Enhancing Collective Performance

Functional managers and general managers are different, two distinct and contrasting types. That is the prevailing view. “No matter how good a functional manager you are,” INSEAD announced to potential attendees in its “Transitions to General Management” executive course, “you need a completely new perspective to succeed in general management.”²⁵ Nothing unusual or surprising in that statement. Business schools all around the globe offer similar courses based on the notion that good functional managers do not necessarily make good general managers because the two are so different. Table 6.2 offers a map of the transition based on the writings of IMD's Michael Watkins.

Rather than focusing on analytic depth in a technical field – say, marketing, accounting, or informational technology – general managers were strategic integrators and architects with responsibility for bottom-line performance.²⁶ Functional managers provided the “technical expertise” necessary to provide “a significant depth of knowledge.” General managers were “more adept at adapting to change,” and therefore better able “to drive change through the business.”²⁷ The similarities of the general management type on one hand and the leadership type of the other that are on display in Table 6.1 are stark. For good reason. Both are constructing ideal types around the same phenomenon.

Early Recognition of “Broad” Management Responsibilities

The need to achieve coordination in a complex organization found root in the transcontinental railway system in the United States in the mid-19th century. In contrast to small, localized businesses, railroad companies needed to augment technical know-how with skills of coordinating a far-flung, decentralized organization.²⁸ Writing in 1895, railroad executive George Bridge Leighton suggested that the effective modern executive needed to be a broad generalist. “He must understand the relation of the railway to the owners, to the public, and to the state,” Leighton wrote. “He will have to know what to leave to subordinates and how to direct them…In a broad way, he must not only be a man of affairs, but lawyer, engineer, financier, economist, and accountant.”²⁹

By the 1850s, railroads had developed a position of “general supervisor” who was described as “an officer of general duty…who besides duties particular to himself is charged with the supervision and control of the whole system, subject to the President and Directors.” This was, wrote business historian Alfred Chandler, a “new class” of managers.³⁰

At the end of the 19th century, Francis Burton, a British naval engineer, recognized a general management responsibility. In The Commercial Management of Engineering Works (1899), Burton focused on what he termed a “general manager.” The responsibility of the general manager, “or, as he was frequently termed in minutes and correspondence, The manager” was the individual “on whom, above all others, the profits of the company depend.”³¹ The term “general management” was interchangeable with the chief executive or managing director in Burton's view.

Engineers, including the American Frederick Taylor and the French Henri Fayol, expanded on the responsibilities of management. Starting in the 1820s, the economy of the United States had increasingly become industrialized, supplementing small, local businesses and agriculture with manufacturing and transportation. Innovations, including the electric light bulb, the automobile, and the process of mass assembly, furthered the expansion of the country's industrial base. The Bessemer process, invented by a British engineer, enabled the mass production of inexpensive steel. With ready access to both raw materials and low-cost (often immigrant) labor, U.S. steel companies grew rapidly. Carnegie and Bethlehem Steel were the major players, and a smaller company, Midvale Steel, hired a twenty-two-year-old apprentice engineer named Frederick Taylor. Like Francis Burton, Taylor thought deeply about the role of managers in the newly emerging industrial context. He focused largely on management's technical responsibilities to establish output standards to ensure that the “men” – that is, shop employees – knew what was expected of them and delivered it in the “best and cheapest way” possible.³²

In 1914 Fayol produced what is considered the first general theory of management. Fayol's General and Industrial Management separated the activity of management from more specifically technical functions within the organization such as production, finance, security, and accounting. The technical functions, he noted, were not “concerned with drawing up the broad plan of operations of the business, with assembling personnel, coordinating and harmonizing effort and activity.” That was the responsibility of a different group: managers.³³

Fayol's title, published originally as Administration Industrielle et Generale, does suggest that general administrators were responsible for coordinating and direction-setting within the organization as something distinct from the technical aspects of business. Fayol had, after all, spent decades serving as Directeur Général – note the use of “general” that is this common French designation of a managing director – for Commentry-Fourchambault-Décazeville, a prominent French mining company.

Fayol's emphasis on management responsibilities was echoed by other early organizational theorists, notably Chester Barnard, Herbert Casson, Mary Parker Follett, and Sune Carlson.³⁴ They recognized the need for coordination and the role of top managers, or in Barnard's case, executives, in ensuring a common purpose and direction for organizational members.

The term “general manager” increasingly surfaced in early-20th-century America. References to general management could be found, for instance, in legal decisions as U.S. courts regularly considered questions of corporate liability and executive responsibility. “The implied powers of a general manager today are generally understood to be coexistent with the general scope of the business,” noted a 1910 Yale Law Review article. The general management title was applied to the company's president, and, occasionally, other top-ranking executives who could be held responsible for the overall activities of the corporation.³⁵

Those legal decisions represented an important truth about business organizations of the early 20th century. There were general managers; that is, managers with general responsibility for the profitability of the firm. There just weren't many general managers.

Through the first half of the 20th century, virtually all businesses were organized in a functional structure. Specialized activities – sales, finance, and manufacturing, for example – were cordoned off in their own units. Economies of scale and efficient division of labor were the intended outcome. Under this structure, a corporation typically had one general manager: the president.³⁶ So while some theorists examined the purpose of top management, there seemed to be no need to offer a separate consideration of general management. That changed in the 1950s.

A Revolutionary Redistribution of Responsibilities

It was in the 20th century, as the complexity of organizational structure became formalized, that general management expanded beyond the president's office. Du Pont and General Motors pioneered the multidivisional structure in the 1920s. Rather than purely functional reporting relationships, these new configurations were organized into “quasi-autonomous operating divisions (organized mainly along product, brand, or geographic lines).” Operating divisions, which were in turn subdivided into functional subunits, became “the principal basis for dividing up the task and assigning responsibility.”³⁷

In the multidivisional structure, managers of businesses were general managers with profit-and-loss responsibility for their divisions. The head of General Motors’ Buick Division, for instance, supervised the functional managers of manufacturing and assembly. These divisional general managers oversaw and coordinated the activities of functional managers within their division. The corporate chief executive served as the general manager for the overall corporation.³⁸

At first, this new structure found few takers. Corporations were reluctant to adopt a multidivisional form. It was seen as a “revolutionary” redistribution of responsibilities.³⁹ The political-economic dynamics of the 1950s changed that, turning the unusual into the commonplace, at least among large corporations.

In the aftermath of World War II, U.S. power and influence over world affairs generally and economic matters specifically was, if not monopolistic, at the very least dominant. This was the period labeled by Robert Sobel as the “age of giant corporations,” characterized by a shift away from focused corporate strategy to what was called “circular” (now more likely to be referred to as unrelated) diversification.⁴⁰ In order to escape the antitrust attention of the federal government (and yes, this was during the so-called business-friendly Eisenhower administration), corporations became investment portfolios, taking on unrelated businesses in order to fuel the steady growth expected by shareholders.⁴¹

With the spreading adoption of the multidivisional structure, it was inevitable that general management would make its way into organizational discourse.⁴² After immersing himself in General Motors, Peter Drucker surfaced with an appreciation for the role of the divisional manager with responsibility for “the long-term future of the business he runs.”⁴³ It was in his 1954 Practice of Management that Drucker applied the title “manager of managers” to general managers. That title offered a valuable insight. By overseeing a functionally subdivided business unit, these divisional managers had direct responsibility for managing managers. Still Drucker did not specifically articulate a management of managers’ job as one that was separable from the management of workers and of work.⁴⁴

With the emergence of formal strategic thinking applied to business starting in the 1960s, attention focused on organizations as interconnected systems. Strategists recognized a core role for general management:

• In his 1963 article, Seymour Tilles emphasized the role of the “general manager” in adapting the organization to environmental change.⁴⁵

• A 1969 California Management Review piece by H. Igor Ansoff and R.G. Brandenburg focused on “the general manager of the future.” This was the level “at which managers are assigned total responsibility for effectively using the resources allocated to them in achieving the goals of the firm.”⁴⁶

• Kenneth Andrews elaborated further on this phenomenon by suggesting that the general manager must “rely for his principal support on a tier of functional managers, each more knowledgeable than himself within a particular area.”⁴⁷

• Hugo Uyterhoeven added the observation that the general manager of a division was a middle manager, accountable for performance of his unit but lacking full decision-making authority, which was held by the chief executive.⁴⁸

• Michael Porter, with all his emphasis on economic rationality, included general management as an element of “firm infrastructure,” suggesting that “infrastructure, unlike other support activities, usually supports the entire [value] chain and not individual activities.”⁴⁹

Now, there was a distinction between functional and general managers. That distinction was not front-and-center for the strategists. Porter acknowledged general management while simultaneously barely mentioning managers.⁵⁰ As an organizational behavior professor, John Kotter paid specific attention to the people performing that task.

In his 1982 General Managers, Kotter posited that, while functional managers oversaw specific areas of expertise and operations, the general manager was “responsible for a complex system which he cannot directly control and cannot entirely understand.” General management as practiced by CEOs, group and divisional general managers, and product or market general managers required that individual managers possess the capacity to deal with “thousands of diverse issues and problems,” balance short- and long-term pressures, and motivate and direct “other busy people over whom he has no formal authority.”⁵¹ Ambiguity and uncertainty, dealing with unknowns and unknowables; this is what separated general from functional managers.

It was absurd to suggest that in the real world of organizational life, functional managers never faced ambiguity and uncertainty. By confusing ideal types with reality, Kotter could suggest that not everyone, even those who were successful functional managers, would be well suited for the generalist job.

Where did this leave leadership? For some, leadership was conceptualized as a part of general management; one activity among many in which the manager engaged. For others, it was a sphere of activity that could and should be considered as distinct from management. And six years after proposing the general manager as a concept different from the functional manager, Kotter adopted that latter stance: leaders and managers are different. His 1988 take on leadership, however, was virtually identical to his 1982 construct of a general manager. Before we look at Kotter's evolution, we can trace the roots of the argument that leadership was something exceptional back to the years of the Great Depression.

Leadership and Management Are Different, Aren't They?

In 1977 Zaleznik asked the stark question about managers and leaders: “Are They Different?” His answer, heavily influenced by his training in Freudian psychology, was an unequivocal “yes.” To Zaleznik, these were not ideal types: they were tangible and real. And he would name names in order to make his point.

Zaleznik's 1977 article represented a definitive turning point in thinking about management and leadership. Ideas, however, rarely surface completely independent of previous discourse. Joseph Rost located the first distinction between leadership and management in the writing of sociologist Philip Selznick.⁵⁷ Rost's assessment overlooked many of the historical attempts to wrestle with the necessity of both technical expertise and general coordination. Still, it is important to acknowledge Selznick's contribution.

“Administrators” – that was how Selznick characterized managers in his 1957 Leadership in Administration – work to achieve organizational efficiency. Leaders, by whom Selznick meant the “statesmen” who sit atop an organization, have a different responsibility. The leader-statesman defines the mission of the organization and ensures ongoing success in an ever-changing environment.⁵⁸

The difference in the approaches of Selznick and Zaleznik can be thought of as the distinction between a sociologist (Selznick) and a psycho-analyst (Zaleznik). Selznick looked at institutional forces; Zaleznik at personal dynamics. Managers and leaders, Zaleznik insisted, “are very different kinds of people. They differ in motivation, personal history, and in how they think and act.”⁵⁹ Zaleznik insisted that his distinction was new. “The term manager and leader were used synonymously,” he noted. “Both terms implied the responsibility of getting things done. The relationship was vertical” – i.e., hierarchical – “and superior and subordinate understood they were in an unequal power relationship.”⁶⁰

Zaleznik's application of Freudian psychology to corporate leadership first surfaced in his 1966 book, Human Dimensions of Leadership. He identified leaders as individuals desirous of building an enterprise, asserting an idea, or even leading a nation. Zaleznik here made an explicit distinction between management and leadership. He quoted Max Weber's view of bureaucratic administrators as functioning sine ire et studio (without anger or fondness) and focusing unemotionally on codification.

In his study of bureaucracies, Weber had indeed identified administrators as people who “carry out the order governing the organization in a rational, objective way.”⁶¹ Managers, whom Zaleznik equated with Weber's administrators, emphasized policies as a way of ensuring that everyone in the organization was treated “fairly,” by which he meant “the same.” That emphasis on standardization of treatment, however, worked against the possibility of recognizing outstanding individual achievement.⁶² It was leaders, people “with brilliant ideas and the capacity to inspire thought and action in others,” who provided the energy needed to propel an organization to greatness, not managers.⁶³

Zaleznik transformed mental constructs into empirical realities. Managers and leaders were no longer purposefully created fictions. They were real: evaluative, normative prototypes about how things ought to be.

What had been incidental in his 1966 book became the centerpiece of Zaleznik's 1977 piece. Managers represented the organizational force that sought to create and reinforce order. Leaders, conversely, worked to generate “relative disorder.”⁶⁴ The exemplar of the manager was Alfred P. Sloan, the executive who forged the modern General Motors, indeed the modern multibusiness corporation, out of the chaos of William Durant's initial creation.⁶⁵

“Managers tend to view work as an enabling process,” noted Zaleznik, “involving some combination of people and ideas interacting to establish strategies and make decisions.”⁶⁶ Conversely, leaders – and here, Zaleznik pointed to Edwin Land, co-founder of Polaroid, and John F. Kennedy as examples – were “active instead of reactive, shaping ideas rather than responding to them.” These are the folks who “develop fresh approaches to long-standing problems and open issues for new options.”⁶⁷

Even though leaders provided energy to organizations and were active and not reactive, Zaleznik also made readers aware of the potential dangers inherent in those who became leaders. “Leaders work from high risk positions,” he suggested. “Indeed often are temperamentally disposed to seek out risk and danger, especially when opportunity and reward appear high.” Leaders possessed hot personalities infusing their actions and reactions with strong emotions, including love and hate, in contrast to Weber's view of bureaucratic administrators as functioning with analytic detachment. Leaders were people who “may work in organizations, but they never belong to them. Their sense of who they are does not depend on memberships, work/roles, or other social indicators of identity.”⁶⁸

The next volley in the management-is-different-from-leadership argument came from John Kotter in his 1988 The Leadership Factor. Kotter had championed general management in his 1985 book. After Zaleznik, however, his own views veered toward the management versus leadership dichotomy. For the release of the paperback edition of The General Manager in 1985, Kotter referred to the book as “the first of what has become a series of works on leadership in complex organizations,” even though the terms “leader” or “leadership” are absent from the index. With The Leadership Factor, Kotter fully embraced the management/leadership classification.

His was neither a continuation nor an endorsement of Zaleznik's work. In fact, Kotter rejected Zaleznik's hard demarcation by suggesting that management and leadership “are certainly not incompatible (indeed, more and more these days, both are needed in managerial jobs).”⁶⁹ By the time of Kotter's next book, A Force for Change (1990), the distinction between management and leadership was taken as a given. The ideal type had fully disappeared into a presumed empirical reality.

Kotter's research methodology asked executives to provide examples of people who were effective at management, at leadership, or at both. From that methodology, he concluded that while managers established plans, leaders produced “visions” and while managers directed activities, leaders created understanding and acceptance of desired future states. Fundamentally, managers administered the status quo while leadership mobilized people toward “adoptive change.”⁷⁰

First, it was managers, then general managers, and now leaders who helped the organization move together into the future. Kotter insisted that “the two processes can work together very successfully.”⁷¹ Nonetheless, he argued, organizations have proven to be much more effective at developing managers than at producing leaders.

Zaleznik was explicit in his condemnation of managers. What he called “the managerial mystique” – the triumph of the search for order – was “only tenuously tied to reality.” American industry had “lost its way, adrift in a sea of managerial mediocrity desperately needing leadership to face worldwide economic competition.”⁷²

Not everyone bought the premise. “Our research thus far does not demonstrate the need for this distinction,” wrote Fred Fiedler and Joseph Garcia in 1987. “Leadership, as we define the term, refers to that part of organizational management that deals with the direction and supervision of subordinates rather than, for example, inventory control, fiscal management, or customer relations.”⁷³ Still, there is no denying that the embrace of leadership as a concept distinct from and, for the most part, superior to, management became something of a fad in the discourse. As an example of such faddishness, we can look at the evolution of a popular developmental tool: the managerial grid.

In 1964 Robert Blake first published his managerial grid offering guidelines to managers seeking to support and aid people in the performance of the task. Building on the orthogonal dimensions proposed by the Ohio State and Michigan researchers, Blake emphasized high concern for both task and people. Blake's focus on managerial behavior was reinforced through a number of subsequent editions in which the grid emphasized both concern for production and concern for people. Leadership was seen as a team effort by managers working together with employees to create a “correct whole picture for organizational decision making and direction.” That's where it stood until 1991 when the managerial grid morphed into the leadership grid.

“The new pursuit is visionary leadership at the top,” wrote Blake and Anne McCanse, “as organizations find themselves in the midst of accelerating change, suddenly thrust upon the global scene with new financial markets, rapidly advancing technology, and a multitude of other factors that demand attention. With such a rapid fire chain of events, we may pause and reflect, ‘How can my organization keep up with the competition, much less hope to get ahead?’” The grid, it should be noted, remained exactly the same. Now, however, it was a leadership rather than a managerial grid. Why the relabeling? “It all comes back to leadership,” wrote the former advocates of a managerial grid. “Effective leadership is the key to success for the future.”⁷⁴

There was much that was voguish in this rush to leadership as a solution to organizational ills. Danny Miller and associates defined management “fads” as quick fixes that do not have a “profound effect” on performance, are embraced ritualistically, and then fade out. Fads are not without merit. Rather, they represent a typically opportunistic embrace of a particular zeitgeist, arguing typically without critical distance that a unique solution has been found for a unique situation.⁷⁵ By 1997, when executives were clamoring to become leaders rather than managers, the fad had become the new reality.

The idea of both Zaleznik and Kotter that leadership and management were different was itself a product of a particular time and place: 1970s America.

“Groping for Leadership”

The 1970s were the decade referred to by one historian as the age of “the great compression” and another as a period of “disorienting, frustrating, and frightening” challenge for Americans. The mood of the nation, noted critic Frank Rich, was “defeated, whiny, and riddled with self-doubt.” As the Bicentennial celebration of the penning of the Declaration of Independence approached, pundits wondered “whether the country even deserved to throw itself a birthday party.”⁷⁶ Little surprise, then, that leadership emerged as a desirable, albeit rare, commodity; a force that would pull the country and its industry out of a pervasive malaise.

The 1970s, noted historians Beth Bailey and Burnham Farber, “was the only decade other than the 1930s wherein Americans ended up poorer than they began.”⁷⁷ In fact, the “age of compression” opened with the 1973 oil embargo by the Organization of Petroleum Exporting Countries (OPEC).⁷⁸ That unprecedented action initiated a rest-of-the-decade decline in American economic fortunes. The resignation the following year of President Richard Nixon in the wake of the Watergate scandal left in place an unelected president, Gerald Ford, who had never stood for election as vice president. He was appointed in 1973 when the elected vice president, Spiro Agnew, was forced to resign due to his own scandal. Ford lacked the political platform to respond effectively to this challenge to western capitalism.⁷⁹

Both the 1974 resignation of President Nixon and the ignoble end of the Vietnam War the following year were harbingers of what Bailey and Farber labeled the “cultural crisis” of the period.⁸⁰ The retreat from Vietnam was often depicted as America's first-ever military defeat (although one would be hard-pressed to see the Korean War as a victory). Two assassination attempts on President Ford, although inept, left a sour aftertaste. A 1979 accident at the Three Mile Island nuclear power plant seemed to undercut the desirability of turning to nuclear energy as a way of loosening the country's dependence on OPEC oil.

Above all else, it was the sagging national economy that defined the era. America's “Rust Belt” – the upper Midwestern states that hosted much of the country's industrial operations – staggered under the economic weight. “One by one,” wrote historian Paul Boyer, “plagued by foreign competition, aging equipment, rising labor costs, and shifting consumer tastes, the factories that made America the world's industrial leader from the 1880s through World War II closed their gates.”⁸¹ America's global economic might was under severe challenge. Japanese companies seemed to be outperforming their American competitors. In 1980, an NBC-TV news special asked, “If Japan Can, Why Can't We?” The answer was not so clear.

Bruce Schulman located the roots of a national malaise specifically in “the unchecked, out-of-control rage of inflation.”⁸² Runaway inflation – in 1979 and 1980 the U.S. experienced two consecutive years of double-digit inflation for the first time since World War I – led President Jimmy Carter to institute voluntary wage and price freezes with little positive effect. A public opinion poll taken in February 1979 found only 26 percent of respondents claimed to be “highly satisfied” with “life in the nation today”; five months later, that figure plummeted to 12 percent.⁸³

A lack of leadership lay behind this malaise. That, at least, was an argument being made with some frequency and prominence. The Culture of Narcissism, a surprise 1979 best seller by cultural historian Christopher Lasch, reflected the view that America's leaders had lost their capacity to confront the difficulties faced by society.⁸⁴ An Independence Day editorial in the New York Post repeated the theme: “The United States is now a victim of a loss of nerve and will, wracked by indecision and groping for a glimpse of inspirational and innovative leadership.”⁸⁵

In July 1979, President Carter delivered a nationally televised speech to address what he called the “crisis of the American spirit.”⁸⁶ That “malaise speech” directly confronted the national longing for leadership:⁸⁷

“I will do my best,” the president vowed, “but I will not do it alone…it is time for us to join hands…[and] commit ourselves together to a rebirth of the American spirit.”

In a comment little noted at the time, Carter suggested that the American people expected far more than competent management from public officials. Reflecting on a concern that had been voiced by a congressman – “Mr. President, you are not leading this nation, you're just managing the government” – he concluded that the public craved leadership. This notion that “leadership” provided the needed antidote to malaise fits perfectly with a moment in the evolving leadership discourse.

A year after Carter's malaise speech, Robert Hayes and William Abernathy wrote “Managing Our Way to Economic Decline.” That title left little room for ambiguity. The authors chastised management and managers for undermining America's economic strength. “During the past several years,” the authors wrote, “American business has experienced a marked deterioration of competitive vigor and a growing unease about its overall economic well-being.”⁸⁸

Hayes and Abernathy placed blame for America's declining economic performance squarely on the shoulders of managers. “What, exactly, have American managers been doing wrong,” the authors asked, before providing a catalogue:

“In our judgment,” Hayes and Abernathy concluded, “the assumptions underlying these questions are prime evidence of a broad managerial failure – a failure of both vision and leadership – that over time has eroded both the inclination and the capacity of U.S. companies to innovate.”⁹⁰ For Hayes and Abernathy, managers had failed as leaders.

If leadership, generally, was not up to the task, a particular variety of leadership – yet another ideal type mistaken for an objective empirical reality – emerged from the work of political scientist James MacGregor Burns. His 1978 Leadership introduced readers to the contrasting models of transactional and transformational leadership.

Burns’ book was pivotal in the evolution of leadership discourse. Bernard Bass proclaimed it to be “seminal.” Leadership discussions prior to Burns tended to focus on behaviors of individuals within groups and actions taken by those individuals to influence the behavior of others. What Burns did, noted Bass, was turn attention to “the statesmen who moved and shook the world.”⁹¹ The impact on leadership discourse among business scholars was extraordinary.

The Iacocca Phenomenon

Positioning Lee Iacocca, president of Chrysler from 1978 to 1992, as a transformational leader prototype was a founding assertion in the early discourse. The 1984 Tichy and Ulrich article referred to Iacocca as “one of the most dramatic examples of transformational management and organizational revitalization in the early 1980s.” Iacocca had “provided the leadership to transform the company from the brink of bankruptcy to profitability.”¹⁰³ Their claim for transformation rested on assertion rather than evidence. “As a result of Iacocca's leadership,” they insisted, “by 1984 Chrysler had earned record profits, had obtained high levels of employee morale, and had helped employees generate a sense of meaning in their work.” Iacocca had altered the culture of the corporation to a “lean and hungry team looking for victory.”

A turnaround argument for Chrysler appeared valid at the time of the article. Placing that result on the shoulders of the CEO was, at the very least, a shortcut for explaining the multiple forces at play both inside Chrysler and in the larger external environment. Furthermore, the authors provided no evidence for their claim that Iacocca had transformed the culture, lifted employee morale, and generated a “sense of meaning” for those employees. Tichy and Ulrich, in fact, made no attempt to suggest that their conclusions were based on data collected either by them or others.

That lack of substantiation did not prevent them from insisting that Iacocca's transformational leadership presented a salve for American industry: “Lee Iacocca's high visibility and notoriety may be the important missing element in management today,” argued Tichy and Ulrich. “There seems to be a paucity of transformational leader role models at all levels of the organization.”¹⁰⁴ The drab leaders of other industrial giants – sluggish, colorless, and noncharismatic – became foils for the exciting and apparently effective style of Iacocca.

Neither did the lack of evidence stop others from repeating the claim of Chrysler's transformation under Iacocca. In their 1985 Leaders: Strategies for Change, Warren Bennis and Burt Nanus simply imported Tichy and Ulrich's claim: “Almost exclusively because of Iacocca's leadership, by 1983 Chrysler made a profit, boosted employee morale, and helped employees generate a sense of meaning in their work.” Almost exclusively.

To demonstrate Iacocca's right to the mantle of transformational leadership, Bennis and Nanus repeated Tichy and Ulrich's insistence that Iacocca had overseen a culture change at Chrysler. “Over a period of a year or two, the internal culture was transformed to that of a lean and hungry team looking for victory – and competent enough to achieve it.”¹⁰⁵ The authors were even more emphatic than were Tichy and Ulrich. “Our concept of power and leadership, then, is molded on the Iacocca phenomenon.” Once again, no claim of research was offered or supporting evidence presented. Unlike Tichy and Ulrich, however, Bennis and Nanus could include one citation: Tichy and Ulrich. They were not advancing scholarship; they were bolstering the Iacocca myth.

The Myth

Lee Iacocca's launch as a nationally recognized figure can be traced to his first (of three) appearances on the cover of Time Magazine in April 1964.¹⁰⁶ At the time, Iacocca headed the Ford Division, which accounted for 80 percent of that corporation's total sales. Iacocca and his staff were credited with “launching most of the major themes that dominate the U.S. auto industry today: the return to car racing, the intensified appeal to the youth market, and the trend to the low-priced sports car [the Mustang].”¹⁰⁷ For Iacocca, ascendency to mythical “folk hero” status was just beginning.

In November 1978, Iacocca became president of Chrysler. The company that had once been the number two automaker in the U.S. – with a 25 percent market share in 1940 – had fallen to the brink of bankruptcy. In 1978, Chrysler lost over $200 million, then over $1 billion the following year. The poor reputation of Chrysler products (Chrysler, Dodge, and Plymouth were its brands) in terms of both styling and quality eroded the company's market share. When Iacocca arrived at Chrysler, the company had 80,000 unsold vehicles worth nearly one-quarter of a billion dollars sitting in dealer lots, and owed $4 billion.¹⁰⁸

Like the rest of the automotive industry – indeed, like American basic industry generally – Chrysler increasingly found itself on the losing end of competition with Japanese companies, especially Toyota and Nissan (then marketed in the U.S. under the brand name “Datsun”). Japanese auto manufacturers, which had produced a total of 32,000 vehicles in 1950, now manufactured over eleven million cars, allowing Japan to surpass the U.S. as the largest auto-producing nation.

At the core of the Japanese challenge was the increasing productivity of Japanese factories compared with their U.S. counterparts. In particular, Toyota's revolutionary production system, which included quality circles, voluntary improvement programs, and new just-in-time inventory control systems that reduced waste and idle time, allowed Japanese makers to improve quality and lower costs simultaneously. Automobiles were not alone in falling behind Japanese competition – the U.S. steel, appliances, and electronics industries were also deeply challenged – but there was something emblematic about the role of automobiles in U.S. culture.

Iacocca commenced turnaround efforts at Chrysler with cost cutting, starting with his own salary. He accepted only $1 of his contracted $360,000, seeing this as a symbolic gesture of shared sacrifice. In a move considered radical by much of the business community and highly controversial within the labor movement, Iacocca convinced United Auto Workers’ president Douglas Fraser to accept a seat on the Chrysler board. That gesture allowed Chrysler to win wage concessions from the union three years ahead of those granted to GM and Ford, accounting for a three-year $1 billion labor cost advantage over its domestic competitors.¹⁰⁹

When financial restructuring, which removed $400 million in debt and added $300 million in loans, proved insufficient to fuel recovery, Iacocca, Fraser, and Detroit Mayor Coleman Young traveled to Washington, D.C. They won approval of a $1.5 billion federal loan guarantee, signed by President Carter in the waning days of his administration. That guarantee further aided Chrysler by allowing the corporation to roll forward its recent losses and pay no taxes through 1985.

Product innovations at Chrysler helped as well. The erosion of Chrysler's market share had been severe throughout the 1970s. Volkswagen had gained a foothold in the U.S. market, but it was mainly Japanese brands that ate away at Chrysler and the other U.S.-based automakers. Under Iacocca, Chrysler responded by reducing the number of platforms and emphasizing front-wheel-drive cars with smaller four-cylinder engines. Drastic cost-cutting accompanied by the offshoring of assembly to Canada allowed Chrysler to slash its breakeven point on domestically produced autos, thus keeping prices low while generating a profit.

And the most significant new car development of the 1980s emerged from Iacocca's Chrysler: the minivan. Built on Chrysler's K-platform, the Dodge Caravan and twin Plymouth Voyager combined a station wagon and a van. Ford and GM had small vans at the time, but both were built on truck platforms, resulting in limited appeal to suburban consumers. The minivan concept had been developed at Ford during the Iacocca years by product design master Hal Sperlich. Ford did not pursue the idea and fired Sperlich in the mid-1970s. Sperlich joined Chrysler where he was soon reunited with his old boss. Iacocca gave Sperlich the go-ahead and the minivan helped revitalize the car market.

By the early 1980s, the U.S. auto industry as a whole was experiencing a recovery. The end of 1970s “stagflation” – the combination of slow growth and inflation – and a dramatic decline in interest rates, released pent-up demand for all cars.¹¹⁰ Eventually, the United Auto Workers made wage concessions to Ford and GM. Political pressure led to a “voluntary” limit on the number of Japanese imports, affording U.S. automakers a temporary cushion (temporary because, by the mid-1980s, Japanese makers began manufacturing their cars in the United States to circumvent import limitations) against foreign competition.

However, while the entire industry recovered, Chrysler outpaced its domestic competitors, achieving larger percentage increases in U.S. sales than either GM or Ford. In 1982 Chrysler posted its first profitable quarter in five years. Overall, 1982 ended in a $68 million loss. But 1983 was a different story. With profits of nearly $1 billion, Chrysler repaid its government debt seven years early; a “miracle,” observed the Saturday Evening Post.¹¹¹

The identification of Iacocca as an essentially American hero – “the American underdog winning the battle of preserving the American dream” – was carefully and consciously cultivated by Iacocca himself.¹¹² Chrysler's ad campaign frequently used the word “American.” The K-car was roomy enough to hold not six passengers but “six Americans.” The ads typically employed a red, white, and blue color scheme for their backdrop.¹¹³ With the launch of various K-car models, Iacocca proclaimed, “This is the beginning of the reindustrialization of the American automobile industry.”¹¹⁴

Even beyond the automobile industry, Iacocca offered himself and Chrysler as a tonic for America's loss of confidence. Iacocca opened a 1984 TV ad, for instance, by saying, “A lot of people think America can't cut the mustard any more, that quality counts for nothing and hard work for even less. And commitment? That went out with the hula hoop.” To combat that pessimism, Iacocca offered hope, promising – from Chrysler at least – “quality, hard work, and commitment, the stuff America was made of.”¹¹⁵

By 1984, the U.S. economy was far healthier than it had been when Iacocca assumed control of Chrysler. Although some heavy industries, including steel, continued to shed jobs, the American economy overall was expanding. Unemployment had fallen to just over 7 percent, inflation had dropped to under 4 percent, and corporate earnings were healthy. It was in that environment that Iacocca's self-titled memoir appeared.

Released in 1984, at the peak of Chrysler's recovery, it took exactly three weeks for Iacocca to reach number one on the New York Times’ best-seller list. In 1984 Iacocca was the best-selling nonfiction book of the entire year. In 1985, the same. “It is,” said a buyer for book chain B. Dalton, “one of the biggest books of our lifetime.”¹¹⁶ Iacocca was now, unquestionably, a CEO superstar.¹¹⁷ But had he actually transformed anything? Despite the claims made by his admirers, the answer was a simple and unequivocal no.

Iacocca was certainly part of the team that saw Chrysler pull back from the brink of economic catastrophe. But in order to depict him as a transformational leader, Tichy and Ulrich claimed that he had overseen a major overhaul of Chrysler's culture. What was the evidence? The authors provide none. There were data available, however.

Improved quality, which can be used as an outcome proxy for transformed internal processes and which sat at the crux of the Japanese alternative approach to manufacturing, did not happen at Chrysler under Iacocca. His promise, made in television ads, that Chrysler quality would rival imports and “beat the Japanese at their own game,” was demonstrably unmet. An examination of the overall quality of Chrysler models between 1982 and 1991 as reported by Consumer Reports and publicly available at the time shows consistent ratings of “much worse than average” quality performance for the Plymouth minivan, the Chrysler La Baron (“If you can find a better car, buy it”), and consistent “average” performance by the Dodge minivan. In contrast, the Honda Accord was annually rated as “much better than average.”¹¹⁸

Likewise, the product innovation that Chrysler undertook in Iacocca's early years – reliance on smaller, gas-efficient cars, front-wheel drive, and the minivan – ended by mid-decade. In 1985 Iacocca began using the cash generated from auto sales to diversify the corporate portfolio: bidding unsuccessfully for Hughes Aerospace and purchasing Gulfstream Aerospace. Corporate diversification is a legitimate strategy to pursue; but in this case, Iacocca was following General Motors (the corporation that outbid Chrysler for Hughes) rather than innovating. Iacocca brought nothing new to the management of Chrysler or the auto industry generally.

What came next for Iacocca and Chrysler proved both disheartening and diminishing. The myth did not hold up well. Iacocca found himself in frequent and increasingly bitter conflict with the Chrysler board, raising questions, at the very least, about the alignment of his goals with those of the company. Chrysler fell further behind both the Japanese and domestic competitors. As a result, the company faced another financial crisis in 1991. Failure to name a successor on Iacocca's part led the board to force Iacocca to retire.¹¹⁹ In 1995, a bitter Iacocca joined forces with Chrysler stockholder Kirk Kerkorian to launch a hostile, and ultimately unsuccessful, takeover bid.¹²⁰

And what was the evidence that Iacocca's executive behavior conformed to the transformational leader prototype presented by Bass, Bennis, Tichy, and the other promoters of the concept? To examine that question, we can turn to Iacocca's own description of his management approach, both in his days at Ford and at Chrysler. This is material that was readily available to but ignored by the authors as they were constructing the fiction of Iacocca as the transformational leader prototype.

In the 1964 Time Magazine cover story – he was head of the Ford Division at the time – Iacocca admitted to secretly tape-recording dealership sales people and threatening them with losing their jobs if their performance was deemed unsatisfactory. Demanding superior performance is well within the realm of executive responsibility. But secret tape-recording suggests at the very least questionable ethics at the expense of moral uplift. It is his rationale for that action that is particularly informative: “It worked, because all of a sudden a guy [an auto salesman] is face to face with the reality of his mortgage payments.”¹²¹ There is nothing especially transformational, paradigm-bending, or “good, important, and beautiful” in either the behavior or the rationale that Iacocca offered.

There was much in his autobiography to rebut the conclusion that Iacocca's style was transformational. Of particular interest was his description of negotiations with the United Auto Workers to convince them to accept wage cuts: “I had to lay it on the line. I talked tough to them. ‘Hey, boys,’ I said, ‘I've got a shotgun at your head. I've got thousands of jobs available at seventeen bucks an hour. I've got none at twenty. So you'd better come to your senses.’” At a second meeting, he recalled saying, “You've got until morning to make a decision. If you don't help me out, I'm going to blow your brains out. I'll declare bankruptcy in the morning and you'll all be out of work.”¹²² These words describe an approach that is wholly and dramatically at odds with the transformational model.

In short, it is possible to make a strong case for Iacocca as a turnaround leader in his initial years. He made key decisions and participated in a remarkable recovery for a nearly bankrupt industrial giant. He was, during this period, an effective CEO and perhaps, even, a “hero.” It is far less possible to accept uncritically the argument that he oversaw the transformation of Chrysler or that his behavioral style fits a transformational prototype. And the fact that Chrysler quickly fell behind its competitors as the decade continued and faced a second near-bankruptcy crisis in 1991 undermines the claim of substantive transformation.

Iacocca was a fiction disguised as a real type. Not all the discourse of the period, however, accepted the underlying premise of the transformational construct quite so readily.

An Alternative View

A number of leadership scholars had, in the 1970s, focused on the exchange – unfortunately labeled the “vertical dyad linkage” – between leaders and followers. Reciprocity, in the view of the discourse that shed its awkward label and adopted Leader-Member Exchange (LMX), could lead to interdependencies between leader and follower. That resulting interdependency could range from a reciprocal partnership to a pure overseer role in which only contractual behavior was exchanged and influence was entirely downward.¹²³

A more sweeping defense of transactional leadership had appeared several years prior to Burns’ book. In his 1973 Rebel Leadership, sociologist James Downton focused on the leadership of mass movements.¹²⁴ His attention was not on business organizations. (Neither, remember, was Burns’ focus on business.) Rather, Downton sought to analyze the leader-follower dynamic in various “rebellious” situations, ranging from the Russian Revolution to the Black Muslim movement in the United States. Downtown saw his work in juxtaposition with a popular book by Eric Hoffer published in 1951, The True Believer.¹²⁵

As were so many others of his generation, Hoffer was moved to consider the twin totalitarian mass movements of Nazism and Communism, which he equated. All fanatical mass movements, he suggested, regardless of their particular ideological positions, were the same in one key regard. They were fueled by a misguided urge on the part of followers to achieve some degree of self-esteem.¹²⁶

Downton was not convinced of the universality of Hoffer's conclusion. Rather than considering Hitler and Stalin, two obvious targets for condemnation, Downton wondered whether people in rebellious political movements might be acting as rational human decision makers rather than irrational fanatics. To help arrive at an answer, Downton looked at the exchange that lay at the heart of all leader-follower engagements. He concluded that transactional leadership contained the capacity to mobilize and energize followers to a rational commitment to a leader and to the purpose of that leader's calling.

Downton's book preceded Burns’ Leadership by five years, so he was not explicitly rebutting that work. There is no denying, however, that he positioned the transactional leader-follower exchange, potentially at least, in a far more positive light.

That exchange-benefit relationship sat at the core of transactional leadership. Leadership was, by its nature, transactional, insisted Downton. But his take on transactions had nothing to do with “horse trading.” Rather, transactions, with the inherent reciprocity of benefits and obligations, recognized the autonomy of all parties. That was true, at least, for what Downton called “positive transactions” in which individuals consciously weighed alternative modes of behavior and made an informed, consensual choice. Once a positive leader-follower bond was forged, groups were situated to make the kinds of adaptations and changes required of a dynamic external environment.

And what of charisma, that force which was claimed by transformational leadership as its exclusive domain? Not so, insisted Downton. Remember, he was engaging these concepts several years before the introduction of transformational leadership. Still, he placed charisma squarely inside the transactional construct. Charisma was basically a psychological exchange. In recognizing the “manifestly transcendental authority” of a leader, the follower offers both deference and affection.¹²⁷ It may have been an irrational exchange, but the terms were explicit and understandable. The follower moves closer to an ideal and becomes socialized into a larger group. Even the notion of radical change can be seen as an element of transactional leadership as the follower willingly adopts the leader's new model of behavior.

Transactional leadership possessed, in Downton's analysis, the potential to transform. His conceptualization obliterated what would become the abiding and widely accepted dichotomization that Burns and others had inserted between transactional leadership and transformational outcomes. That doesn't suggest, however, that the discourse was creating an artificial tension within organizations between the need for stability and the requirement for dynamic responsiveness. That tension was real.