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“Creative ideas flourish best in a shop which preserves some spirit of fun. Nobody is in business for fun, but that does not mean there cannot be fun in business." - Leo Burnett 

"Talent is hitting a target that no one else can hit. Vision is hitting a target that no one else can see." - Author Unknown

To paraphrase Winston Churchill, “Never in the field of commercial business has so much been damaged, for so many, by so few.” The failure of expectations has been widespread, severe, and rapid. Clearly, our previous approach to leadership will be discredited—but what will replace it?

A return to principled leadership. The kind we admire. The kind we tell stories about. People have been thinking and writing about this kind of leadership for 3,000 years. Deep in our cultural cellars there is a forgotten vintage of thinking that must be resurrected to lubricate the rebuilding of our economy.

The old truths, and important ones, suggest that to lead, leaders must have foresight, and they must lead by example. They must motivate and inspire on a moral basis, through aspiration as well as rewards and punishments. It is precisely this calm, considered, and ethical leadership, required to lead and inspire large numbers of people when the economics are tough, that seems in such short supply today.

Take a few moments to read Richard Raulson’s complete article, “Leadership Lessons and the Economic Crisis: Where We’ve Come From and Where We’re Headed.”

Here are excerpts from a GALLUP Management Journal interview with Jim Clifton, Gallup's chairman and CEO, on the fading impact of “process improvement” and the need to move into a new state-of-mind driven approach to leadership. In Clifton’s opinion, the old ways of doing business won't work anymore. The men and women who will conquer this new world will be the ones who best understand their constituencies' state of mind. ( I underlined a few KEY points.)

Q: Before you talk about the next generation of leadership, what was the last generation of leadership?

A: Process improvement was the last big leadership evolution. General Electric's leadership is a good example -- they did Six Sigma perfectly. Jack Welch was the king of process innovation. But when Jeff Immelt took over, he had a problem -- there was nothing left for him to Six Sigma.

That's true for everybody. In America, Europe, Japan, most of the benefits have been squeezed out of process improvement and neoclassical economics. That's one of the problems Wall Street is facing -- investors have exactly the same data and methodology from neoclassical economics, but it no longer differentiates anything.

I'm not shortchanging neoclassical economics; that and process improvements worked really well for a while. Why did Japan rise up out of nowhere to dominate the world? Well, one big reason was the influence of quality guru Dr. Edwards Deming. He led with his next-generation leadership idea, and Japan seized on it first. It worked. Implementing that kind of thinking was very good for our company too. We immediately made more money; we immediately were more productive.

Now companies are structured to do a magnificent job with that kind of data. But it's absolutely not enough anymore. There hasn't been a big idea for leadership in 25 years, nothing that shows the huge sweet spots and pushes the big advancements. Now we need the next generation of leadership, because we've maxed out everything else. There aren't many competitive advantages left in process improvement. People have done everything they can do with neoclassical economics. You can lean-management, Six Sigma, and TQM your company to death.The next evolution of leadership requires a change.

The next evolution of leadership, the next big idea, will be leading with an in-depth understanding of states of mind rather than with an in-depth understanding of financial statements. That's where the low-hanging fruit is. Innovation, talent, and entrepreneurship are what matter most to leaders now. Those are the areas new leadership must master, because those are the areas that will drive growth in the new economy.

Q: So why will leaders who can quantify states of mind be the winners in this new world?

A: Because those leaders will be the ones with the information -- the data -- that's needed to solve the world's biggest problems. Here's an example: Many people think money is the solution to every problem. Problems like education, security, job creation, and well-being can be solved, but leaders are using the wrong tools to solve them. Mostly, they're just throwing money at them. Leaders can double productivity if they spend enough on it, but it's not sustainable. Eventually, they run out of things to spend money on -- or money to spend -- and improvement stops, then starts trending down.

In the world we're competing in now, solving problems isn't about spending money. It's about understanding and managing ideas and talent -- and states of mind. That's where the new leadership breakthroughs will be. Leaders who can quantify states of mind and make decisions about their constituencies based on that information are the ones who will lead the world.

Q: What's the business value of quantifying states of mind?

A: Remember, in the global marketplace, you can get anything from anywhere at the price you want -- or close to it. And that negates competition based on price or quality, and it makes states of mind much more important. It raises the bar on understanding how and why people behave the way they do.

Q: Such as workers and customers?

A: Exactly. When leaders have choices to make, they can't base them solely on price or quality. They now must make decisions based on their workers' and customers' states of mind. In the old days, a business leader could be really successful by mastering accounting. Nothing works without perfect accounting, of course, but accounting is not a leader's job anymore. Leaders have to push that function to their staff.

Now leaders need to calibrate their strategies not just against the old neoclassical economic data but also against a new institution of behavioral economic data that quantifies the role of human nature in their constituencies. This requires a whole new way to lead.

-- Interviewed by Jennifer Robison