ISME Conference 28 October 2010

CORRADO PASSERA: Good morning everyone. I would like to thank you for inviting me to this event. I am honoured to have been asked to talk about leadership at a school of leaders as important as this one. The Armed Forces are increasingly called on to perform important, difficult tasks, and increasingly they find that they have to cope with situations that are also atypical, in war and, above all, in peace. As the General said a moment ago, we are increasingly involved in reconstruction operations; we are, of course, present in the stages preceding armed conflict, but also in the subsequent stages of reconstruction. An organisation like the Armed Forces, which is already complex in itself, finds that it must handle increasingly complex situations. These considerations lead me to a talk that I was asked to develop regarding a subject that is extremely important, a difficult subject, a subject that cannot be tackled with simple arguments. In fact there is no recipe for leadership or for managing complexity, even though there are certainly experiences, examples, the rules of good sense, that enable the identification of certain characteristics that must be taken into consideration. I was pleased that in his talk, the General said we want to create talented, capable, competent leaders with good sense, because it is these individual characteristics that are the principal features of leadership. Talking about complex organisations and of leadership, of command, in this type of organisation, is also complex. I have divided the few considerations that I would like to share with you into three separate sections. The first: why is complexity increasing? What are the reasons for and deep roots of complexity? The second: what are these organisations that are increasingly complex, what do they consist of and to what can they be likened? What are their characteristics and vulnerable areas? The third: what type of leadership, what type of command, what type of role should the heads of these organisations know how to play? First and foremost, complexity increases because interdependency increases. This is an unstoppable trend, indeed, it is an explosive trend, due to the intensity of communications, of interaction, of interdependency, due to the fact that all the inhabitants of the Earth, all countries, all parts of the world are connected in real time. This happens through telecommunications, the Internet, the press, through connections between various organisations that have become global. So, the first large engine of complexity is precisely interdependence. This means that anything that occurs in any part of the world can and does have an

immediate effect everywhere. Just think how a careless remark by an idiot in Florida can spark off terrorist actions 20,000 km away; or about the fact that many decisions made at local level can have an immediate economic and political effect on other parts of the world. This is a trend that is already happening, will continue and will be one of the deep roots of the origin of complexity. Of course, complexity is also aggravated by the fact that interdependency brings into contact countries that are totally different and are faced with the necessity of meeting and collaborating on religion, politics, economy, traditions and cultural customs. If it were simply a case of connecting similar entities and organisations, management could be limited to critical areas linked to the various dimensions and not to problems of heterogeneity and conflict. Instead, because of the interaction between entities that are very different and even historically in competition, the problems become difficult to manage. The contact between different political and economic systems creates completely new combinations. I will give only one example of this: we thought that market economy and democracy were inseparable and inevitably connected concepts. With the important phenomenon of globalisation, history has shown us, unfortunately, that this is not true and that the association between the defence of freedom and rights in the economic field and the defence of freedom and rights in political and social fields is definitely not automatic. I say this because complexity also derives from having to manage situations that are culturally, even more so than politically, totally unexpected. Complexity grows because everything is continually changing. Continual change, which also occurs in organisations, is now a normal phenomenon and brings into play the necessity for leadership with very particular connotations. In the past, change was thought of as an exception, something unusual, but now it is physiologically normal. Change is the offspring of progress in science, technological innovations, contamination between different cultures, continual changes in the forms of operation of various systems, economic in particular but not only those. This is a profound transformation and we must all adapt to it. It could represent a huge opportunity, because knowing how to manage, ride, anticipate change, means being ahead of the others; but resisting or enduring change is an attitude that could lead to decline. Other complexities are created and developed because the cultural tools for managing these trends as we said, the first is interdependency, the second is contact between different social organisations, the third is change - are anything but complete and definitive. Oddly enough, individual specialist disciplines become increasingly sophisticated, while the great theories about system and overall interpretations

become weaker. Probably, the space left by the end of ideologies, the end of general theories, the end of overall certainties, is a great opportunity for freedom of thought, but it is also the origin of a loss of sensitivity, and the ability to interpret and understand the phenomena that are taking place becomes more difficult. We are talking about a crisis that is almost epistemological in nature, of an inability at this time to bring together all these different situations that suddenly - but in some cases, gradually - find that they must cohabit. We are in a society that someone defined as liquid, where there are no longer any certainties or strong points. We are responsible for creating or consolidating these strong points which, when all is said and done, are in fact values; but greater openness, greater relativism are certainly combined with much fewer certainties. And all this brings fear and concern for the future, it produces individualism rather than a sense of community and sociality. Ironically, we have much more information than before, but we have fewer tools for interpreting it; we have many more occasions for participation, but participating is also much more difficult; we have to cope with significant subjects like the way democracy works. Its complex structures, at local as much as at national and supranational level, are such that participation is potentially pervasive and continuous, but difficult to implement, apply, and actually experience every day. All these considerations are simply brushstrokes. The subjects that I have listed tell us that the roots of complexity run deep, roots that have set off unstoppable trends which, in their turn, bring challenges that in some cases are certainly of an organisational nature, but very frequently they are also economic and even cultural. The role of schools at all levels I will come back to the role of an important school such as this one the role of the university, the role of studying, the role of research in all fields, is fundamental, because the tools available for managing complexity certainly do not yet measure up to the problems that accompany complexity. The second section: complex organisations. In such a complex world, the major players are, of course, large organisations - national and supranational, economic, religious, military, private, public, or Third Sector organisations; in other words, entities that have an increasing presence even in very different sectors. Often, these organisations are very strong, very powerful, they have huge resources at their disposal, but they also have certain internal areas where they are obviously vulnerable. They are organisations, I repeat, that often are very large; organisations that have extremely differentiated internal roles. Lets take as an example the case of a large bank, given that I have been dealing with this in recent years: from the outside, it may seem that only some relatively simple activities are carried out: the work of tellers and credits. It is true, but it is a totally narrow viewpoint. A very large

organisation like Intesa Sanpaolo, which employs over 100,000 people in 40 countries, is an organisation that manages, for example, risks of all kinds, even of a systemic nature, that develops information technology platforms, that makes efficient use of telecommunications, that develops new communication languages, new marketing techniques and managing of human resources. Within these large organisations there are very diversified structures which involve culture, expertise, specialist professionalism, that are not always capable of communicating but which must make the effort to interact with a common aim. This is the typical way in which a large, growing organisation is strengthened on the one hand, but on the other, it simultaneously creates certain conditions that are potentially vulnerable. We have seen this in recent years: paradoxically, the biggest organisations, those that are more diversified, were the first to be disrupted by the crisis, even though it was commonly believed that they would have stood up to any adversity. Why? Because when an organisation becomes too big and too complex, its ability to react to stimuli is much slower: this is because it has become inflexible, excessively bureaucratic, and it must necessarily devise governance mechanisms that are very slow, it becomes sick because of the abnormal bureaucracy it has created. Its complexity, the increased impossibility of top management to control what is happening in the various territories and various branches of the organisation, intensifies management problems: there is trouble if it is taken for granted that size alone is a positive factor. Obviously, up to a certain level increase in size is essential: if you are not of a certain size you do not have the strength to make certain investments, you do not have the necessary skills available to you, you cannot attract the best talents. All this is obvious. However, when it has exceeded a certain threshold, size becomes a source of complexity and the cost exceeds the benefits; if pushed beyond a certain level, the diversification that is often considered to reduce risks leads instead to complexity that makes organisations vulnerable. This must always be borne in mind when planning the growth of our companies and organisations. I emphasise this aspect because sometimes a certain amount of courage is required to say no at a time when opportunities for growth arise; but we must also evaluate whether individual cases are really opportunities or, on the contrary, threats. We experienced, and are still experiencing, the extraordinary union of two large Italian banks, Sanpaolo and Banca Intesa, which together have created one of the best banks in the world. This is not just my personal opinion, it is the opinion of many observers in Italy and abroad. By coming together, in certain sectors we have been able to achieve a dimension and competitive strength that have enabled us to get through crises, like the one we have just had, better than many other operators. However, we also had the prudence let me call it that not to expand our activities to too many different

countries; we had the courage, as I said before, to say no when it was necessary. Activities should be focused on what we know we can do well, avoid doing too many, and try to increase ones presence only in those countries that are known to us, or which we can get to know, or where we believe there could be competitive advantages. In other words, we must avoid the mistake made by many operators of wanting to carry out all types of activities and more or less everywhere. Recent years have demonstrated that a little humility and not wanting to do too many things in too many places was the reason that Italian banks in general, and certainly our bank in particular, have been able to get through the crisis much better than many others. Going back to the subject of large organisations and their vulnerability. We said that when you become too big, too complex, too diversified, you become bureaucratic, your become inflexible, slow, insensitive to what is happening on the outside, to positive or negative stimuli: in short, when internal complexity increases, the consequence is a reduction in the ability to react. This is not a pedantic theory. This is the real reason why very strong and very complex social organisations throughout history have collapsed at a certain point, at times suddenly and unexpectedly. I certainly do not want to make wild comparisons between companies and states or even between the empires of the past, but if we look at the size and power of certain multinationals, we are not far from understanding the significance and impact that certain civilisations had on different historic eras. Undoubtedly, it was an excess of complexity during the last centuries of the Roman Empire that contributed to determining its downfall. The same thing happened to the Austria-Hungarian Empire and the British Empire. So, when we talk about complex systems and organisations and not just companies but also states and supranational entities - the tendency to become less reactive because of growth is a danger that history has frequently taught us can contribute not only to weakening them, but can even be disastrous for their survival. We have touched briefly on the first two sections of my talk: we have seen that the reasons that augment complexity are increasingly numerous and that this trend will continue in the future; we have seen that the organisations that can play an important role in the current world context are necessarily large and complex, but they must avoid running the risk of incurring certain weaknesses, they must know how to continually adapt, they must be always prepared to cope with what is happening around them. We now come to the basic theme of my talk: what kind of bosses should be trained to properly manage these organisations in this type of scenario of growing complexity and continual change? It is a particular challenge for a school like this one, but also for the entire education system and even for the managerial classes throughout the world. Because if there is

one thing we have an enormous need of, it is numerous new leaders at all levels, numerous bosses who are talented. Obviously, I wont try to define who is a leader, who is a boss worthy of this title. There is, however, a series of experiences in which I have been involved personally and can tell you about and which can contribute to our discussion. Naturally, as we said before, there is no formula for a valid boss or leader in the absolute sense. Indeed, different moments need different styles of leadership: there is no method for being a boss, or being a leader, that applies to all situations. And there can be very different ways of interpreting these roles depending on different situations. However, in the light of what is happening in the world, in my opinion there are certain characteristics that are peculiar to a talented boss or leader. I dont mean the obvious characteristics, the indispensable requisites like expertise, integrity, international orientation, a sense of responsibility, dedication. These characteristics are fundamental, inescapable, they are the sine qua non, so I do not want to talk about them specifically. A boss that makes a difference, a real leader at times like this, can be recognised by other qualities that are totally distinctive. I believe that the first characteristic of the talented boss, of the leader we need in any economic, military, political, national or supranational organisation, is overall vision, one that is not specialist or partial. If one does not understand how the overall system works, if one does not understand the interrelationship of the various offices or components of the organisation, if a form of unity is not achieved, it is useless to even start the job. First and foremost, collaborators, employees, subordinates want their boss to put them in the position of being able to understand the sense and reason for things and not just how to do them. It is essential to make them understand why a certain activity must be carried out; it is not sufficient to explain how to do it well, but its meaning and role as part of an overall vision that animates everything must be explained. But increasingly in complex organisations everyone takes care only of the part that is his or her responsibility. If one loses a sense of the whole, the single parts will also lose their meaning; they will also be less motivated, less enthusiastic about doing their best, because they have not understood the ultimate aim of their work, they do not connect the stages before or after an activity with the job they themselves are doing. This overall vision, which means knowing how to manage people and skills that are totally different, is an important characteristic of a leader and of leadership. But in any case, lets remember always that when we talk of leadership nowadays, we are talking about a group of directors and not individual bosses. Having an overall vision does not imply being an expert in everything, obviously. An orchestra conductor does not have to be the best violinist or pianist or trumpet player; but he must know how to rally, use and combine the skills that are better even than

his own. Bringing everything together, making a complex system intelligible to everyone, knowing how to employ different people, skills and experience, is the first characteristic of a good boss. In second place, I would put the ability to identify new solutions, to innovate; lets call it creativity. If it is true that everything changes continually due to the combined effect of the different trends we described earlier, a talented boss, the leader who makes the difference, is the one who arrives a moment or two earlier, who never says thats the way weve always done it, or who makes ideological decisions based on standard, predictable, automatic reactions, but who always starts from a knowledge of traditional solutions and an analysis of the specific context and knows how to anticipate, how to create new solutions, uses lateral thinking, finds new combinations for those parts of the system that he or she supports and governs. They are leaders who encourage ideas, initiative, who ask people - not only within the company - for entrepreneurism, the ability to try new solutions. It is clear that if we want to create this ability to develop new solutions within the organisation, we must accept a certain level of error by collaborators. Leaders who are creative, who are innovative, who know how to carry forward their company or organisation, who know how to keep it in step with the times, also know how to accept a certain level of error, even by their collaborators, because only people who never do anything never make mistakes, because only people who work with the mentality of an executor never make mistakes, but at the same time, they never produce anything new. Keeping a balance between managing activities that must be carried out efficiently on the basis of traditional models and the ability to introduce new solutions by managing people who are able to propose new ideas, is a difficult challenge, the success of which is by no means obvious. Often, people with new ideas, who introduce new stimuli, are put aside, they are considered to be annoying because they upset procedures or the normal way of doing things. Instead, the organisations that welcome change must help these people, who are, unfortunately, few and far between, to get ahead. Obviously, when I talk about tolerating errors, I do not mean errors that arise from bad faith or incompetence. I mean errors due to the natural failure rate of new ideas, because innovations must be tried out and, in some cases, when it is obvious that they are not the right ones, you have to start again from the beginning in another direction. This leads us to the third characteristic of a leader: the ability to manage change. Managing change is something that is extremely difficult. Managing change in complex organisations is an area in which failure is frequent: for example, mergers, combinations of companies, alliances, partnerships, whenever companies get together to do something as military people you have direct experience of such situations in

the many peace missions if there is not an ability to manage change or new ideas, results will not be achieved. What does managing change mean? Primarily, it means identifying the common aim that everyone will work towards achieving. It could be an economic aim or a political aim. When I was speaking to Shimon Peres a few weeks ago, I emphasised this aspect of managing change, which I described as showing people the promised land: precisely that, their commitment must have a meaning, they must justify the sacrifices or efforts they make in order to achieve an important aim, to make improvements for themselves or for their children to achieve or construct. Therefore, objectives must be identified and communicated, they must be explained so that it is understood that the sacrifices and the benefits will be shared equally by everybody. Everyone in an organisation has a role, perhaps some will not be the main players, but they will certainly play their part in bringing about change. By taking an approach of this type, unimaginable results can be achieved, it is even possible to move mountains. So, the first thing to do is to make everyone participate and then guide the day-to-day process. I will come back to this last aspect at the end of my talk. Change is determined by many small things, by innumerable micro decisions that are made every day and the boss who knows how to take his or her people to the other side of the river is clearly distinguishable. Because change inevitably generates fear, anxiety, uncertainty, which must be anticipated by giving the right answers and, on a daily basis, by carrying out some of the changes that always need more time to be implemented. There will be trouble for bosses who believe that they can change complex mechanisms in a very short time, and not only in the economic or political arena. Usually, this short-sighted attitude does not lead to long-lasting results. However, it is also true that the long term cannot be separated from the short term: a major result is made possible by many micro results, which must be achieved day after day. We have identified some of the most important characteristics of the leaders of complex organisations: a vision of the system, the ability to manage change, to bring innovation into everything that is done, in the service that is offered and in the way it is offered. We now come to the last point, which has to do with the more specifically attitudinal characteristics of the talented boss. Because, apart from competence and the manner of working, there is also a more human and relational component. The attitudes that make a boss really different, the leader that our organisations in this complex world need so much, are amongst others the following. First. To achieve results it is not enough to define long-term objectives, we must enter the routine of every day, monitor partial results, reward those who achieve them, help

those who are unable to, keep everyone together. Keeping everyone together is the most perceptible characteristic of a talented boss, because keeping skills together, making them grow with respect for the diversities of the complex organisation, is the most important activity and often the most difficult to guarantee. Then there is courage. I certainly do not have to explain to you about courage. You teach us what it is. But there are meanings that are connected to organisational aspects. First and foremost, there is the courage to decide. The boss that is needed is the one who makes a decision and in times that are compatible with the needs of the organisation. Very often there is a lack of information or the information is incomplete, but also in these cases a decision must be made. Frequently, bosses are alone, there is no manual that will give them the answer, they cannot ask anyone for help and they alone have to decide, because collaborators and colleagues look only to them and in their solitude the final decision is up to them: knowing how to make it under these circumstance implies having courage. Courage means going against the enemies of change. When we talk about change in general, we tend to think that everyone agrees with and supports it. But very often, change has very strong enemies. The mechanisms that do not work in organisations as well as in a society are not a problem for a great many people, for the many parasites who survive because these defects exist. There are a great many people in advantageous positions who block innovation. There are criminals who do not want change, who would relegate it to a corner. Naturally, I am not talking only about specifically economic organisations, although very frequently we have to face up to forces that do not want change. Courage is, therefore, a very important element that can be developed and makes the difference. For the last meaning of courage, I return again to my conversation about leadership with Shimon Peres and Jos Maria Aznar a few weeks ago. Ultimately, a leader is someone who does the right thing despite the knowledge that he will pay for the consequences. The political leader who knows he will not win the next elections if he makes a certain decision, but knows also that in that moment his/her country, his/her organisation or his/her regiment, needs that decision. Perhaps all these characteristics may seem slightly rhetorical, but the people who live and work with you look to you as a model, a guide, to understand if you really are the boss. From this emerges another type of courage which is very important and which also makes the difference between a talented boss and a mediocre one: it has to do with the ways of managing the people with whom you work. It is meritocracy, the assessment of people based on results and commitment by leaving aside all other considerations, such as affiliation, likeability, provenance. The

organisations that give the best of themselves are those in which people know that commitment corresponds to fair assessment, that the results correspond to fitting rewards, and that there are no other elements of any kind that interfere with the management, assessment and selection of people. Then there is one last quality, which is the one that sums up all the characteristics of a real leader: a leader can be recognised on the basis of the people who surround him and on his ability to create other leaders. The leaders of society and complex organisations are those who leave behind them, or who create around them, other bosses, other leaders. They are leaders who develop and spread the ability to lead. The majority of the characteristics that distinguish leaders are not part of their DNA, they are not passed on genetically: on the contrary, they are developed, cultivated and selected. This is the role that can be played by schools, by higher education schools such as yours; this is the role that institutions like yours can perform to the benefit of society as a whole. And therefore the possibility you have given me today of being able to talk to you about these matters in a place where such important subjects are handled correctly, is a gift for which I am enormously and sincerely grateful. Thank you all again.