How Leaders Use Values-based Guidance Systems to Create Dynamic Capabilities

Rosabeth M. Kanter; Matthew  Bird; Ethan  Bernstein; Ryan  Raffaelli

Chapter | The Oxford Handbook of Dynamic Capabilities | 2020

How Leaders Use Values-based Guidance Systems to Create Dynamic Capabilities

by Rosabeth M. Kanter, Matthew Bird, Ethan Bernstein and Ryan Raffaelli

Abstract

How do strategic leaders create change-adept organizations? Based on qualitative field research, this chapter argues that well-defined institutionalized purpose, values, and principles act as an organizational guidance system that integrates and strengthens the micromechanisms that enable leaders to build dynamic capabilities and, therefore, change-adept organizations. From empirical case studies, we distill micromechanisms through which organizational guidance systems create fertile soil for dynamic capabilities. The five micromechanisms are values-based decision heuristics; intrinsic motivation with positive emotions; an organizational control system based on entrepreneurial self-organization, self-management, and peer regulation; an organizational identity that (a) fosters a longer-term perspective and (b) widens the firm's scope; and ecosystem creation. While much of the dynamic capabilities literature has focused on testing causal relationships between key performance variables and constructs, our goal here is to "open up" the regression model, provide a closer qualitative inspection of the "how-to" micromechanisms, and thereby advance a multidisciplinary research agenda.

Keywords: Change; dynamic capabilities; field research; intrinsic motivation; organizational identity; ecosystem; Organizational Change and Adaptation; Mission and Purpose; Motivation and Incentives; Research; Management Systems; Change;

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Kanter, Rosabeth M., Matthew Bird, Ethan Bernstein, and Ryan Raffaelli. "How Leaders Use Values-based Guidance Systems to Create Dynamic Capabilities." Chap. 2 in The Oxford Handbook of Dynamic Capabilities, edited by David J. Teece and Sohvi Leih. Oxford University Press, forthcoming. (Pre-published online September 2015.)

Gun violence was a significant problem in America. Three Harvard Advanced Leadership Initiative Fellows Christy Wood, Russell Sternlicht, and Gareth Glaser each decided to do something about gun safety. They each used their professional and leadership experience to identify their own solutions to the issue. Wood created a set of principles for investments funds to pressure gun manufacturers and gun sellers within their portfolios to adopt safety standards. Sternlicht designed a membership-based lobbying and advocacy group in order to harness the power of mass movements to create positive change. And Glaser founded a smart-gun company whose product could help reduce certain types of deaths and injuries. Would any of these three innovations move beyond the historical gridlock on gun safety?

This is a teaching note to the original case: Gun violence was a significant problem in America. Three Harvard Advanced Leadership Initiative Fellows Christy Wood, Russell Sternlicht, and Gareth Glaser each decided to do something about gun safety. They each used their professional and leadership experience to identify their own solutions to the issue. Wood created a set of principles for investments funds to pressure gun manufacturers and gun sellers within their portfolios to adopt safety standards. Sternlicht designed a membership-based lobbying and advocacy group in order to harness the power of mass movements to create positive change. And Glaser founded a smart-gun company whose product could help reduce certain types of deaths and injuries. Would any of these three innovations move beyond the historical gridlock on gun safety?

Nigel Le Quesne, CEO of Jersey-based financial services firm JTC, firmly believed that "shared ownership" was at the heart of his company’s successful track record. The firm had seen its revenues, profits, and number of clients and staff grow steadily throughout its over 30-year history, and management attributed much of its competitive edge to its culture in which engaged employee owners had fully aligned interests and collaborated for the greater good of the firm. Le Quesne had seeded the first employee benefit trust with some of his own equity when becoming CEO in 1998, making all employees—from the receptionists to top executives—direct shareholders in the firm. Over time, the employee owned equity had grown from 5% to 23% and the trusts created significant value that had already been directly distributed to employees in two past pay-out events. In 2018, after JTC’s successful IPO, Le Quesne and his leadership team have to decide if and how to adjust the shared ownership tools to their new public markets environment.

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How Leaders Use Values-based Guidance Systems to Create Dynamic Capabilities

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