The Next Generation of Leadership

The old rules still apply. But to win in the new world, leaders must understand their constituents’ state of mind, says Gallup’s chairman and CEO.

Jim Clifton, Gallup's chairman and CEO, says businesses have, in most cases, maximized every possible benefit from practices based on neoclassical economics, such as Six Sigma, reengineering, and total quality management. The significant competitive advantages from these practices have hit a point of diminishing returns, he adds. Most well-run companies have wrung almost every efficiency they can from their operations -- and their competitors have too. So have we reached the end? Are there no worlds left to conquer?

In America, Europe, Japan, most of the benefits have been squeezed out of process improvement and neoclassical economics.

Hardly, Clifton says. There are vast new business frontiers left unexplored. Clifton points to revelations that behavioral economists are uncovering -- starting with the discovery that human decision making is more emotional than rational. This upends a core assumption of neoclassical economic theory: that consumers can be counted on to always make rational decisions about the products and services they buy. It also opens up a vast new area for business to explore and exploit -- and Clifton has staked his company on the fast-developing leadership science within behavioral economics.

In the new normal, says Clifton, the old ways of doing business won't work anymore. The men and women who will conquer this new world will be the ones who best understand their constituencies' state of mind. And state of mind is everything that matters to leadership: talent, innovation, entrepreneurship, creativity, optimism, determination, and all the other things that create economic growth.

This next generation of business, civic, political, and religious leaders, as well as social entrepreneurs, will understand their constituents' state of mind and the capacity to quantify it better than their predecessors did. And those leaders will be uniquely poised to do a very important thing: By understanding the state of mind of their constituencies, those leaders can use that knowledge to create real economic growth -- and more good jobs. That will make them, as Clifton says, the ones who lead the world.

GMJ: Before you talk about the next generation of leadership, what was the last generation of leadership?

Jim Clifton: Process improvement was the last big leadership evolution. General Electric's leadership is a good example -- they did Six Sigma perfectly. Jack Welch was the king of process innovation. But when Jeff Immelt took over, he had a problem -- there was nothing left for him to Six Sigma.

That's true for everybody. In America, Europe, Japan, most of the benefits have been squeezed out of process improvement and neoclassical economics. That's one of the problems Wall Street is facing -- investors have exactly the same data and methodology from neoclassical economics, but it no longer differentiates anything.

I'm not shortchanging neoclassical economics; that and process improvements worked really well for a while. Why did Japan rise up out of nowhere to dominate the world? Well, one big reason was the influence of quality guru Dr. Edwards Deming. He led with his next-generation leadership idea, and Japan seized on it first. It worked. Implementing that kind of thinking was very good for our company too. We immediately made more money; we immediately were more productive.

Now companies are structured to do a magnificent job with that kind of data. But it's absolutely not enough anymore. There hasn't been a big idea for leadership in 25 years, nothing that shows the huge sweet spots and pushes the big advancements.

Now we need the next generation of leadership, because we've maxed out everything else. And the jungle is more dangerous -- and a different kind of dangerous -- than it used to be.