The New Rules for Becoming an Enterprise Leader

ALISON BEARD: Ich bin Alison Beard.

ADI IGNATIUS: Ich bin Adi Ignatius und das ist der HBR IdeaCast.

ALISON BEARD: Adi, how do you think about the difference between being a great functional leader and a leader that’s ready to take on a larger, more enterprise wide role? What differentiates the two in your mind?

ADI IGNATIUS: You could be a great team leader, right? You’re sort of in charge of your folks, you’re trying to maximize what they do. You go to an enterprise role, suddenly it’s far more complex. You have to make trade-offs, things that might not favor the team that you worked with. You have to have that holistic sense of what the enterprise needs.

ALISON BEARD: Yeah, and because of the pace of change now, all the technological, geopolitical, economic uncertainty, these transitions are getting trickier than ever. Even the best managers need more skills than they did before to make the leap.

ADI IGNATIUS: Yeah, look, I think there’s a whole skill set you need, and I assume AI fluency is now pretty high up there.

ALISON BEARD: Yes, absolutely, among other things. And that’s why we wanted to talk to the expert in transitions, Michael Watkins. He’s a professor at IMD and best known for his book, The First 90 Days, but he just recently wrote a new HBR article, The Three Forces That Are Redefining the Transition from Manager to Leader. He’s going to explain what’s changed and what that means for those aspiring to C-level roles. Here’s our conversation.

So before we dig into the practical advice for leaders, I would like to talk about those dynamics that made you want to update your thinking from a decade ago when you first wrote about this functional to enterprise transition. So I guess we have to start with AI, right?

MICHAEL WATKINS: We do, because AI is changing everything as we know. Start with the reality that virtually every leader today is working with AI personally and working with organizations that are using some form of AI, increasingly agentic AI at the same time. So the use of the technology becomes almost indistinguishable from the work the leader does to a degree, and I think as soon as you realize that that’s the case, then the nature of moving up to the enterprise level also changes in important ways, because you have to be prepared to use those tools to make a successful transition.

ALISON BEARD: And then the second force that you cite is geopolitical turbulence. Why is that having an impact on broader swaths of companies and leaders than it did in the past?

MICHAEL WATKINS: I think for a long time a period of relative stability when the geopolitical environment was kind of relatively static and wasn’t a high level driving factor for what leaders at the top needed to do. And obviously that’s just completely been blown up by all of what’s happening. It started, I think, really with the Ukraine war, which has been going on for a while, but it’s only accelerating. And between tensions between trading blocs, China, US, Europe kind of caught in the middle of it all with additional conflict erupting in the Middle East, leaders now have to be treating geopolitics as a primary focal point. And they need to be thinking about how to orient their businesses to deal with likely geopolitical turbulence.

ALISON BEARD: Yeah, and I feel like that almost started during COVID with supply chain disruptions. It was like the first time that you were hearing stories about companies that you always thought of as being pretty much domestic being really adversely affected because they couldn’t get parts or products.

MICHAEL WATKINS: 100%.

ALISON BEARD: And then finally, the third force is compressed leadership pipelines. So what do you mean by that? Why is it happening? And what’s the impact on managers who have higher level aspirations?

MICHAEL WATKINS: So this is also connected to the technology and AI piece, and more generally all the work that’s being done and has been done to flatten organizations out to embed digital technologies. And what that basically means is there are, and it’s a good thing, Alison, fewer levels of leadership through which decision-making needs to flow. But it also means that there’s less opportunity career-wise for leaders to really prepare themselves for those very senior positions.

And AI is exacerbating this in a very interesting way because it’s increasingly eliminating entry level positions, and while there’s still a real premium on the senior level people, but of course many people, not just me, are asking the question, how are we going to develop those senior level people if they don’t go through the apprenticeship basically of doing the entry level work?

But the basic story is really, I think, as much as anything, less time and less experience before you reach levels of responsibility that are really pretty high. And the notion, the traditional sort of succession planning notion of readiness and ready now, I see organizations kind of throwing that out the window. It’s ready enough and what can we do to support you when we’re making big bets on talent because we have to.

ALISON BEARD: Okay, so now let’s dig into what leaders can do about it, how we get people from ready enough to ready. There are seven transitions. Some of them have changed more than others, but let’s go through each of them one by one. So first, moving from specialist to generalist. Why is that different now?

MICHAEL WATKINS: So the specialist to generalist transition was related to what I think is widely described as T-shaped leadership. You’re deep in a function, but then you have to broaden out and understand enough about other business functions, was the way we used to think about it, in order to be able to successfully integrate them.

That doesn’t mean you know as much about those functions as you do about your function of origin, but it means you’ve learned enough to know how to select good people in those functions, sometimes with the right support for doing that, but critically integrate, make the right trade-offs when you’re doing that work at the top, and we’ll talk about integration in a minute.

But there’s now so many new, they’re not functions anymore, Alison, but they’re specialties of machine learning pieces, data sciences pieces. So suddenly it’s not enough anymore just to understand sales, marketing, finance, operations. You’ve also got to be deep enough in core technologies to operate as a generalist across the organization. And that’s a really big change. I mean, the way I describe it in the article is the generalist now has to speak three languages. Business, technology, but the interaction between the two of them is the third piece.

ALISON BEARD: And I feel like that is reflected in the rise of these engineer CEOs as opposed to MBA CEOs. They need to be both.

MICHAEL WATKINS: 100%.

ALISON BEARD: Explain the second shift from analyst to integrator and how leaders can do it differently or better today.

MICHAEL WATKINS: So in the article I mostly talk about the impact of AI on this, but the other forces, geopolitics being an example, are also impacting this one. The core of the work of the integrator is to synthesize the perspectives and data and information that is available to a leadership team and reach good decisions, conclusions, bases for action. That’s what integrator is always meant.

But today, obviously, AI generates way more analysis than any leader or any leadership team can absorb. And it’s not so much today about designing specific decisions. It’s really about in the end how you create an architecture is the way I think about it for decision-making in your organization, including the governance of the AI systems, which is turning out to be a very big issue, and making judgements about which inputs are going to get processed by various forms of AI, which is going to continue to require human judgment. How do you maintain accountability when recommendations emerge from these systems and no one’s fully accountable?

So the whole notion of what it means to be an integrator I think in the organization has altered. In the good old days, you’d sit down with … To ask your team the different perspectives and you’d talk about it for a while and then either you reach a consensus or you’d make a decision. That is not at all the way it works anymore with the leadership teams that I work with.

ALISON BEARD: Right. So it’s really integrating human intuition from many different stakeholders with all the data that’s coming at you.

MICHAEL WATKINS: And deciding what remains that humans need to be exercising oversight on, and recognizing that you’re often making decisions based on conclusions produced by machines for which you don’t really understand why it reached the conclusion it did, which is creating certain kinds of vulnerabilities. I just was with a group at a global food products company yesterday and we were having a discussion about the governance risks associated with this. When you’ve got networks of AI agents making decisions that have consequences for customers or others and something goes wrong, first of all, how do you measure the potential risk of that happening in the first place? But second, how do you assign accountability?

ALISON BEARD: So the next shift from tactician to strategist, that’s probably pretty intuitive for most people. Is this increasing political, economic, technological uncertainty that we’re talking about making it more difficult to develop strategy? And if so, how do you prepare to do it well?

MICHAEL WATKINS: I think there’s two big changes here. One is the speed at which things are happening, which is making traditional plan and execute cycles much more difficult. I did some survey research on this, and close to 75% of the leaders that I surveyed at senior levels said events were moving faster than they could account for in the planning cycles that the organization was engaging in. And this was creating a real sense of vulnerability. So the speed piece is certainly one dimension of it. But the other is the move from what you might think of as static sources of competitive advantage to dynamic sources of competitive advantage.

Now it’s always going to be the case that certain things, whether it’s IP or just scale in your manufacturing or production facilities, is going to remain a form of competitive advantage. But increasingly it’s about, I think of it as adaptive advantage. You’ve got to be able to move faster than the environment and competitors are moving. And it may be that the only durable form in the long run of competitive advantage is that capacity to be adaptive. So beginning to think about as a strategist moving from a world to plan and execute to more of a world in which learning and adaptation is the essence of strategy, that’s a very large shift in thinking.

ALISON BEARD: How do the executives that you work with pick up those skills? It seems something that you’re either naturally suited to or not.

MICHAEL WATKINS: I think as you know I’ve done a lot of work on strategic thinking and I think strategic thinking underpins both traditional strategy, but it’s probably even more important when you’re doing more dynamic adaptive strategy. Because, for example, a core piece of strategic thinking is your ability to identify and respond to weak signals. Well, there’s a whole lot more weak signals. You need to do a whole lot more integration of the various signals coming in.

Where this takes you, by the way, and it’s, again, some research or writing I’ve been doing is down the road of how you build, I think of it as intelligent organizational sensory systems, amazon being a classic example of literally designing the architecture through which you understand what’s happening out there and inside your organization and how you distill all that data into some form of actionable intelligence.

ALISON BEARD: Well, that’s a good transition to the next transition, which is bricklayer to architect. What do leaders need to know about organizational design now?

MICHAEL WATKINS: This is really front of mind because I was with this group of senior HR leaders at this global food products company yesterday, and this was exactly what we were talking about, which is that increasingly, traditional notions of transformation are no longer cutting it for the speed of what’s happening. I mean, in the good old days we used to think about things like taking an organization from a current state through a transition to a new state with the idea that that state was going to be somewhat durable until we did that again. And we have technology methodologies for how you manage that kind of transformation. But in a world where things are changing so quickly and you’re moving from plan and execute to learn and adapt, the premium becomes on building organizations that are able to adapt continually.

Now, you may still need to do major changes along the line. I don’t want to say that’s not going to be the case. But it’s so much more important I think these days to build both adaptability and resilience directly into the organization. Again, some of the work I’ve been doing is what are the elements of adaptive organization? And it turns out, and this is I think a bit surprising given all the talk about technology, is that in the end, adaptive talent and psychological safety and trust turn out to be the absolute essential foundations of adaptive organization. You can build small teams on top of that. You can build human AI hybrids on top of that. You can think about governance frameworks, you can begin to think about how you engage in coordination. You can implement things like elements of agile methodologies. But if you haven’t built the adaptive human foundation of the organization, none of that stuff is really going to work.

ALISON BEARD: Okay, transition five, from problem solver to agenda setter. With so much going on today, and we’ve addressed this a bit already, that prioritization piece seems like the most challenging. So what advice do you give executives that you work with on how to do it well right now? How to actually make the call on what is most important when things are changing so quickly?

MICHAEL WATKINS: And this is exactly right, which is leaders are now being forced to make consequential changes when there’s really not a lot of evidence about what the right way to go is. And I think that’s a very large shift from more stable times. And the example I use, by the way, for this Alison, is that the capability frontier of AI is receding in front of us, and we leaders need to make choices about technology and larger issues around organizational design and strategy in a world where the frontier itself is shifting very rapidly forward and how do you do that? And it puts a premium surprisingly on things like developing good options that you can act on as you learn more, placing selective bets, being very, very careful about irreversible long-term commitments that you need to make. I mean, sometimes it’s inevitable. You need to decide to build a facility or not, and it’s a 10-year or more commitment.

But I see more and more organizations and leaders at senior levels looking for more contingent ways to make commitments and begin to think about if the world tends to go this way and we though it was going to go that way, can we reverse that commitment in a way that doesn’t cost us too much either time or money? It’s a different world in which you think about setting priorities as essentially making bets and creating options for yourself. It’s just a very different mindset.

ALISON BEARD: Yeah, that reminds me of the, I think it’s Jeff Bezos, that there’s the one-way door and the two-way doors. Am I getting that right?

MICHAEL WATKINS: Absolutely.

ALISON BEARD: Next is moving from warrior for your own projects, people, functions, to a diplomat who artfully manages all stakeholders. How has that diplomacy role widened and how do leaders get better at it?

MICHAEL WATKINS: It’s true that that role has widened and it’s widened both externally, but also inside organizations for reasons that I can point to. Externally, it’s back to the turbulence and the external environment, the geopolitical impacts. The need to basically think through how you’re going to build alliances to try and shape what’s happening when the environment externally is just so incredibly turbulent.

ALISON BEARD: Yeah, that includes with competitors. You need industry coalitions, particularly on AI, to figure out how to do it well and responsibly.

MICHAEL WATKINS: Exactly right. So very early in my career, I was a professor of negotiation at the Kennedy School at Harvard, and I taught international diplomacy and studied major diplomatic negotiations at the time. And one of the things you learn about diplomats is they reflexively think coalitionally. They think in alliance terms. And they don’t just think about building alliances with people they like or friends or they have common wide ranges of interest with. They build coalitions of convenience around specific issues. And the example you just gave, Alison, is a great example. You may have organizations, businesses that are vigorously competing with each other, but they have a shared interest in establishing certain kinds of protocols for AI implementation. I’m kind of making that up, but I think you know what I mean. So that sort of cooperation competition combination and how you make that work requires thinking of yourself as a corporate diplomat.

ALISON BEARD: And then internally?

MICHAEL WATKINS: So internally what’s happening is because there’s so much more uncertainty and ambiguity, what it means, and it’s back to that conversation about needing to build options and place bets. You need to build a kind of a trust level and consensus level at the top of the organization that’s more extensive than it used to be. Because in the end, you’re making very consequential judgements and you need support. You need a sufficient level of support to be able to do that. So thinking in terms of who are your critical allies internally, whose support is make or break for you, that’s bringing that same kind of stakeholder thinking and alliance-building logic into the most senior levels of the organization.

ALISON BEARD: And finally, you changed the words for your last transition. It used to be supporting cast to lead role, but now it’s unit leader to enterprise leader. So why did you want to use different language and what does that practically mean for someone who’s trying to make the move?

MICHAEL WATKINS: What I was thinking of was the need to have a different kind of presence as a leader, to step up to being an enterprise leader meant having a broader range of visibility, embodying a different sort of presence, which is required at the top. And I think that’s still true to a degree, but there’s more I think today of a kind of a cognitive reorientation mindset shift that has to go on when you hit that enterprise level because you’re responsible for a much broader range of decisions than you ever were before. You’re dealing with environments that are far more uncertain and ambiguous and complex and generally a mess than they were previously. So how you begin to really rethink the core of what your value added is in that kind of situation changes.

At the top of organizations, we still have many examples where people have come up primarily through functional silos. They’ve been a CFO, and lots of examples, and then they become a CEO and that requires a complete rethink of how you’re orienting yourself. All of what you learned to be a good CFO may in fact be a liability when you’re trying to operate as a good CEO.

ALISON BEARD: You need to say yes to a lot more things.

MICHAEL WATKINS: You need to bring a broader set of mindsets into play. You can’t afford to be continuing to be anchored in that financial discipline. The people who do this the best, by the way, make as an example, a transition from being a CFO or a general counsel or other key functions into being a CEO. One thing that absolutely they share in common is they stay as far away from that function as they possibly can. And they put good people there to run it because that’s critical, but they know they have to let go of that and they know they have to take the broader view. And that’s to me the essence of what it means to step up to enterprise leadership.

ALISON BEARD: Do you have any general advice for people who want to position themselves for larger roles in the future right now? Are there one or two specific things they should do to build skills that they need?

MICHAEL WATKINS: So yes, and I think I’ve been trying to implement that along with some colleagues at the business school I work at, IMD. And the way we’ve come to think about it is in terms of outer leader skills and inner leader skills. And the outer leader skills I think are things that most people recognize. The strategic thinking, disciplined decision-making, adaptive influence to get things done, stakeholder navigation. Those are all critical, somewhat traditional competencies that you need to have at the top. But they’re also modes of thinking and that’s important, transversal skills people sometimes call these. But the most important work, and it has to happen actually a long time, I believe, before you end up at the very top, is the inner leader work.

Do you have the capacity to have the mental agility to look at things from multiple perspectives? Do you have the ability, we talked about it, to understand that things sometimes are about finding the right balance between polarities and not solving problems in the end. Emotional regulation. Are you able to deal with the incredible stresses, triggers, things that happen to you emotionally that can really undercut your leadership?

One I think about is real-time self-awareness. I mean of course we want leaders to be self-aware, but being self-aware about your strengths and vulnerabilities is different than building a sense of real-time self-awareness about what’s going on in the environment around you. I guess the bottom line here is I think that organizations need to start building those core outer and inner capabilities earlier, because otherwise you’re never going to get the feedstock that you need to have people be effective at the top.

ALISON BEARD: How are the best organizations trying to build those skills in their potential leaders right now?

MICHAEL WATKINS: The answer is unsurprisingly a mix of things. To me, one of the most critical, though, is designing, I think of them as crucible experiences that really test and hone some of those skill sets. And I think as you know, Alison, transitions has kind of been a focal point for me for a long time –

ALISON BEARD: The First 90 Days is on that bookshelf over there.

MICHAEL WATKINS: Stay tuned for the new edition coming out early in the new year. So one example of a crucible experience is being put into a turnaround scenario, where you’ve got to move very quickly. But an equally important crucible experience is being put into a successful business and figuring out how to take it to the next level. So I think there’s a piece of it that’s really critical that’s about curating those crucible experiences for the future tier of leaders that you’re trying to build. I think leadership development of the right kind continues to be important, but I increasingly believe that more of it needs to focus on the inner leader work than we’re currently doing.

And then finally throwing away this idea that people are going to be ready for roles. They’re not. The roles are too complex, too demanding, and the talent needs are too great to think we’re going to build leaders that are ready to do X, Y, or Z. As I said at the start of the discussion, ready enough. Or are we willing to make a bet on you?

Traditional succession planning, I just think it’s not what organizations need today. They need a much more nuanced and dynamic sense of what talent really is and how you build it.

ALISON BEARD: So what’s the alternative to traditional succession planning?

MICHAEL WATKINS: I said that and then I’m going to pull back slightly, which is there still is important pieces of work you do that underpin traditional succession planning. What do we imagine the roles we’re going to need to fill are? What do we imagine the skill sets we’re going to need to have? How do we think about recruiting the kind of talented people that we need? Where I think it breaks down is that in this core idea of assessing readiness.

By the way, this is not a new observation, because at lots of organizations I’ve worked in, there’s kind of a standing joke that leaders are deemed ready right to the point where a position opens up and suddenly they’re not so ready anymore because someone else is viewed as being better suited to fit the role in real time.

Traditional succession planning is driving towards creating a bench of “ready now” leaders, as opposed to thinking about there being much more dynamicism in what you’re going to need in terms of talent, in terms of building more of those transversal capabilities so that people are inherently more able to go into a broader range of roles, and thinking about ready enough with the right support to be successful when you go into one of these key challenges.

ALISON BEARD: And do you think that organizations are doing a good job of evaluating people on all of these capabilities that we’re talking about right now, both inner and outer?

MICHAEL WATKINS: So I’m going to make myself extremely unpopular with what I’m about to say, which is that I think a lot of traditional approaches to assessment, while maybe still having value associated with them are not enough anymore, especially with regard to the inner leader capabilities. To be a good strategical thinker you need to have what I think of as a tensional range.

You’ve got to be able to shift your perspective between different levels, the cloud, the ground, the big picture, the details, the now, the future. There’s not much out there I’m aware of that is able to measure one’s capability to do that, if that makes sense. The other one we talked about, tension tolerance, the ability to hold opposing views at the same time. I’m not aware of any assessment that does a good job of doing that.

There are ones that do get emotional regulation. So the Hogan Development Survey, the so-called Derailers, or sometimes people call it the dark side, can give you useful insight into potentially challenges that people can face in terms of emotional regulation and that can be helpful. Real-time self-awareness. We can look at does the leader understand certain things about themselves? I mean, when I do assessment debriefs, that’s what I’m doing. I’m basically saying, does this leader understand this about themselves?

But that’s different than that ability to stay, I think of it almost as the grounded leader, in a state of awareness in real time that allows you to adapt to what’s happening around you. So it feels to me like there’s a new set of potential assessments, of what kind exactly I’m not sure. But I’m pretty sure we need them. We need to be able to think about how to assess early whether you have the potential to do some of what I just described.

ALISON BEARD: Yeah, it’s almost like right now people are given a crucible experience and then it’s real time, do you have these skills or not?

MICHAEL WATKINS: Did you succeed or did you fail, yeah, is I think a big part of it.

ALISON BEARD: Sink or swim. What does this all mean for organizations’ willingness to bring people up through the ranks versus look outside for their most senior leadership roles?

MICHAEL WATKINS: So I’ve always thought that healthy organizations always bring in some percentage of outsiders because they bring perspectives in, they keep things fresh to a degree, they keep everyone else on their toes. There is a healthy balance even in really, really well-run organizations. So I think that the current conditions have required organizations to increase the percentage of people they’re bringing in like that into the organization even as they try to develop people internally that can do it.

ALISON BEARD: What about right at the top, though? With those compressed leadership pipelines, you’re not necessarily creating a bench of future CEOs. So it does seem easier for a board to then look externally and say, “Do I have someone who’s already needed to do everything that you’re talking about?”

MICHAEL WATKINS: So I think when boards look at CEO succession today, they always have to look at outside candidates as well as inside candidates. And the recruiting firms that do this are very good at helping organizations set up the right slate of outsiders and insiders for comparability purposes. I think it’s also the case too that with very large organizations, most of them are multi-divisional, multi-business organizations, and you’ve got people who are basically running businesses that if they were standalone would be very large businesses. So you’ve kind of got almost a built-in layer of potential people to do it. So I think it’s a nuanced story.

ALISON BEARD: Well, Michael, thank you so much. It’s been such a terrific conversation and I always love talking to you.

MICHAEL WATKINS: And vice versa.

ALISON BEARD: That’s Michael Watkins, a professor at IMD and author of the book, The First 90 Days. He also wrote the HBR article, “3 Forces That Are Redefining the Transition From Manager to Leader.”

Come back Thursday for the third installment of our special series featuring conversations from the HBR Leadership Summit. I’ll be talking to AT&T CEO John Stankey about technology and talent in the AI era.

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Thanks to our team, senior producer Mary Dooe and senior production editor Kristin Murphy Romano. And thanks to you for listening to the HBR IdeaCast. We’ll be back with a new regular episode on Tuesday. I’m Alison Beard.