PDF Summary:The Leadership Pipeline, by Ram Charan, Steve Drotter, and Jim Noel

When it comes to training the next generation of leaders, most organizations are fundamentally misguided. They hire and promote people indiscriminately, judging them based on arbitrary personality traits or how well they’ve done an unrelated job in the past. Consequently, most businesses end up full of unqualified managers at every level—managers who bungle their jobs in ways that nobody notices. Luckily, management experts Ram Charan, Stephen Drotter, and Jim Noel have a solution: the Leadership Pipeline, a management structure that continuously trains workers for bigger and better leadership roles.

In this guide, you’ll learn about the six different levels of management necessary to run any large organization, as well as the distinct mindset and skills required for each. These requirements indicate which types of unique training each employee needs to prepare them for their next promotion, adding clarity and direction to the leadership development process. In our commentary, we’ll explore some alternative management structures and add relevant management advice from other books like When They Win, You Win and High Output Management.

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When Managerial Work Really Is Pointless

The authors note that line managers fail to reach their full potential when they falsely assume that their new work is valueless. That said, some experts believe that many managerial jobs truly are valueless. In Bullshit Jobs, David Graeber argues that some companies maintain unnecessary positions to keep up the appearance of productivity or because they assume a team needs full-time management when it doesn’t.

While being paid to fill an unnecessary position may seem appealing, staying in a job that you know is pointless is psychologically damaging over time. When the work you do doesn’t matter, it makes you feel like you don’t matter. Furthermore, many people in pointless jobs are constantly stressed that others will discover that they’re not doing real, valuable work, leading to feelings of isolation. Thus, if you end up in a line management role that’s truly unnecessary, consider looking for a way to make your work more impactful or searching for a different position.

Line Managers Must Learn Management Basics

Since they typically lack management experience, line managers must learn the basics of management from scratch, explain the authors. Specifically, line managers must learn how to delegate well: They must understand what work needs to get done and divide it up among the team in a way that empowers everyone to do their best work.

(Shortform note: In The 7 Habits of Highly Effective People, Stephen R. Covey warns that managers need to avoid “gofer delegation”—that is, telling people exactly what to do and how to do it. This strategy results in micromanagement, as managers end up hovering around their team to ensure that they’re doing everything the “right” way. Instead of telling their team what to do, they can let the team discover their own solutions as long as they communicate six expectations: What needs to get done, any parameters they must obey, ineffective solutions to avoid, the resources they have at their disposal, how the results will be judged, and the consequences of their success or failure.)

Additionally, line managers need to build strong interpersonal skills. When subordinates see their manager as approachable and trustworthy, they’re more likely to collaborate to accomplish the team’s mission.

(Shortform note: In Leaders Eat Last, Simon Sinek asserts that managers don’t need to be exceptionally charismatic to build this kind of trust with their team. If you empathize with team members and show them that you’re there to support them, feelings of trust will grow naturally over time.)

Stage #2: Second-Level Manager

The second stage of the Leadership Pipeline is the second-level manager (what the authors call the “manager of managers”). Second-level managers are in charge of several teams and responsible for the performance of line managers.

Second-Level Managers Must Coach Line Managers

Second-level managers must train line managers in the basics of management. This can be challenging—evaluating management work is more difficult than judging front-line work, as it’s more abstract. For instance, it’s harder to judge a manager’s ability to delegate than it is to judge the number of deals a salesperson made this month.

(Shortform note: Some experts have tried to deconstruct the idea of management in a way that makes it easier to evaluate. For instance, in When They Win, You Win, Russ Laraway breaks down the task of management into three parts that he calls the “Big Three”: Set clear goals for your employees, effectively coach your employees to reach those goals, and help your employees clarify and achieve their long-term career ambitions. He asserts that as long as a manager does these three things, their team will be motivated and capable of doing great work. Judging line managers on these three criteria may help second-level managers become better coaches.)

When evaluating line managers, second-level managers must be strict but not too strict. They should allow their line managers to make the mistakes they need to learn but shouldn’t hesitate to replace them if they make too many mistakes. The authors argue that leaving ineffective team members in the wrong jobs is one of the most common and harmful errors that organizations make. If just one line manager fails to manage well, they prevent all their subordinates from getting the experience they need if they want to one day become managers themselves. Consequently, the Leadership Pipeline grinds to a halt.

(Shortform note: In The Dichotomy of Leadership, Jocko Willink and Leif Babin share the authors’ belief that ineffective line managers need to be removed. Whereas the authors of The Leadership Pipeline focus on the long-term damage poor managers do to their subordinates, Willink and Babin note that poor management does these workers a disservice here and now: Every time a line manager makes a mistake, it’s harder for their team to accomplish their mission, depriving those team members of the satisfaction of success. That said, Willink and Babin add that it’s important not to be too hasty in removing line managers. Otherwise, second-level managers may repeatedly blame their mentees rather than trying to become better coaches.)

The authors explain that second-level managers are also responsible for judging the management potential of front-line workers and deciding whom to promote. This involves getting to know workers on many teams and devising test projects to measure their capacity to lead.

(Shortform note: Identifying the right front-line workers to promote may involve less formal testing than you think. Often, the workers with the most leadership potential are those who are already respected by their peers. Becoming familiar with a team’s internal dynamics may be all a manager needs to pick out that team’s best candidates.)

Second-Level Managers Must Help Teams Work Together

Finally, second-level managers must facilitate collaboration between the various teams they’re in charge of, write the authors. To do this, they have to learn the basics of their company’s big-picture strategy and clearly communicate that strategy to their subordinates so they can work together to accomplish it.

For example, imagine a second-level manager in charge of multiple teams that are designing a social media application. The company intends to push regular updates to keep users engaged. Knowing this, the manager tells the software development team to code something that can adapt easily to frequent new ideas from the design team.

(Shortform note: When facilitating collaboration between multiple teams, avoid organizing their work in a way that creates dependencies. As Colin Bryar and Bill Carr explain in Working Backwards, a dependency is when a team lacks the resources or agency to accomplish something themselves and must instead rely on another team to do it for them. Over time, dependencies from poorly coordinated work end up wasting countless work hours. Teams are the most productive when they’re working together toward the same goals—which is why making sure they understand the company’s strategy is so important.)

Stage #3: Functional Manager

The third stage of the Leadership Pipeline is the functional manager. The authors explain that functional managers are in charge of a functional department, which is part of an organization that comprises all the teams working to accomplish a single specialized function. For example, a functional manager could be in charge of a research and development department made up of all the teams devising new products, or a marketing department made up of all the teams working to make products appealing to customers.

According to the authors, functional managers need to understand their organization’s big-picture strategy at a much deeper level than second-level managers, since they’re the ones who decide on a strategy for the entire department. Whereas line and second-level managers must come up with ways to accomplish certain tasks, functional managers must decide what those tasks are. This functional strategy should contribute to the organization’s big-picture goals as much as possible.

Functional Management Isn’t Always Required

By placing “functional manager” as the third stage of the Leadership Pipeline, the authors assume your organization is following a functional management structure. This is when your organization comprises multiple independent departments, each devoted to a narrow area of expertise. This structure is common because when workers can focus on a single function, they hone their specialized skills and are more productive.

That said, some organizations find greater success with non-functional management structures. For instance, a company like Procter & Gamble that offers a wide array of products and services, each of which requires drastically different strategies, may be better suited for a divisional management structure. This is when each division (such as the beauty, baby care, or skin care division) has its own independent team handling each function (for instance, they might each have their own marketing departments). Additionally, each division has a leader devising their own division-specific strategy. So, in this case, the third stage of the Leadership Pipeline would be “division manager” rather than functional manager.

Functional Managers Must Manage Work They Don’t Understand

The primary skill functional managers must learn is how to make decisions regarding situations that they know very little about, assert the authors. Functional managers can’t be experts in all the different types of work they’re managing. They’re in charge of too many teams, most of which involve work they’ve never done firsthand. This is a difficult challenge to overcome for many newly promoted functional managers, as they’re often hesitant to admit what they don’t know, fearing that it would damage their credibility.

(Shortform note: In Think Again, Adam Grant argues that in the ideal workplace, everyone—not just managers—would be comfortable admitting when they don’t know something. Arguably, it’s even more difficult for lower-level employees than functional managers to admit their ignorance. Since their work is more specialized than that of functional managers, they may feel obligated to know everything about that specialty. Grant asserts that leaders can help reduce the stigma of being wrong by drawing attention to their own flaws and past mistakes. If leaders can successfully shift the organization’s culture in this way, the transition to functional manager might be much easier, since workers already possess the necessary mindset.)

The key to making decisions in unfamiliar situations is gathering ample firsthand information. The authors explain that functional managers can only make wise strategic decisions if they actively listen to team members who are closer to front-line work. To do this, they should have frequent one-on-one conversations with lower-level managers and workers across a wide range of teams.

(Shortform note: In High Output Management, Andrew Grove asserts that for informational one-on-one meetings, the subordinate should plan the agenda. This prompts the subordinate to reflect on their work and realize what information is the most important for them to pass along. Additionally, it saves the manager time, allowing them to hold more meetings and gather more firsthand information.)

To gather information effectively, functional managers need to develop a more subtle communication skill—listening to the meaning behind someone’s words. In other words, they have to pay attention to the attitudes and assumptions underlying what someone’s saying. For example, if a second-level marketing manager is only excited to talk about the newest products, it may indicate that they’re not paying enough attention to the older products that make up most of the company’s sales. If their boss (the functional manager) notices this, they could correct the second-level manager and investigate whether other teams in the marketing department are underprioritizing older products.

(Shortform note: Consider taking time to verify your interpretation of someone’s underlying attitudes and assumptions before using these to make any major decisions. In Talking to Strangers, Malcolm Gladwell argues that most people are much worse at reading the emotions and thoughts of others than they think they are. Additionally, some people are naturally mismatched; that is, their demeanor communicates the exact opposite of their true thoughts and feelings. Generally, you can be more confident in your interpretations of someone after you spend time getting to know how they uniquely express themselves.)

Stage #4: Company Manager

The fourth stage of the Leadership Pipeline is the company manager (what the authors call the “business manager”). These managers are in charge of entire companies—although they still report to higher-ups in their organization’s parent company.

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. The authors assert that 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 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.

Company Managers Must Overcome Personal Bias

The authors 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.)

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.

Stage #5: Multi-Company Manager

The fifth stage of the Leadership Pipeline is the multi-company manager (what the authors call the “group manager”). Multi-company managers are high-ranking corporate executives who oversee multiple company managers and report directly to a conglomerate’s CEO.

Multi-Company Managers Must Become Hands-Off Mentors

To succeed, multi-company managers must learn to be completely hands-off mentors to the company managers below them. The authors explain that this is often a major struggle. Because they’ve progressed this far in the Leadership Pipeline, multi-company managers are all very proficient business leaders—but the multi-company manager role doesn’t involve using these skills. Coaching and supervising company managers as they make all the strategic decisions typically feels much less exciting.

(Shortform note: What can a multi-company manager do if they realize that they’re unhappy as a hands-off mentor and vastly prefer working as a company manager? One option is to simply ask for their old job back. This may be difficult for people who see moving backward as a sign of failure; but if their previous job was a better fit for their strengths and values, it might be for the best. If a multi-company manager’s previous job as company manager has already been filled, another option is to work with higher-ups to decide on a new position for them that’s a better fit. If they’ve been promoted to multi-company manager, it’s clear that the organization values them and will likely work to find a way to retain them as an employee.)

The authors warn that multi-company managers should never force their strategies on their subordinate company managers. Taking over a company manager’s job by telling them exactly what strategies to execute deprives them of the leadership experience they need to become a dependable higher-ranking executive in the future. This can be disastrous, as weak executives in influential positions can do tremendous damage to an organization.

(Shortform note: If a multi-company manager wants to force their subordinate company managers to accept their exact strategies, it’s arguably indicative of a greater flaw in their coaching mindset: They’re trying to fundamentally change the company manager’s leadership style rather than expand and build upon their existing skill set. If someone has been promoted to company manager, they’ve likely found a successful way to manage their people, even if it seems unorthodox. Forcing them to accept strategies that don’t fit into their existing leadership style might counteract their existing strengths and hurt their performance in future executive roles.)

Instead of handing down specific strategies, multi-company managers must guide company managers to improve their own strategies, argue the authors. How? When a company manager proposes any major strategy, ideal multi-company managers work with them to examine that strategy for any signs of weakness. They ask critical questions to gather any information they need to judge whether the strategy will be successful. If the multi-company manager finds that the strategy doesn’t hold water, they tell the company manager to fix its flaws or develop a new one. This way, they ensure the organization is only following reliable strategies while simultaneously teaching company managers to develop better ones.

How to Effectively Critique Subordinates

In The One-Minute Manager, Ken Blanchard and Spencer Johnson offer advice relevant for any manager looking to critique their subordinates’ work, including multi-company managers. When critiquing a strategy, multi-company managers should detail its flaws as precisely as possible rather than passing down their judgments as unquestionable commands. For company managers to learn, they need to understand what specific negative consequences their boss is trying to avoid by rejecting their plan.

Additionally, after detailing the logic behind their conclusions, multi-company managers should apply the same logic to their own conclusions. If it becomes clear that they were wrong to reject a strategy, multi-company managers should openly admit to their misjudgments. This helps them appear reasonable and objective, making their company managers more likely to take their opinions seriously.

Multi-Company Managers Must Manage a Portfolio of Businesses

While coaching company managers, multi-company managers also have to know how to realistically predict how successful each company will be, explain the authors. This is because they’re also in charge of managing the corporation’s portfolio of businesses: They move resources from across the conglomerate to the companies that can most successfully utilize them to accomplish the organization’s ultimate mission (as defined by the conglomerate CEO).

(Shortform note: Generally, investors lack faith that multi-company managers can productively allocate resources across a portfolio of subsidiaries. They usually value conglomerates as worth less than the sum of their subsidiaries, indicating that they believe each subsidiary could turn a greater profit as an entirely independent business. This is known as a conglomerate discount. But if conglomerates lower their subsidiaries’ market value, why are they so common? One reason is that conglomerates are generally more stable investments because their holdings are so diverse. If a subsidiary in one industry suffers a downturn, those losses can be balanced out by increased profits from a subsidiary in a different industry.)

Stage #6: Conglomerate CEO

The sixth and final stage of the Leadership Pipeline is the conglomerate CEO (or, as the authors call it, the “enterprise manager”). Such CEOs are in charge of the bottom-line success of a global conglomerate and all its subsidiary companies.

Conglomerate CEOs Must Balance Short- and Long-Term Results

According to the authors, good conglomerate CEOs ensure that their organization achieves both short-term and long-term results. To succeed in the short term, CEOs must make sure that all company processes are working as optimally as possible. Such oversight requires them to understand in detail how every one of their subsidiary businesses functions and stay constantly aware of any changes. This is especially challenging since many team members tend to hide bad news from the CEO, preventing them from solving the problems that impede short-term results.

(Shortform note: In Principles, Ray Dalio describes how he designed his company to give him and other decision-makers the constant awareness necessary to achieve short-term results. Dalio intentionally established a culture of extreme honesty and transparency: Nearly every meeting is recorded and available for any employee to watch, giving managers at every level all the information they need to make wise decisions. Furthermore, he explicitly tells his employees how much he values honesty and transparency. If an employee lies—for instance, if they hide bad news by implying that their work is going more smoothly than it is in reality—Dalio may reprimand them publicly to dissuade other employees from being similarly dishonest.)

To succeed in the long term, CEOs must envision the ideal position for their organization in the global market and make sure that all of their decisions steer the organization toward that ultimate goal. Such large-scale changes occur at a glacial pace, and CEOs often struggle to work on such long timeframes. However, if they become impatient and pivot away from a long-term strategy before it has time to pay off, they’ll never achieve success on this scale.

(Shortform note: Arguably, the reason that so many CEOs struggle to pursue a long-term vision is because they’ve been rewarded for their impatience for most of their career. In a world where many people default to inaction out of caution or fear, the willingness to act quickly often helps businesspeople seize opportunities before it’s too late. For example, a CEO may have found wild success in their last job as a multi-company manager by rushing to acquire a company in a burgeoning new industry before their competitors could keep up.)