Judgment

■■

In this issue:

How Winning Leaders Make Great Calls

■ Learn...
why the defining character-
istic of the best leaders is
the ability to make good by Noel M. Tichy and Warren G. Bennis
judgment calls, often in the
face of uncertainty and
under great time pressure. A summary of the original text.

■ Master...
a powerful framework for aking judgment calls handled the Cuban missile
making tough calls, even
when the stakes are high
M is the essential job of
every leader. To under-
crisis.
and the right path is far
from obvious. stand how critical it is to a Among CEOs, Coca-Cola's
leader's success, consider Roberto Goizueta will for-
■ Understand...
how to make the right calls
this: With good judgment, ever be linked to his disas-
in three critical domains: little else matters. Without trous decision to launch
(1) judgments about people; good judgment, nothing New Coke. Carly Fiorina
(2) judgments about strate- else matters. was a pioneer in the ranks
gy; and (3) judgments about
crisis.
of female executives, but
Take any leader: a U.S. she'll be remembered for
■ Increase... president, a Fortune 500 destroying Hewlett-
the accuracy of your judg- CEO, an NFL coach, a Packard's culture. On the
ment calls by developing a
deeper knowledge of your- wartime general, you name other hand, Andy Grove
self, your social network, it. Chances are you remem- and Gordon Moore made
your organization, and your ber them for their best or the right call in abandon-
stakeholders. worst judgment call. ing the memory chip busi-
■ Improve... ness and guiding Intel to
your decisions by using a Can anyone forget that become the powerhouse in
three-phase process: (1) Harry Truman issued the microprocessors that it is
preparing for the decision; order to drop an atom today.
(2) making the right call;
and (3) overseeing the execu- bomb? When Richard Nixon
tion to get the right results. comes to mind, so does In short, people who make
Watergate. If you think of good judgment calls are
■■ Bill Clinton, you remember hailed as good leaders.
Volume 17, No. 2 (2 sections). Section 1, February 2008
© 2008 Audio-Tech Business Book Summaries 17-03. the Monica Lewinsky scan- People who exercise poor
No part of this publication may be used or reproduced
in any manner whatsoever without written permission.
dal. And you can't think of judgment are considered
John F. Kennedy without poor leaders. It's that
To order additional copies of this summary, reference
Catalog #2081. recalling how deftly he simple.
Throughout our lives, each of us makes thousands of judgment calls. Some are trivial,
such as what cereal to buy. Others are monumental, such as whom to marry and what
career to pursue. The measure of our success in life is the sum of all these judgment
calls. How many good ones did we make? And more importantly, did we make good
calls about the things that really mattered?

Our ability to exercise good judgment determines the quality of our individual lives.
And, as we rise to positions of leadership, the importance and consequences of our
judgment calls are magnified exponentially by their increasing impact on the lives of
others. Put simply, leaders' judgment calls determine the success or failure of their
organizations.

But what really matters is not just how many good judgment calls a leader makes.
Rather, it is how many of the important ones he or she gets right. Good leaders not
only make better calls, but they are able to discern the really important ones and get a
higher percentage of them right. They are better at a whole process that runs from see-
ing the need for a call, to framing issues, to figuring out what is critical, to mobilizing
and energizing the troops.

What is judgment? It is an informed decision-making process that encompasses three

domains:

1. Judgments about people

2. Judgments about strategy
3. Judgments in time of crisis

Within each domain, leadership judgments follow a three-phase process:

1. Preparation, or what happens before the leader makes the decision.

2. The Call, or what the leader does while making the decision that helps it turn out
to be the right one.

3. Execution, or what the leader must oversee to make sure the call produces the
right results.

Good leadership judgment is supported by knowledge of one's self, social network,

organization, and context.

Let's go through the three phases of the judgment process in more detail and examine
them from the perspective of the three domains of people, strategy, and crisis.

The Preparation phase begins with sensing and identifying the need for a judgment
call. In a people judgment call, the question isn't whether a CEO or other leader will
need to be replaced, but when. Nevertheless, an incredible number of otherwise high-
ly regarded companies aren't ready when it comes time to name a new CEO. The other
side of people judgment calls is letting go of the people who shouldn't be around. Many
leaders fail to make the right judgment call about firing people because they fail to see
the need. How could the late Ken Lay not have fired Jeff Skilling and Andy Fastow at
2 AUDIO-TECH
THE JUDGMENT CALLS MATRIX
JUDGMENT: the essence of effective leadership. It is a contextually informed decision-making process
encompassing three domains: people, strategy, and crisis. Within each domain, leadership judgments fol-
low a three-phase process: preparation, the call, and execution. Good leadership judgment is supported by
contextual knowledge of one's self, social network, organization, and stakeholders.

Enron? Lay made a very bad judgment call in leaving these people on his team.

For strategy judgments, scanning the horizon and identifying the need to make a judg-
ment early are extremely helpful. The best prescription for helping leaders recognize
the need for strategy judgment calls is captured by Andy Grove's view that you must
look over the horizon at tomorrow's environment, be paranoid, and reinvent the orga-
nization. It's hard to do all of this at the same time. It requires discipline and constant
searching.

There have been all kinds of examples throughout history of leaders who did not recog-
nize the need for strategic judgment calls. The legendary economist Joseph Schumpeter
pointed out that most new industries do not grow organically from existing industries
because people who are successful can't see the need for change. Think of the transition
from telegraphs to telephones, railroads to automobiles, or IBM hardware to Microsoft
software.

In the third domain, crisis judgments, it's often easy to sense and identify the need for
a judgment call. Many of them emerge with such urgency that it is impossible to ignore
them. But others are more subtle. For example, the leaders at Merck had plenty of
data to identify the Vioxx crisis long before its recall, and before the lawsuits started to
pile up.

BUSINESS BOOK SUMMARIES 3

Once leaders recognize the need for a judgment call in any domain, they must frame it
and name it. There is tremendous power in framing an issue and then giving it a name.
When Jack Welch wanted to get his business leaders to grow more services to offset the
pressures on product pricing in the 1990s, he framed and named the GE strategy as "We
are a service company with competitive products, not a product company with services on
the side.”

The Preparation phase continues when the leader mobilizes and aligns the right peo-
ple. It is essential to get the people who have something to contribute on your team
and into the game at the right moment, while keeping all others out. Sometimes it
means skipping over layers of the organization. The aligning part of the equation
means getting on board not only the people who can help you make a smart decision
and execute it, but also the people who can derail it.

From the Preparation phase, the leader must move into the second phase: making the
Judgment Call. General Electric CEO Jeff Immelt, who makes decisions affecting
hundreds of thousands of people weekly, if not daily, describes the process: “I make
every decision, but get lots of advice. I don't delegate. It's 'What do you think? What
do you think? What do you think?' Then boom. I decide." The responsibility and
accountability are his alone.

The third phase is Execution, or making it happen. Once a decision is made, then
resources, people, capital, information, and technology must be mobilized to support it.
If they aren't, the decision doesn't get carried out and any good preparation and deci-
sion making simply goes down the tubes. For example, when Brad Anderson and his
leadership team at Best Buy made the judgment call in 2002 that the company needed
to be transformed into a customer-centric enterprise, he began a process that would
take years of focus and effort.

Once the call was made, he mobilized several senior-level action learning task forces
to spend six months finding the segments in the Best Buy customer base that the com-
pany would cultivate. Next came selecting from among those leaders the people who
would head up the segments, selecting the stores to be transformed, and mobilizing
all the support functions to execute the new strategy. The whole execution process
continues to play out to this day and will probably never be completed.

Because judgment calls are determined to be good or bad by their results, there is
almost always time to learn and make adjustments. Leadership judgment is a process;
the final outcome can sometimes be dramatically altered in the execution phase. One
example is Jack Welch's judgment call to acquire Honeywell for $41 billion in 2000.

At the time, the deal made sense because it would allow GE to acquire Honeywell's
business and it would prevent a competitor, United Technologies, from making the
acquisition. But when the European Commission rejected the acquisition and the econ-
omy went through a downturn in 2001, Welch backed out of the deal. Based on the new
reality, not making the acquisition turned out to be the best judgment call.

The quality of a leaders' judgment depends on his or her ability to use four types of
knowledge to make judgment calls.
4 AUDIO-TECH
The first type of knowledge is self-knowledge. Do you know who you are? Do you have
clear values about what you are trying to accomplish, and about what you will and will
not do to achieve your goals? Do you know what you know and what you don't know?
Are you willing to learn? Leaders who exercise good judgment are able to listen, reframe
their thinking, and give up old paradigms.

The second type of knowledge is social network knowledge. Your social network
consists of the people you interact with and rely on most to help you achieve your
goals.

The third type of knowledge is organizational knowledge. Good leaders work hard
to ensure that everyone on the leadership team and throughout the organization is
equipped to make good judgment calls.

The fourth type of knowledge is contextual knowledge. Leaders must engage cus-
tomers, suppliers, the community, and their boards in generating knowledge to support
better judgments.

LEADERSHIP JUDGMENT PROCESS

Now we have laid out the framework for leadership judgment calls. It is based on the
premise that there is nothing more important in leadership than having the right peo-
ple on the team who can execute the strategy and are capable of handling crises as they
occur.

■■
BUSINESS BOOK SUMMARIES 5
PEOPLE JUDGMENT CALLS

Judgment calls about people are the most critical ones that leaders have to make. This
is because they have a huge impact on everything a company does. When it comes right
down to it, people make things turn out well or not. A good team member can fix a deci-
sion that is going wrong, and a bad one can mess up even the most brilliant judgment
call.

Moreover, boards have to make the right calls about the people they hire to lead their
companies.

If leaders don't make smart judgment calls about the people on their teams, then there
is no way they can set a sound direction and strategy for the enterprise, nor can they
effectively deal with a crisis. The first priority is getting the right people on the team,
and then setting the strategy and being ready for the inevitable crises.

In many ways, the process for making good people judgments is similar to that for mak-
ing other types of good judgments. A leader must recognize the need, frame the issue,
and mobilize and align the parties who can provide the information and advice needed
to make a good judgment call. Then the leader must make the call at the right
moment, and follow through on the execution to make sure that the result turns out as
well as possible.

People calls are the most complex of the three domains for several reasons. First, a
judgment about whether someone will be a good leader is a judgment call about how
well they will do at making other judgment calls. Will they be able to build a good
team? Develop effective strategy? Deal with the inevitable crises?

People calls also have other challenges. They are more likely than judgment calls
about strategy or crises to be affected by the emotional attachments or dislikes of the
leader, and they evoke emotional reactions in the people affected by the calls.

Even Jack Welch, who is highly regarded for his track record in hiring and developing
thousands of leaders during his tenure as CEO at GE, said that at the end of his career
he will still batting only about .800. He estimated that when he started out as a man-
ager, he only got about 50 percent of his people calls right, but even after 20 years, he
thought he still got 20 percent wrong.

What process do the best leaders follow to make the right people calls? Let's break
down a judgment call that A.G. Lafley, the CEO of Procter & Gamble, made in hiring a
key executive.

First, some background: Lafley was hired in June 2000 to turn around the company,
and within two years he replaced more than half of the company's top thirty executives.
Lafley realized that many of these executives didn't have the right mindset to take on
the tough calls the company would need to make, so he found people who were better
suited to the task. Since then, P&G's earnings and stock price have climbed more than
58 percent.

6 AUDIO-TECH
One of the biggest calls that Lafley made early on was to pick Deb Henretta to be in
change of the baby care business. He selected someone with no expertise in the area
because he thought she was a good leader and would bring a new perspective to the
business.

The steps that he took as he worked his way through this judgment call are instruc-
tive. Lafley didn't get everything right the first time. He had to circle back and cover
some bases that he missed. The result was a success because he was constantly aware
of the importance of getting each phase right and because he stuck to it until he got it
right.

In the Preparation phase of the people judgment call, Lafley had to sense and identi-
fy the problem that needed solving. The sensing part was easy, because baby care was
the company's largest single category after laundry, and it was struggling.

In the mid-1980s, P&G's diaper brand, Pampers, had 65 percent market share. Then
P&G launched an innovative new line of shaped diapers under a new brand name,
Luvs. Luvs took 30 percent of the market, but it succeeded by taking share away from
Pampers, whose share fell from 65 percent to 25 percent. Meanwhile, Kimberly-Clark's
diaper, called Huggies, became the No. 1 brand because P&G had split its share
between two brands.

Lafley decided the problem was not management performance or marketing. Instead,
the business model was off the mark. The engineers were running the business, when
the focus should have been on the consumer and on brand equity.

The second part of the Preparation phase was to frame and name the issue. Lafley
framed the issue as leadership. The unit needed a new strategy, and the only way to
get that new strategy was to choose a new leader and a new top team. He framed his
task specifically as finding a transformational leader. He needed someone from outside
the division who would be able to look at the business with fresh eyes.

More specifically, he wanted someone who was highly capable in every part of the
judgment matrix. A judgment matrix is simply a matrix with 12 cells, based on the
framework we outlined in the previous section (see the matrix on page 3).

Across the top are the three domains of people, strategy, and crisis. Along the left side
are the four types of knowledge that leaders use to make good judgment calls: self-
knowledge, social network knowledge, organizational knowledge, and contextual
knowledge.

In Lafley's case, he wanted a leader who could make good people judgments about who
should be on the baby care team. He wanted a leader who could make the strategic
judgments about how to turn the business around. And he wanted a leader who was
good at making crisis judgments.

Once he had framed the decision as finding a leader who could make a series of good
judgment calls, Lafley moved on to the third part of the Preparation phase: He mobi-
lized others to help create a slate of candidates for the job. With the help of the head
BUSINESS BOOK SUMMARIES 7
DEB'S JUDGMENT MATRIX

of HR and the president for the group that included baby care, Lafley came up with a
list of people who might fill the job. At the top of the list was Deb Henretta from the
company's laundry division.

Then they began to assess her, based on her ability to perform in the various boxes
of the judgment matrix. They considered reviews of her past performance, as well as
discussions with a network of people who knew her and worked with her.

Here are the kinds of questions that leaders need to consider in each of the 12 cells of
the judgment matrix. We'll begin where the People domain intersects with Self-
Knowledge, followed by Social Network Knowledge, Organizational Knowledge, and
Contextual Knowledge. Then we'll do the same for the Strategy and Crisis domains.

1. Does she have a solid sense of herself? Is she comfortable making tough decisions
that affect the lives of others?

2. Does she know how to draw on the resources of those around her to get the input
she needs? Is she able to figure out who she needs to involve? Can she align and
energize them?

3. Does she know how to design and implement organizational processes that support
her in making good people judgments?

4. Is she willing to tap relevant stakeholders for input? Does she know when to ask,
and how to get meaningful input?

8 AUDIO-TECH
5. Does she see herself as a change agent? Can she see new opportunities and execute
new strategies?

6. Will she get the people with the right expertise and the right chemistry in the
room? Will she have the discipline to exclude those with little to contribute? Can
she frame the issues so the best solution is reached?

7. Can she build the processes to get all levels of the organization aligned to execute
the new strategy? Can she energize them to deliver on it?

8. Can she teach the rationale of the strategy to key stakeholders and get them
aligned with her? Can she create benchmarks and deliver on them?

9. Will she assume personal responsibility for dealing with crises? Does she have the
self-assurance to make clear, firm decisions when necessary?

10. Can she elicit a range of opinions and honest discussions from her social network?
Can she manage conflict so that it is productive?

11. Can she focus the organization on essential actions? Can she impose discipline
without sapping morale?

12. Can she manage while in the spotlight? Can she build the trust of others so that
she can develop and implement effective solutions?

After going through all the cells of the matrix, Lafley concluded, "She was a laundry
person, but I knew what she really was, which was a tough and decisive leader. She
was great at understanding consumers and great at branding and great at building
innovative programs. And that's what we needed."

At this point, Lafley made a big mistake. He had been at P&G for over 20 years, so he
knew who was in the candidate pool. He knew Henretta, and he had the information
about her he needed to answer the questions about how she would perform on the
matrix questions. He was confident she could do the job.

Still, his failure to mobilize a search team cost him dearly. By not consulting his top
team members, he missed the opportunity to get them aligned behind her. He jeopar-
dized the outcome of his judgment call, even though he knew it was the right one,
because he didn't pay enough attention to the politics involved or the feelings of the
other senior executives who had their own candidates in mind for the job.

As a result, after the morning management meeting where he announced that

Henretta would be the new head of the division, there was almost a revolt. All of the
vice chairs and group presidents were angry because they had their own candidates
ready for promotion.

Now Lafley entered the second stage in the process, the Judgment Call phase. He
still had a day or two before the announcement would become official, when it would go
out to the rest of the company. So Lafley called his top team together and expanded
BUSINESS BOOK SUMMARIES 9
the decision-making process to include them. He invited each senior executive to make
their best case for why their candidate was a better choice than Henretta.

After he listened to everyone else, he said, "Okay, there were a couple of good cases.
But let me tell you why I chose Deb." He didn't expect that he would change his mind,
and he didn't. But he did open himself up to the possibility. He heard his colleagues
out and responded to their concerns directly and respectfully. As a result, even if the
powerful vice chairmen and business heads did not support Henretta, they could no
longer visibly resist his decision to choose her for the job.

Having made the judgment call, Lafley moved into the third and final stage of the
process: Execution. He knew that his judgment call to promote Henretta would not
succeed if he stopped being involved as soon as he confirmed his decision. The vice
chairman and business heads were still not transformed into supporters of her.

The baby care division was very male. Its values were built on technical degrees and the
ability to build innovative machinery, and Henretta was more interested in consumers
than machinery.

Lafley understood that making the call was part of a longer process that required his
active role in the execution phase. If he was not careful to maintain his support of
Henretta during execution, there were plenty of political land mines that could make
his call go bad. So he gave her the political backing to replace key members of her
team, to make sure that everyone knew that he was in full support of her success. He
also made himself available for mentoring and coaching Henretta.

Lafley declared his judgment call on Deb Henretta a victory only after there was
irrefutable evidence of her success as a leader. She succeeded in turning the baby care
business around and was ultimately promoted to group president for Asia.

While people judgment comes first, the second type of judgment call is also essential to
the success of the organization.

■■

STRATEGY JUDGMENT CALLS

The role of the leader is to lead the organization to success. When the current strategy
isn't leading to success, it is his or her job to find a new path.

In the case of Jack Welch, interactions with Peter Drucker had a powerful impact on
his strategic thinking. Soon after he became CEO of General Electric, Welch had a
meeting with Drucker.

As they discussed GE's various businesses, Drucker asked him, "If you weren't
already in this business today, would you go into it?" It was a question that crystal-
lized Welch's thinking and resulted in his famous strategy that focused on getting rid
of every business that wasn't No. 1 or No. 2 in its market.

10 AUDIO-TECH
When Jeff Immelt succeeded Welch in 2001, he made judgment calls of his own about
the strategy of GE. He decided it was time to transform GE into a technology growth
company. He selected 10 key technologies, such as nanotechnology and molecular
imaging, and made several acquisitions to execute this strategy, including the $10
billion purchase of Amersham.

LEADERSHIP JUDGMENT PROCESS

In contrast, bad strategic judgments result in stocks collapsing and CEOs being forced
to resign. One notable case is Dell, which ended up in a crisis in 2007, leading Michael
Dell and the board to force the resignation of the CEO he had handpicked and sup-
ported for five years. He blamed Kevin Rollins for not making a timely judgment to
change the Dell strategy in the face of renewed competitiveness from Hewlett-Packard.
Strategic judgments were missed, resulting in Dell stock declining more than 45 per-
cent while HP's rose 90 percent.

The leadership of both Rollins and Dell misread the customer and the competition.
Michael Dell personally jettisoned key leaders and brought in new talent, all of which
were key people judgments. Whether Dell is able to make good strategic judgments
will determine whether he succeeds at turning the company around or whether the
company will cease to exist. He needs to exercise exceptionally good strategic judgment
to compete successfully with companies such as Hewlett-Packard, Lenovo, and Acer.

Good judgment starts with sensing and identifying the need for a judgment. Dell failed
to see the competitive world unfolding. Michael Dell and Kevin Rollins failed to sense
and identify the need for a new strategy. HP was on a rebound and caught Dell by sur-
prise. Dell therefore missed the opportunity to frame and name a need for a new
strategic judgment to stay ahead of HP, which resulted in creating a crisis.

In 2007, Dell's judgments in the crisis were to go back to the basics and build a new
team around himself. It is doubtful that this is going to turn out to be a good strategic
judgment. Michael Dell and his team will need to do more than cut costs to turn the
company around strategically and be truly competitive.

Another case in point is that of David Novak, CEO of Yum! Brands, who made a strate-
gic judgment to leverage his multiple brands, including KFC, Taco Bell, Pizza Hut,
Long John Silver's, and A&W, into hybrid stores that combined two of the restaurant
businesses under one roof.

BUSINESS BOOK SUMMARIES 11

Novak realized that the average McDonald's restaurant generated twice as much sales
volume as a typical Yum! Brands restaurant. Novak decided that the advantage of
McDonald's was the variety of foods it offered. By contrast, KFC sold only chicken,
Pizza Hut offered only pizza, and Taco Bell concentrated on Mexican food.

Novak made the strategic judgment for multi-branding. Unfortunately, he then hit a
brick wall during the execution phase. It was difficult to execute two brands in one
store due to the siloed nature of the five Yum! Brands, which have developed their own
brand identities and stood alone for years.

Bad strategic judgments, as well as poor people judgments, often lead a company to
crisis. It is then that the leader must make good crisis judgment calls.

■■

CRISIS JUDGMENT CALLS

Bad calls in a crisis are not any more or any less likely to be fatal to a company than
errors in judgment regarding people and strategy. The big difference is that they are
usually time-pressured and, as a result, any disastrous consequences brought on by
bad calls at these moments often come very quickly.

It's instructive to look at crisis calls, not only because getting them right is so impor-
tant, but also because they compress and highlight so many of the important elements
of making judgment calls.

There must be open and effective communication among members of the senior team
and throughout the ranks. There must be a good process for gathering and analyzing
data. And there must be effective execution. These are the fundamental elements for
making good judgment calls under any circumstances, but the added pressure of a
crisis brings them more clearly into focus.

All organizations face crises at one time or another. Crises not handled well, where good
judgment calls are not made, can destroy a business. The organizational crisis most
taught to business students is the Johnson & Johnson Tylenol case, in which poison was
found in bottles of the product on store shelves.

The CEO at the time, James Burke, did a masterful job of pulling the product, and
assuring all employees and consumers that the company was taking quick action to
deal with the crisis. Burke made great on-the-fly judgment calls in that crisis, and he
ultimately saved the brand and returned it to its top-selling status.

Why are some leaders better equipped to deal with crises than others? Even when hit
by totally unpredictable events, why do some leaders do a better job of responding?

The answer is because they anticipate crises. Good judgments made during a crisis
follow the same process as judgments made under less-stressed conditions. There is
a Preparation phase, a Call phase, and an Execution phase. However, the Preparation
phase needs to be done before the crisis occurs. The most effective leaders always
12 AUDIO-TECH
prepare for a crisis even before they know what kind of crisis they will face.

The best leaders can't see into the future and predict seemingly random events that are
going to strike two days or two years from today. But they clearly understand that
some crises are going to erupt, and they prepare themselves and their organizations to
respond effectively when they do.

For example, David Novak of Yum! Brands has successfully navigated his organization
through several crises. He does so by accomplishing three tasks simultaneously:

1. He effectively, in real time, deals with the crisis.

2. He mobilizes, aligns, and engages the right social network of leaders in his
organization by tapping their brains and their emotional energy to handle the
crisis.

3. He focuses explicitly on developing the leaders engaged in the process, taking the
time to teach and coach in real time.

Novak has made a number of crisis judgments, including responding to the avian flu in
China, which was affecting the perception of the safety of the KFC food supply chain,
and the E. coli outbreak at Taco Bell that resulted in 63 confirmed illnesses. Both of
these crises were serious threats to Yum!'s businesses.

In the Taco Bell case, it appeared that the unit's green onions were the source of E. coli
causing customers to become ill. Novak immediately ordered the removal of all green
onions from Taco Bell's 5,800 outlets nationwide. Subsequent testing determined that
lettuce may have been the source of the outbreak, so the company replaced all its lettuce
across the Northeast and switched its regional produce supplier as an added precaution.

Similarly, the avian flu crisis bolstered Novak's determination to have a very clear
approach to crisis judgment. In 2005, many Chinese were afraid to eat chicken, and
partly as a result KFC's fourth quarter profit dropped 20 percent. However, within
months, sales rebounded largely because of how Novak handled the crisis.

In the Preparation phase, Novak and his team sensed and identified the need to make
a crisis judgment very quickly regarding the sale of chicken at KFC stores in China.
The key was the framing and naming of the judgment. Novak framed the crisis as
"people need education and understanding" about the safety of chicken at KFC.

Sam Su, the president of the company's China division, started educating the public on
the myths and realities associated with avian flu. He explained that chicken meat
served at KFC outlets was safe because bird flu could not be spread via thoroughly
cooked chicken or egg products.

He also explained that high temperature is one of the most effective ways to kill avian
flu virus and that all KFC chicken is processed above the required temperature. The
teaching was aimed at mobilizing and aligning both internal and external stakeholders
so that the judgment call to keep selling chicken and defend the brand could succeed.
BUSINESS BOOK SUMMARIES 13
The Yum! corporate team also provided materials to all the store managers and staff
worldwide so that they could answer any questions and concerns of customers.

Next, in the Call phase, Novak, Su, and the team made the judgment call to keep
selling chicken in China and around the world by making sure that customers under-
stood they were safe. The way to do this was to keep teaching the community about
avian flu and the food chain.

Finally, in the Execution phase, KFC placed small stickers on the lid of every KFC
bucket, assuring customers that the chicken was rigorously inspected and thoroughly
cooked. Novak and his team learned and adjusted as they went along and ultimately
proved that they had exercised good crisis judgment, as the brand is doing fine and
KFC is selling record amounts of chicken in China.

In the food industry, Yum! Brands faces more risk exposure than any other fast-food
chain because of the diversity of its ingredients, even compared to its largest competi-
tor, McDonald's. And yet, every crisis that Novak has faced has led to good judgments.

They have also given him the platform to keep developing other leaders who will be bet-
ter and better at handling inevitable and unforeseen crises. The lesson for other lead-
ers is to have mechanisms in place that provide quick responses to crises and that
develop the next generation of leaders.

■■

he ideas we have explored add up to a framework for improving the judgments that
T leaders make. The process of judgment unfolds in three dimensions.

The first dimension is time. There are three phases to the process:

1. Preparation, or what happens before the leader makes the decision.

2. The Call, or what the leader does as he or she makes the decision that helps it turn
out to be the right one.

3. Execution, or what the leader must oversee to ensure that the call produces the
desired results.

The second dimension is domain. The elements of the process, the attention that must
be paid to each of them, and the time over which the judgment unfolds varies with the
subject matter. Leaders must confront three critical domains in which they must make
most of their important judgment calls:

1. Judgments about people

2. Judgments about strategy
3. Judgments in time of crisis

Finally, the third dimension consists of constituencies. A leader's relationships pro-

vide the information and the means for executing the call. A leader must interact with
14 AUDIO-TECH
these different constituencies, consider their various interests, and manage those rela-
tionships to make successful judgment calls. And to improve decision making through-
out the firm, the leader must use these interactions to help others learn to make their
own successful calls. There are four types of knowledge needed to do this:

1. Self-knowledge — personal values and goals.

2. Social network knowledge — regarding those who surround the decision maker
daily.

3. Organizational knowledge — knowledge about people at all levels of the company.

4. Contextual knowledge — knowledge about other stakeholders, including customers,

suppliers, and stockholders.

This framework will help you to improve your ability to make judgments, and to do a
better job of developing good judgment in others. Ultimately, the quality of your lead-
ership depends on the quality of the judgments that you make. To be considered a leader
with good judgment, you must consistently make the right call in every situation.

■■

BUSINESS BOOK SUMMARIES 15

 ABOUT THE AUTHORS

Noel M. Tichy is the author of Control Your Destiny or Someone Else Will, The
Leadership Engine, The Cycle of Leadership, and many other business bestsellers.
He is a professor at the Ross School of Business at the University of Michigan and
advises CEOs around the world.

Warren G. Bennis is the author of On Becoming a Leader, Reinventing Leadership,

and many other business bestsellers. He is currently university professor and distin-
guished professor of business administration at the University of Southern California.
He has consulted for many Fortune 500 companies and world leaders.

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Judgment, summarized by arrangement with Portfolio, a division of the Penguin Group (USA) Inc., from
Judgment: How Winning Leaders Make Great Calls by Noel M. Tichy and Warren G. Bennis. Copyright
© 2007 by Noel M. Tichy and Warren Bennis, Inc.
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