Do All Good Things Have to End? Ensuring Long-Term Performance in Leadership Teams

By Thomas Keil and Marianna Zangrillo

As a CEO with aspirations, it’s impossible not to admire the trajectory of Microsoft’s Satya Nadella. Ascending to the role in 2014 as a relatively unknown executive within the company, Nadella has marked his tenure at the helm of the tech giant with successive accomplishments.

His visionary leadership resurrected Microsoft from a faltering giant to a pioneering force in tech and business. Through its commercial partnership with OpenAI, the corporation reasserted itself at the forefront of the industry and on the cutting edge of artificial intelligence.

What’s underpinned Nadella’s success? His ongoing transformation of Microsoft’s leadership team.

For years, Microsoft’s corporate culture had been marred by combative factions, which Nadella aptly described as “warring gangs.” As CEO, Nadella set out to develop a new leadership team ethos, one that married the intensity of competition with the potency of effective collaboration. Maintaining this often-fragile balance has been in the center of Nadella’s leadership, resulting in a decade of lauded achievements.

Dodging the Pitfalls of Success

Still, as any veteran CEO knows, the path to sustained success is often lined with pitfalls. Our research suggests that success, especially continual success, can paradoxically plant the seeds of downfall. Leadership teams may fall into the trap of complacency, creating echo chambers that amplify past success formulas while rejecting disruptive, future-oriented ideas.

The question is: How can a CEO steer clear of these hazards to ensure the long-term effectiveness of their leadership team?

We’ve identified four fundamental pillars that contribute to a leadership team’s sustained performance: alignment with strategic goals, effective performance management, team renewal and relevance, and agility.

Pillar 1: Alignment with Strategic Goals

Maintaining alignment within the leadership team is not a one-time task; it’s a continuous challenge for CEOs. The never-ending flow of new issues, obstacles, and opportunities can cause priorities to wildly diverge, which can splinter a team’s focus and fuel disjointed decision-making that hampers progress.

To avoid this fate, CEOs must diligently and consistently ensure their teams share an understanding of the industry’s challenges and the strategic direction the company needs to take in response.

This alignment allows teams to quickly identify and address any areas of divergence that could paralyze the organization or stifle its reactions. In essence, strategic alignment is the backbone that supports the body of a successful leadership team, promoting agility, coherence, and unified decision-making.

Pillar 2: Effective Performance Management

When implemented effectively, performance management is a powerful tool to maintain alignment, even within the top ranks of a corporation.

For instance, Huawei, the Chinese telecommunications behemoth, has leveraged a rigorous performance management framework to align all employees, including leaders, with corporate objectives. This system rewards excellent performance and swiftly addresses underperformance, creating a culture of accountability.

The core of performance management lies in clearly defining goals and setting corresponding performance expectations backed by incentives.

All goals, objectives, and tasks should be intrinsically motivating. Incentives, however, should be viewed as a communication tool to highlight what excellent performance looks like, rather than a method to steer behaviors. This approach is particularly crucial for younger generations of leaders, who often value the meaningfulness of their goals as much as, if not more than, financial rewards.

Performance expectations should be ambitious yet realistic, pushing team members to strive for more while keeping them grounded. These expectations should be monitored, adjusted, and measured at both individual and team levels, with appropriate consequences drawn from the results—rewarding success but also clearly identifying failure.

Pillar 3: Team Renewal and Relevance

A high-performing team must continuously evolve and remain relevant in the face of new developments. Even when a leadership team is aligned and performing well, its relevance can diminish over time.

Laurent Freixe, executive vice president and CEO of Latin America for Nestlé, eloquently expressed this predicament, stating that over time, people tend to slip into cruise control, stop questioning themselves, stop listening to their team, and blur the line between their personal agenda and their role in the team.

To counter these tendencies, leaders must focus on several practices:

Develop individuals and the team: CEOs should stress the importance of developing new skills and provide the resources to make it happen, such as personal development plans, coaching, and training opportunities.

Reorganize the team structure: Regular structural changes within the leadership team will push new topics to the forefront and pressure the group to strive for growth.

Rotate team members: Even without structural changes, rotation within the leadership team can stimulate new learning and foster the development of new capabilities.

Introduce new team members: Infusing the team with new blood by introducing new members can instill novel ideas and shake up the status quo.

Institute tenure limits: Setting a limit on leadership team tenure prevents ossification and motivates the wider workforce by indicating that opportunities for advancement will arise.

Promote diversity: Encouraging diversity within the leadership team—including gender, educational background, upbringing, and corporate and non-corporate experiences—enables the team to identify more opportunities and more effectively deal with challenges.

Set the right tone: CEOs should promote a culture of constant renewal, preparing the team to anticipate and respond proactively to discontinuities.

Pillar 4: Agility and Bold Decision-Making

Certain situations, like technological disruptions or shifts in societal expectations, demand more than just maintaining relevance. They require a complete reevaluation of the leadership team and their approach. Navigating such changes calls for agility, foresight, and, often, bold decision-making.

Looking Ahead

Building a strong leadership team is merely the start of the journey. To achieve and maintain success over the long term, a CEO must constantly assess and finetune their team. Microsoft’s revival under Satya Nadella’s leadership illustrates the potential of this approach, serving as an instructive blueprint for ambitious CEOs.