Q&A with Dr. Raymond Yeh

You have identified seven essential qualities of great leaders, including commitment, values, and humility. Which trait is the most important and why?
Values are crucial to great leadership. Lots of people are good leaders-they can bring their companies to high levels of success. But what separates the good leaders from the really great ones are values. For instance, when a Southwest Airlines executive gave the City of Austin a verbal agreement for $400,000 to research a new airport, which unknown to him the airline had no intention of pursuing, CEO Herb Kelleher stood behind that decision-even though he didn't have to. He said that when SWA gives its word, it stands behind it. Now that's a great leader defined by his values.

How did you go about selecting the "giants" featured in your new book, The Art of Business?
I studied over 30 top organizations and eliminated them one by one until I had the organizations I wrote about in the book. Lots of factors were important, but compassion was the key. For instance, GE was initially on my list, but after studying Jack Welch, I discovered that Jack rules by fear, so I eliminated GE. The true giants really have compassion for their people. Gordon Moore of Intel told me that one of the most important things a leader can do is to remove the stigma of mistakes. That's completely contrary to ruling by fear.

What was it like spending time with the playful founder of Southwest Airlines, Herb Kelleher?
Herb Kelleher is, like all the leaders we interviewed, a good human being-and he laughs, all the time! None of these leaders showed any ego despite their obvious fame and wealth. They are incredibly at ease with themselves and really enjoy life. The words to describe them are humility, vulnerability and peace of mind. From my interviews, I'd say that they are some of the truest leadership qualities, even though they are rarely mentioned in leadership books.

Your book, The Art of Business, shows how great leaders of today embody the five celebrated strategies from Sun Tzu's The Art of War. Share with us an example of who best masters or exemplifies the strategy of possibility.
The Art of Possibility is really the Art of Impossibility. Masters of this art can see what everyone else misses-and they act on it. Take Grameen Bank, which has a vision of a poverty-free society. Now a lot of people might think about this noble cause in passing, but who would have the guts to really do something about it? Or to make it a life purpose? That's the Art of Possibility-seeing the impossible, and then acting on it with courage!

Sun Tzu's other traits-timing, leverage, mastery, and leadership, as well as possibility-help give an organization its soul. How so?
Well, there are really two things to any great organization: doing the right thing, and doing things right. Having soul is about doing the right thing. That's the Art of Possibility (choosing the right vision), and the Art of Leadership. When you do the right thing, then you have soul. Then doing things right is much easier and covered by the other three arts of timing, leverage and mastery.

Every company wants to make a profit; some might even fill a market need. However, you highlight companies that transform themselves from a mere collection of workers who seek to make money to a community on a mission to make a difference in the world. What's the biggest pitfall to doing good and doing well for a company?

Many leaders who want to do good are too idealistic without being practical. Leaders of the excellent companies we interviewed know that they have to make a profit in order to do good. Companies that are not profitable don't stick around long enough to do any good. At the same time, these great companies don't compromise on vision and values. For instance, in order to provide really low cost, Southwest Airlines attendants clean the planes themselves rather than hiring outside people to do it because they know it helps the airline stay profitable, which helps them offer low fares.

Raymond, you taught at numerous universities for two decades and you were the CEO of three successful software companies. You've also served as a consultant to many major companies, including IBM, AT&T, Fujitsu, and Hitachi. Can you tell us what is different from today's generation of leaders vs. those of 25, 40 or even 50 years ago?
Great leaders of any time are simply great. Having said that, I'll also add that 25 or 50 years ago, most leaders were company men. They were dedicated to their companies and wanted to bring them to the top. Many of today's leaders are of the "me" generation who want to get the most out of the company for their personal benefit. The great leaders of any generation are dedicated to their company. Look at Herb Kelleher-more than 30 years of service. Earl Bakken of Medtronic-40 years. Gordon Moore of Intel-40 years. These leaders' dedication can be summarized by John Wooden, the most winning college basketball coach in history, who said, "Good things take time, and you should know that good things take time."

All great leaders are defined by their character in terms of how well they uphold their values. How did so many leaders fall short in the values department when it came to companies like Enron and WorldCom?
During the last two decades the trend of instant gratification has led a lot of people to focus on immediate rewards. As greed takes over, these leaders, who might have started out with good intentions, compromised their values. This is part of an overall societal problem that's illustrated by the fact that Harvard Business School just recently reinstalled its Ethics course for MBAs. Great leaders do not compromise on values. Consider K. T. Li, architect of Taiwan's economic miracle for four decades, who was guided by his personal motto: "Ask only what you can contribute, but never the reward."

What are some of the companies who best master the Art of Leverage, and why?
Wal-Mart, Dell, and Southwest Airlines are masters of leverage. While almost every company uses leverage of some sort, these masters bring all the forces of leverage into convergence, and when they do, they create a market inflection point, which dramatically stimulates market growth while drastically reducing prices. This is how they win when they go into a new market. For instance, when Southwest Airlines enters a new market, prices drop an average of 65% and volume increases by 300-400% within a year. This is known in the industry as the Southwest Effect.

When discussing the Art of Timing, you talk about planning, predicting, creating, and responding. Doesn't timing sometimes have to do with luck?
No. Having good timing once is luck. Being at the right place at the right time, almost all the time, is the Art of Timing. Great companies have a great vision, a known destination in the future. What I've noticed about great leaders is that they spend a lot of time, mentally, in that future. They have the ability to go into the future, then work their way backward to the present, seeing all the barriers and opportunities on the way. I call that thinking back ward while moving forward. It's a process of planning, predicting, creating and responding, not just a lucky guess. These leaders know how to create "future memories," and how to get there. For example, based on Moore's Law, Intel knows that they have to double their chip capacity every 18 months or they will lose their competitive edge. In other words, they time pace themselves to proactively create a future they already know.

You encourage companies to find and define their soul, but can a company have a soul?
Absolutely. Even though a company might be made up of thousands of people, you immediately know when you walk into a company with a soul. At Southwest Airlines, whose soul could be said to be "The Spirit of Freedom," you can see the soul in every employee. Every time I fly Southwest Airlines, I talk to the employees and I feel the same sense of "soul." Everyone is there to help people who want to fly. Every employee is an individual example of the airline's values and vision. They trust each other, have openness, and have tons of fun. In fact, I got as much sense of soul talking to flight attendants and pilots as I did talking to the airline executives. Companies have soul when every individual shares the same vision, purpose and values.

What does it mean when a company has Tao?
A company that has Tao has a real aim. The company really wants to improve the world in some way, free the world from some restriction. It's more than making a buck. Grameen Bank's Tao is to free the world of poverty. Medtronic wants to free people of pain. Southwest Airlines frees people to fly. Tao is fundamentally about freedom-increasing the amount of freedom in the world. That level of freedom takes lifetimes of dedication yet remains the pulse of the organization through generations of people. Tao is the living spirit of the organization as well as its vision and roadmap. It's the fire in the belly!

Don't most companies operate under a dog-eat-dog mentality?
Yes, and that's why most companies don't dominate their industries the way these "giants" do. The dog-eat-dog world is based on self-serving and fear: "If I don't get you first, you're going to get me." It's the whole carrot and whip mentally. I'll bait you with rewards up here, while I flog you with fear and insecurity back there. Sun Tzu, arguably the best strategist in history, says that win-win is the only solution. And to create win-win, you have to get beyond self-serving. Dell, Southwest Airlines, Medtronic and Intel are all companies that show us the dog-eat-dog model is the barest level of survival, not the blueprint for dominance (nor happy employees, for that matter).

You say a company must know its VPV, or vision, purpose, and values. But aren't these empty collections of ideals, just like a mission statement?
If the VPVs are empty, it's because most companies don't understand what VPVs really are. Vision-it's got to be big, so big that it can't be achieved in a single lifetime, yet so compelling that generations of people want to achieve it. Purpose-how are you going to achieve the vision? Grameen Bank is going to create a poverty-free society by offering credit to anyone who wants it, no matter how poor they are. Values-what do you stand for? Values are the guidance system that helps you choose the ethical, higher road. When you've got VPVs like these, they aren't empty. They are the driving force that kicks you out of bed every morning. In companies with real VPVs, no one just "goes to work." Everyone is on a crusade.

How do leaders formulate a roadmap for the future when so many factors are not yet known or even in existence?
Great leaders are flexible strategists. They usually have an open-ended game plan that is flexible enough to deal with multiple scenarios. For instance, Shell uses scenario analysis to look 20-30 years into the future. They look at major political, economic and social factors to create the scenarios. The key here isn't to have a crystal ball; rather, it's to "skirmish with the future," so to speak. You want to prepare the company, physically, mentally and emotionally, for what might happen. You don't try to nail down what is going to happen. You prepare yourself for the 2 or 3 most likely possibilities instead. The reason most companies fail is because they can't see past quarterly earnings. They spend too much time in the next quarter and not enough time looking at the next decade or two.

How did Wal-Mart employ a "think-small" strategy to become a giant?
Giant companies are often arrogant. They think big, and they act big. But when you're at the top of the heap, the only place to go is down. Companies like Wal-Mart act small because it helps them stay lean and fast. It's like David and Goliath. When you think small, you're more resourceful, savvier, and cleverer. You do things that a big company with big resources wouldn't think of. That's what companies like Wal-Mart, Dell and Southwest Airlines try to instill in their people. Winston Churchill used to say, "Success is never final." If you keep acting like the underdog, you've got a better chance of staying on top.

Dell's philosophy of build-to-demand has been quite successful. Will we see more of this strategy employed by others as technology and production improves?
Many other companies in different industries have adapted Dell's strategy. Dell''s key competitors, however, were not able to use it well because of their distribution model of going through the third parties. They tried to adapt a hybrid model but failed. To really adapt the build-to-order model, Dell's competitors would have to discard all their existing partners and start over from scratch. That's a sacrifice that few are willing to make. Dell's model works because they designed it from the ground up to leverage the weaknesses of the other major players.

Raymond, you highlight some amazingly successful companies, each of whom have steep competition that seeks to copy, exceed, and defeat them in the marketplace. However, companies such as Dell, Wal-Mart, and Southwest Airlines remain the leaders of their industries. What is that intangible quality that makes them stand out from others?
They practice all five arts simultaneously. Many companies practice one or two, but the companies mentioned the use of all five extensively. The arts of possibility and leadership help them "do the right thing" and help them see what others can't see. Sam Walton went after all the tiny one-horse towns that no other retailer wanted. Then they use timing, leverage, and mastery to "do things right." When Dell owns a 99% market share of a specific market segment, Michael Dell wants to know, "How can we get that last one percent?" Good enough just isn't good enough.

The principles of The Art of Business are based on military tactics and war strategies. The end result of war has to have a victor and a loser-to the death. What's a victory for business and society?
The highest form of strategy is to transcend the paradigm of conflict resolution and go for the win-win solution. Competition in business, like war, also has many levels. To the great companies documented in The Art of Business, victory usually means that they have fundamentally improved some aspect of society-all while maintaining healthy profitability. With Southwest Airlines, more people can fly than ever before. With Medtronic, people like Jerry Lewis can be pain free. Grameen Bank helps poverty stricken people start their own businesses with micro-loans. At the end of the day, these organizations are profitable, their customers satisfied and their shareholders well rewarded. They all have the spirit of competitive greatness, as suggested by John Wooden, in that they enjoy the challenge of keen competition.

You say releasing one's ego is the mark of a true leader. However, don't the most successful leaders have enormous egos?
Great leaders dedicate themselves to a purpose for the long haul, so they're not that concerned about themselves. It's the purpose that matters. When I sat in the same room with Gordon Moore of Intel or John Wooden of the UCLA Bruins, we were just two people conversing. There was no ego. In fact, these folks have smaller egos than the average person. The whole time I talked to Gordon Moore, he never checked the time. His whole attention was focused on me. He was here in the moment, but his ego wasn't. These giants are very real, human and humane. That's the true mark of their success. Art Collins told me that if his grandchildren ever asked him what he did in his life, he wouldn't tell them that he gained an extra penny per share for his shareholders. He would tell them about all the good that Medtronic did for millions of people and the small but important part he played in that. There's no ego in that.