Leadership and Systems

18 April 2007 Ian Macdonald

Ian Macdonald explains how the design and implementation of company systems are critical to a CEO's success.

I have never met a CEO who was wondering what to do today (or tomorrow). A critical element of the work of the CEO is to determine what work the CEO should do themselves, and what can and should be delegated.

In our experience the work of system design and monitoring system implementation is too often delegated to specialists. This may be because there is confusion between policies and systems. Policies are assumed to be high level, and system design 'detail' lower level. The problem here is that the systems are the enactment of the policy, if they are ineffective the policy will be ineffective.

All organisations have a purpose (beyond that of making money). They are all social entities that enact their policies through people and what people do.

While the broad policies may be fine, even noble, it is the detail of systems which give them reality to the workforce, customers, suppliers and other stakeholders.


We define a policy as 'a statement that expresses the intended standards of practice and behaviour' and a system as: 'a specific methodology which actually organises activities in order to achieve a purpose'.

To use an analogy, the policy is like the spoken word, while the system is like actual behaviour. We all know what we believe if we see someone say one thing and then do another.

The impact on actual behaviour can be understood through the design and implementation of systems. As such the CEO must be aware of them (especially corporate systems). In essence, we can analyse systems in several ways to give a quick but accurate prediction of behaviour. We would argue that the CEO should be aware of these tools as a bridge between policy and systems.


Systems are a key tool in leadership and a very significant influence on behaviour. It is useful to distinguish between types of systems and so understand their influence. The first distinction that made is between systems of equalisation (we are) and systems of differentiation (I am).

"The design and implementation of systems is critical if the CEO is to successfully lead the organisation"

All organisations are social entities. To maintain social cohesion and shared purpose there must be a sense of belonging, a sense that 'we are'. At the same time people in organisations are chosen and appointed because of their particular, perhaps unique, skills and abilities. This too needs recognition: 'I am'.

Systems of equalisation treat people the same way. A system of equalisation does not distinguish between an operator or a manager, a supervisor or a CEO. The most obvious example of this is safety. It does not matter who you are if you enter a certain area you must wear a hard hat, boots and ear protection.

The systems of differentiation treat people differently, they distinguish between people. The most widely used system of differentiation is remuneration or compensation. Some roles are explicitly paid more than others. Within a group of people in similar roles there may be further differentiation on the basis of individual performance.

It is important here to be careful not to be confused by a system that applies to everyone and then assume it is one of equalisation. The way to understand if a system is one of equalisation or differentiation is to consider its intent. Is the intent to differentiate or to equalise? We may all be subject to disciplinary systems but the intent is to differentiate those who do break the code of conduct from those who don't.


Sometimes, particularly in organisations based in democratic countries, it is easy to slip into the general view that equalisation is good and differentiation bad. While it is very important to reinforce a sense of belonging, this involves the proper use of both types of systems. Our basic principle is that all systems of differentiation should be based on the work (to be) done.

"All organisations are social entities."

We might think of a range of systems that could fall into either category, for example, car parking, clothing / uniforms, health care, cafeterias, facilities, transport, leisure facilities, cars or office size. Why should some roles have a set number of days sick leave and others unlimited? Why should a certain group park within the site boundary and others not? The answer to these questions depends upon whether there is a good work reason.

Conversely it is demoralising if systems that are supposed to equalise really differentiate. When I was running a workshop in a remote Australian mine site I asked a group of tradespeople what they saw as the most unfair system in the company. They were all members of a union and from a generally very egalitarian culture. The answer came back: 'hourly rates are the same'. What they meant was that pay for electricians was the same rate no matter how well, hard, poorly or carefully a person worked.

As a CEO it is critical to understand how people perceive systems and system changes using our model of core values. As a CEO you must know whether it will be perceived as fair or unfair, honest or dishonest, as demonstrating respect for human dignity or lack of respect. Is it courageous, does it demonstrate that people are trusted, is it loving or unloving? Understanding how people perceive systems is as important as understanding how people perceive behaviour.


Organisations are social entities with a purpose. The definition of this purpose and the standards by which this purpose can be acceptably achieved is a critical part of the work of the board and the CEO, with his or her team. These ethical standards are expressed through policy but they are enacted by systems and processes.

"Don't make the assumption that because a system applies to everyone it is a system of equalisation."

The leadership of the organisation, the board, CEO and senior executives may be able to articulate policy, but to employees, customers, suppliers, the local community and other shareholders it is the systems and behaviour that demonstrate the reality of the policy.

For most of us the way systems are designed and operated is effectively the non-verbal behaviour of the leadership and in particular the CEO. This is how culture is built and attributed. It can be deliberate or by accident. If the CEO is unaware of the nature of systems and how they are perceived he or she will be working in the dark, however fine the policy, and not behaving as an effective leader.

There is, of course, more to system design than this. The design and implementation of systems is critical if the CEO is to successfully lead the organisation in achieving its purpose.