaining his market philosophy to his colleagues. If Jin were an overpaid, overrated executive in America, he might have given a PowerPoint presentation, replete with flow charts and mind-numbing figures. Instead, he used the old art of storytelling to communicate his message. His metaphor? An ordinary street vendor near the Tsingtao headquarters.

The vendor, a woman, cooked two dishes, Jin began: pancakes and steamed buns. Both dishes were made from the same dough, except that for the pancakes she stretched the dough thinly to cover the as much of the cooking pan as possible. For the steamed buns, she kept the dough thick.

“Before I became president, Tsingtao had been making pancakes—trying to cover many regions but without depth or meaningful market share,” Jin wrote in a 2012 Harvard Business Review article, where he explained how he jump-started one of China’s most sluggish state-owned companies. “I wanted to make steamed buns—to have a more substantial presence in fewer areas.”

Could there be a more powerful illustration of what it means for a company to carve out market space? More importantly, could there be a simpler yet more vital example of leadership? Time will tell.

Reference: Harvard Business Review, April 2012

Photo credit: Ajay Singh