You may be familiar with the term “additive manufacturing.” It refers to a new manufacturing process in which digital designs are used to create a 3-dimensional component by depositing material in successive layers. This is in contrast to “subtractive manufacturing,” where material is removed in order to create a 3-dimensional component, such as by machining (turning or milling). Subtractive manufacturing creates a lot of waste compared to the former. Keep that thought in mind as you read on.
Let’s apply this idea to leadership and call it “additive leadership.” First, let me provide a point of contrast: subtractive leadership. This will help us formulate a better understanding and practice of leadership that is needed now and in the future.
Organizations have many stakeholders, but there are five key stakeholders: employees, suppliers, customers, shareholders, and communities. All five are needed for a business to function, and competitors are another important stakeholder. So, that makes six stakeholders. If leaders lead with one stakeholder foremost in their mind, such as shareholders, then they have subtracted the remaining stakeholders from their thinking and decision-making processes – not completely subtracted, but enough so that it diminishes other stakeholders legitimate interests and needs. That, in turn, generates massive waste in the forms of time delays and blocked information flows.
So, 6 – 5 = 1, as in one stakeholder: shareholders. The 6 – 5 = 1 doctrine has been in vogue among business leaders for some 30 years now, and is likely to continue for at least another 20 years unless we can convince leaders of the many flaws of subtractive leadership and the many merits of additive leadership. Call additive leadership the 5 + 1 = 6 doctrine.
What happens when leaders lead in ways that principally serve the interests of shareholders? What is the impact of subtractive leadership on other stakeholders? The image above shows data collected from over 400 graduate students who have taken my Lean leadership course in the last 10 years. This is a student population consisting of people with typically 10 or more years of work experience in for-profit, non-profit, and town, state, and federal government organizations. The assignment that generated the data was as follows: Compare how your top leaders lead to the Stakeholder Management Guidelines contained in the Caux Round Table Principles for Business and identify any inconsistencies.
What does the data show? The bars to the left indicate the stakeholder categories that leaders are more consistent with the Stakeholder Management Guidelines (Shareholders, Communities, Competitors), while the bars to the right indicate the stakeholder categories that leaders are less consistent (Customers, Suppliers, Employees). Students felt that their leaders strongly marginalize the interests of employees and suppliers. The specific feedback they gave in response to those two categories was a dizzying array of zero-sum leadership thinking and decisions that do harm to employees and suppliers. They also felt that customers were getting screwed and could be getting a much better deal. My students – they are also employees – felt that their leaders could do much more to balance the interests of the six stakeholders. There is no question, however, that employees and suppliers, and even customers, are the “go-to” stakeholders when management orders a “go-get” to cut costs – which is typically the result of poor management practices to begin with.
There is another interesting thing to note: My students felt that their leaders treat shareholders in ways that are consistent with the Stakeholder Management Guidelines, and, as a result, get what they want. However, when we review the data in class, only a few students would recognize that shareholders are actually getting a bad deal. How so? When leaders sell cheapened or defective products to customers, that reduces sales or increases warranty costs. When leaders squeeze suppliers for lower prices, the supplier is likely to cut corners and will have difficulty re-investing in their business. When leaders treat employees poorly, they are less committed to their work and the business, less creative and innovative, and more likely to simply do what they are told to do without thinking.
The imbalance shown in the chart shows the practical impact that subtractive leadership has on all six key stakeholders. Leadership that is pre-disposed to subtractive thinking and decisions is poor leadership. The solution to any problem is to lay people off, close facilities, squeeze suppliers, and share buy-backs. Any idiot can do that. And, it always results in higher costs. The two biggest areas of corporate litigation, not surprisingly, are employment and contracts.
Organizations clearly need better leadership. The result one would like to see in the above image are low bar heights straight across, which would indicate that leadership is largely consistent with the Stakeholder Management Guidelines. What is the benefit of this? Firstly, better balance between the stakeholders results in less waste, unevenness, and unreasonableness, as well as fewer delays and better information flow. But there is more to it than that. Leaders get smarter when they comprehend and respond to the interests and needs of all six stakeholders, rather than mainly one. They learn the interconnected nature of problems, expand and improve their critical thinking skills, and develop novel solutions to previously vexing problems. In other words, leadership becomes more capable and competent, which, needless to say, is good for shareholders and every other stakeholder.
Toyota has long been a premier example of additive, non-zero-sum (win-win) leadership. For decades, and through generations of leaders, they have been guided by The Toyota Way: Continuous Improvement and Respect for People (where “People” means stakeholders). Former Toyota president, Katsuaki Watanabe, said: “There’s no end to the process of learning about the Toyota Way. I don’t think I have a complete understanding even today, and I have worked for the company for 43 years.”
Do you know what that means? It means that additive leadership can never be fully comprehended, unlike subtractive leadership that anyone can quickly grasp. It also means that there are infinite solutions to problems, not just four: lay people off, close facilities, squeeze suppliers, and share buy-backs.