This article is an excerpt from the Shortform book guide to "The Leadership Pipeline" by Ram Charan, Steve Drotter, and Jim Noel. Shortform has the world's best summaries and analyses of books you should be reading.
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What does a company manager do? What are the traits of a successful manager?
The fourth level of the Leadership Pipeline is the company manager. These managers are in charge of entire companies—although they still report to higher-ups in their organization’s parent company.
Read below to learn how to manage a company successfully.
How to Be a Company Manager
For the first time, company managers are fully responsible for their business’s overall financial performance, and it’s up to them to figure out how to achieve long-term profitability. To do this, company managers must internalize an understanding of how the company functions. If they don’t grasp how all the puzzle pieces fit together, they won’t know how to manage a company successfully or bring about meaningful profit increases.
| To Manage a Company, You Must Understand Complex Systems In The Fifth Discipline, Peter Senge explains why so many company managers struggle to understand how their business functions. A complex system with countless interdependent parts, like a large business, behaves completely differently than its component parts. Judging a single part of the system can give you a misleading idea of how the system works as a whole. For example, imagine a new company manager observes that their latest marketing campaign yielded a very low return on investment, concludes that they’re spending too much on marketing, and cuts the department’s budget. However, the manager failed to see the big picture: The low marketing ROI was due to a low-quality product, not an oversized marketing budget. Consequently, the cut to the marketing department ends up dramatically lowering profits. |
1. Company Managers Must Overcome Personal Bias
The authors of The Leadership Pipeline assert that one major obstacle preventing company managers from improving their business is personal bias: After they’ve advanced through each stage of the Leadership Pipeline, new company managers are likely to emerge with a bias toward the department in which they served (as well as, potentially, a bias against departments which seemed unimportant or unnecessary to them in their previous position). As a result, they may fail to incorporate all functions into their overall business plan in a way that harnesses each department’s full potential.
For example, imagine an employee gets promoted from manager of the research and development (R&D) department to company manager. As head of R&D, they felt like the marketing department was constantly rejecting their division’s good product ideas because they weren’t “marketable.” Thus, the company manager increases the R&D department’s budget and decreases the marketing department’s budget—what they falsely believe to be a more profitable allocation of resources.
(Shortform note: To some extent, it’s unavoidable that executives will be biased toward groups they belonged to in the past. Research suggests that such biases represent evolutionarily programmed human nature: Our ancestors who were the most loyal to their tribes were the ones who survived. That said, if you suspect you may be acting irrationally because of this bias, make it a habit to pause before making any important decisions and ask yourself if you may be using biased instincts rather than logic.)
2. Company Managers Must Get Comfortable With Attention
Finally, the authors state that new company managers must learn to cope with increased attention. They’re watched much more closely than lower-level managers—by higher management as well as outside investors who judge the company manager’s every decision. This attention may influence them to make safe decisions rather than optimal ones, which often involve greater risk: A company manager who makes a risky decision and fails will face harsher judgment than if they had played it safe and failed. However, company managers learn how to improve the company by taking risks and making mistakes—if the fear of being poorly judged discourages them from doing this, it can greatly hinder the business’s success.
| All Employees Are Biased Against Risk In Skin in the Game, Nassim Nicholas Taleb argues that it’s not just company managers who resort to safe, defensible decisions rather than using their best judgment. Rather, he contends that employees in any position can fall into this trap. Although company managers attract more attention from executives and investors, all employees are evaluated by someone—typically the manager above them. At every level, managers judge risky mistakes more harshly than misguided decisions that seem safe. For this reason, independent contractors hired to do a single task are generally more reliable than long-term employees because they have no incentive to prioritize job security over the quality of the work. Because contractors are only employed for the duration of a project, they’re freer to take risks without fear of being negatively evaluated (and potentially fired) if those risks don’t pay off. |
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Here's what you'll find in our full The Leadership Pipeline summary:
- Why most organizations end up full of unqualified managers
- The six different levels of management necessary to run any large organization
- The biggest mistake CEOs make that holds them back from success
