WHAT THE LEADERS OF TOMORROW SEE They expect radically decentralized organizations, machines that suggest alternatives, and managers who lead through negotiation rather than ruling by authority.
By Brian Dumaine REPORTER ASSOCIATE Sarah Smith

(FORTUNE Magazine) – 1990s KEY IDEAS How shall we meet the great challenges of the decade to come? For guidance, FORTUNE sought out the best ideas of business leaders and sages past, present, and future. This article and the two that follow present their thinking.

-- What the Leaders of Tomorrow See 48 -- Stars of the Eighties Cast Their Light 66 -- Wisdom From the Giants of Business 78

FORGET YOUR OLD, tired ideas about leadership. The most successful corporation of the 1990s will be something called a learning organization, a consummately adaptive enterprise with workers freed to think for themselves, to identify problems and opportunities, and to go after them. In such an organization, the leader will ensure that everyone has the resources and power to make swift day-to-day decisions. Faced with challenges we can only guess at now, he or she will set the overall direction for the enterprise, after listening to a thousand voices from within the company and without. In this sense, the leader will have to be the best learner of them all. You'd better begin practicing now -- only six months until the 1990s are upon us.

It promises to be a wild decade for business. Markets will expand and shrink overnight, driven by technologies that constantly change. New competitors will pop up from unexpected quarters. RJR Nabisco's new chief, Louis Gerstner, sums it up best: ''For the last few years, we've been discussing a whole series of what I would call macroeconomic or geopolitical issues that are wrapped around terms like globalization, deregulation, interconnectivity, emerging technologies -- all 85-cent terms that people like to talk about, that convey something true. But when you really cut it down to the bone and say, 'What does it mean to me as a CEO?' I think it means more than anything else that the world is going to become more competitive in an industrial, commercial sense. More competitive perhaps than we've seen in the history of modern economic society.''

The battle is going to require a man or woman at the top very different from the narrowly focused specialist -- the cost-cutting restructurer or the marketing guy -- who found favor in the Seventies and Eighties. The leader of the Nineties will be someone who takes a broad view, doesn't harbor many fears, and loves to explore the new. He will know how to give away his authority rather than give orders, to skillfully negotiate, and to manage even where he doesn't have control. Most of all, tomorrow's leader will have to have a vision. Yes, you have heard the word before, but in the decade ahead it will become more important than ever. To explore these and other issues, FORTUNE sought out some of the smartest people in business and academe and asked them about the challenges posed by the years ahead. These men and women, most in their 40s or younger, promise to be among tomorrow's leaders. Some are young CEOs like Gerstner of RJR, Reuben Mark of Colgate-Palmolive, and our cover subject, T. J. Rodgers of Cypress Semiconductor, who is pioneering a dramatically new form of corporate organization. Others, like Michael Walsh of Union Pacific Corp. or George David of United Technologies, are clearly contenders for the top spot in their companies. The business school professors among them will shape the debate on tomorrow's issues. Here's the future.

THE MYTH OF THE GLOBAL MANAGER In the 1990s globalization will mature from a buzzword to a pervasive reality. The emerging economic prowess of the Pacific Rim countries and the opportunities and upheavals triggered by Europe 1992 mean that companies will have to meet global standards for quality, design, pricing, and service. That's understood. But when it comes to the type of leader required, there's a lot of hot air issuing from the executive suite and the academy. The global manager, the pundits say, must be an international chameleon, capable of jumping from Japanese to French to Swahili without missing a beat. Mr. Global has worked in exotic capitals, raised glasses with trade ministers, and learned to discriminate between different cuts of sashimi or sauerkraut. The better view says that a peregrinating polyglot isn't what's needed. John Rosenblum, 45, dean of the University of Virginia's innovative Darden Business School, believes that the key is not to be global but to think in ways that take account of international differences yet get beyond them. Rather than learning a little Japanese, a little Spanish, and taking whirlwind postings first to France, then to Argentina, a manager should work on his capacity to embrace the novel and unexpected. Says Rosenblum: ''The global manager is someone who has the ability to manage in new situations, to manage ambiguity, to manage complexity. Those are the same words that describe the manager who can deal with new technology or the demographic diversity in this country.'' Trendy globalization talk holds that the manager of the new era must internationalize his company, move it into as many foreign markets as possible. Not necessarily so, says Louis Gerstner, 47, a hard-driver who became CEO of RJR Nabisco after nearly four years as the No. 2 at American Express. Gerstner believes that the global manager of the 1990s will instead take classic strategic wisdom to new markets. As Gerstner sees it, demographic trends and Third World problems will slow the growth of demand in many industries and create lots of overcapacity. At the same time, competitors will get richer, bigger, tougher, and smarter. ''Those CEOs,'' says Gerstner, ''who automatically think the answer is that their company should compete around the world are making a mistake. More often the opportunities are going to be for companies that can dominate a niche, a product niche or a geographic niche. The answer lies in defining a core strategy that is built on your company's competitive strengths.'' As an example, Gerstner cites Nabisco's Grey Poupon family of Dijon mustards, which is the leading premium brand in the U.S. Rather than taking a successful product like Grey Poupon and trying to launch it where tastes may differ or the competition already has a strong beachhead, Gerstner favors developing products specifically designed for a particular foreign market. Companies can use the skills or scale developed in one area of the world to exploit the unique needs of the next. Reuben Mark, 50, Colgate's fireball CEO, agrees -- sort of. With unending enthusiasm, Mark runs a $4.7-billion-a-year consumer products company that gets 64% of its revenues overseas. He maintains that one of the keys to leading the global corporation of the 1990s will be the ability to balance the needs of headquarters with those of the corporation's increasingly autonomous foreign divisions. Says Mark: ''The challenge is to get local ownership of ideas and yet orchestrate and coordinate them globally. Whether it's in Holland or Hong Kong, you must have the local entrepreneurial activity, local excitement, but at the same time run a global operation.'' When it comes to rallying everyone to the corporate banner, Mark argues that it's essential to push one vision globally rather than trying to drive home different messages in different cultures. The trick is to keep the vision simple but elevated: ''We make the world's fastest computers'' or ''Telephone service for everyone.'' Observes Mark: ''You're never going to get anyone to charge the machine guns only for financial objectives. It's got to be something that makes them feel better, feel part of something.'' For Colgate, Mark's rallying cry is simply ''We can be the best.''

FLATTER ORGANIZATIONS For the most part FORTUNE's young leaders believe that the hierarchical model business adopted from the military will soon go the way of the Gatling gun. Holding up the latest ideal in organizational design, the flat organization, many companies have already cut the layers of management between the chief executive and front-line supervisors from a dozen to six or fewer. This means ! that the span of control has broadened, with the number of people reporting to each manager expanding dramatically. It's fine to say tomorrow's manager should oversee the efforts of 300 people rather than 30, but how is he to keep in touch with all of them? If anyone faces span-of-control problems it's Mike Walsh. As CEO of Union Pacific Railroad, the 46-year-old runs 23,000 miles of railroad in 19 states, including 2,800 locomotives, 84,000 freight cars, and 30,000 employees. Putting technology to good use, Walsh is consolidating ten dispatching centers into a central one in Omaha that will track and schedule trains on a giant electronic map reminiscent of something from the Strategic Air Command. But technology by itself, Walsh finds, is not enough. In the flatter organizations evolving today, the CEO must know enough about the guts of the business to understand precisely what his workers, who have lots of autonomy, are up to. ''I don't think the CEO of the 1990s will get away with being a hothouse plant,'' says Walsh. ''A CEO will have to know how to work the valves and switches in the middle of the night.'' Two years ago Walsh discovered that 18% of the bills UP was sending out contained glitches. In the old hierarchical organization he would have handed off the problem to a VP, who would have handed it off to someone else. Says Walsh: ''The guys would just say, 'If I can weather the storm, the boss will forget about it.' '' Instead, the CEO set up a special team to look into the problem. Using statistical analysis, it concluded that the billing errors stemmed from some 20 different causes spread across every department from finance to shipping. Recalls Walsh: ''It was a mess.'' To clean it up, Walsh assembled 20 new teams -- one to attack each cause -- delegating a single manager to coordinate their efforts and telling them he wanted the mistakes cut in half within a year. Then Walsh turned them loose, requiring them to check in only about once a month. With a clear goal and the problem broken down into manageable parts, the teams have been able to get the job done. Helping teams like these to work requires executive skills that weren't called on much in hierarchical organizations dominated by white males. Corning senior vice president James Kaiser, 46, who runs a specialty-glass division with 175 workers, believes that leaders of the future will have to know how to manage employees with a diversity of backgrounds. Kaiser has set up what he calls ''corrective action teams'' to deal with women's and black issues. At a recent meeting with one team, employees discussed the differences in perceptions between men and women. One woman told of being on a trip with her new boss, and running into her old boss, who asked how she was doing. Responded her new boss, with a feeble male attempt at humor: ''She'll do in a pinch.'' Ouch. Says Kaiser: ''The trick is to address differences so that the employee feels comfortable without destroying the fabric of your culture. After all, you still want to have some humor and fun.'' Negotiating, the art of getting people to see where their interests and yours overlap, will become an increasingly important managerial skill. It will be vital to running a team where the manager in charge may not have line authority over other members of the group. Also in dealing with outside suppliers, who should take on greater importance in the years to come. Indeed, in the next decade a company may come to look like a brokerage of sorts, or what Dean Raymond Miles of the University of California business school at Berkeley calls a switchboard. Corporate headquarters will be a small office that specializes in, say, design and distribution, and then farms out marketing and even manufacturing. ''The modern manager,'' says Leonard Greenhalgh, 44, a professor of management at Dartmouth's Amos Tuck School of Business Administration, ''is not this guy in the hierarchical structure. It's the guy who's working with people over whom he has no apparent authority.'' At Dartmouth, Greenhalgh teaches an elective called Executive Power and Negotiation. It's the most popular course in the school's history. In it, students work together on teams to come up with, say, a marketing plan for Porsche. Each student takes a different role: marketing director, sales manager, or head of finance. All have different agendas and equal authority. The players must agree on solutions to problems; they can't just say, ''Do this or else.'' In his course Greenhalgh teaches four keys to successful negotiating: (1) Balance your organization's needs with those of team members or outsiders you're trying to strike a deal with. (2) Think empathetically; take the other person's point of view. (3) Be straightforward in handling disagreements. Learn to say, ''This won't work for me,'' and why. (4) Think cross-culturally. Don't assume that the American way is the only way to do it. Argues - Greenhalgh: ''Can you win or screw the guy is a silly concept. We're trying to teach people to build long-term business relationships.''

BEYOND PARTICIPATIVE MANAGEMENT The manager of tomorrow must be able to get his people to commit themselves to the business, whether they are machine operators or junior vice presidents. Ah, you say, participative management. Have a cigar. But just because most managers tug a forelock at the P word doesn't mean they know how to make it work. In the 1990s, throwing together a few quality circles won't suffice. The key issue, our young leaders say, will be empowerment, a term whose strength suggests the need to get beyond merely sharing a little information and a bit of decision-making authority. Harvard business school professor Robert Hayes, 52, considered one of the country's leading thinkers on manufacturing, has recently co-authored a book entitled Dynamic Manufacturing: Creating the Learning Organization. In it he dismisses the traditional way of running a factory wherein someone on high thinks of an improvement and then instructs the underlings in it. Instead, Hayes argues, the effective corporation of the 1990s will be a learning organization, one in which workers teach themselves how to analyze and solve problems. ''It's the job of the manager,'' says Hayes, ''to encourage experimentation, to have workers find better ways to do things.'' Hayes suggests helping workers learn by urging them to visit other factories, trade shows, customers, and, if possible, the competition.

One manager who has mastered the concept of the learning organization is Thomas Tyrrell, 44, CEO of American Steel & Wire, a Cleveland steel processor. In 1986, when other steel mills were closing down, Tyrrell and his partners bought three from USX. He has transformed them into moneymakers. Listen to Tyrrell, who sounds more like a born-again preacher than a CEO: ''As we move to more creative manufacturing processes, if our workers aren't thinking and anticipating, they're never going to be able to make the steps necessary over the next ten to 15 years. That's the problem: the guys who are just out there at companies doing old rote skills, the same thing every day, pressing a button for a machine to go up and a button for the machine to go down. They really never have to think about anything. When the time comes for these guys to run a computer on the floor, they're dead.'' Tyrrell's guys, by contrast, are running computers on the floor. Before Christmas last year some experts brought new computers into one mill for inventory control, set them up, and began to teach a steelworker the program to run the machine. But the experts ran out of time, saying they would return the next day. That night, the worker went home, sat down with his kids at a computer, and figured the program out. The next morning he went in and taught it to other workers. By the time the computer experts came back to complete the training, the guys in the mill already had the system up and running.

The true test of the learning organization is whether it holds up under pressure. ''If the culture isn't strong,'' says Tyrrell, ''you can wash it off quickly in a crisis. You just push the guy out of the way and say, 'Let me do it. I can do it better myself.' Instead of taking that moment to say, 'Look, it's going to take me longer, but let me show you how to do this.' '' Tyrrell believes that employees will put in the effort it takes to work in a learning organization only if they feel they have a stake in its welfare. At American Steel & Wire everybody, including the CEO, gets the same perks, whether its vacation, profit sharing, or health insurance. ''The feeling is,'' says Tyrrell, ''if we make it, we all make it together here. There are a lot of executives at other companies who will not give up perks. It's like telling your kids not to smoke with a cigarette in your mouth. If you tell workers, 'We love you, and you're good, and we want to listen to you,' but you're doing it from a fancy car and the country club, they're not going to believe you.''

THINKING MACHINES As spans of control widen, computers will become ever more necessary to executives concerned with keeping up on what's going on. Blessedly, the computer of the future promises to be a much more friendly creature. According to Mike Maples, 46, a longtime IBM veteran who is now Bill Gates's top man on software applications at Microsoft, the machine will be so easy to use, managers will barely realize they're using it. Anything they need to know about the device the computer will teach them. Like most of the other young leaders interviewed, Wayland Hicks, 46, a Xerox executive vice president, believes the business world is headed toward more decentralization, with offices, factories, and suppliers spread throughout the world. All the more important, then, to be able to move information around the globe faster. One aid to this, Hicks asserts, will be the technology Xerox ( calls document processing. Hicks believes it will improve white-collar productivity at least 40% over the next decade. Document-processing systems consist of a powerful desktop computer, a printer, a network, and a document scanner. The system will translate memos, contracts, books, and eventually even a videocassette of a television ad into a digital code so that the material can be called up on a screen. With the new systems two managers, one in New York, the other in Hong Kong, can shoot a report they both are working on back and forth from computer to computer, making changes each time. Stephen Racioppo, 36, who heads Arthur Andersen's financial services consulting group, says technology will help cope with globalization another way as well: ''Today's chief financial officers are winging it. When they look at investment decisions, they look at a few things -- not necessarily the wrong things, but certainly not everything.'' Using programs that ape human thinking, tomorrow's computer will be able to scan the world's financial markets, pick out the best investments, and rate them according to risk. So when a CFO wants to buy, say, bonds, the computer could point out to him that Florentine municipals are yielding 30 basis points more than U.S. T-bills, after adjusting for inflation and exchange rate fluctuations. And if that CFO wants some information about those Florentine municipals, he can use his computer to call up press reports and security analysts' recommendations from around the world. Computers would translate any relevant material into English, and satellites would transmit it to the CFO's office in Los Angeles. Rudimentary versions of such systems are already here, says Racioppo, who is helping Nikko Securities electronically link operations in Tokyo, London, and New York City. Apple Computer's Alan Kay, 49, a high-tech visionary who was instrumental in devising some of the basic technology that led to the Macintosh, believes the computers of the 1990s will even help executives think of creative ways to solve problems. ''A very good system,'' he says, ''would simply be one that regardless of what you asked for would come up with another way, just to remind you there is more than one way of looking at something.'' Fixated on building market share for your product? You know that in Country A you have 10% of the market, and in Country B, 50%, so you decide to go after A. The wily computer, though, might point out that in Country A 90% of the population already use a product like yours, while in Country B only 5% do. You may want to rethink your strategy. ''One big problem with American business,'' argues Kay, citing a line from business sage Edward de Bono, ''is that when it gets in trouble, it redoubles its effort. It's like digging for gold. If you dig down five feet and haven't found it, one of the strategies you use is to dig twice as deep. But if the gold is 20 feet to the side, you could dig a long time and not find it.''

THE NEW INNOVATORS Speed will become an increasingly important weapon in the 1990s, and managers who dawdle are likely to be swept into the dustbin of history. This is especially true in product development, where companies in the 1990s will try to leapfrog the competition with technological improvements and breakthroughs. The importance of a strong R&D effort has not been lost on George David, 47, an executive vice president of United Technologies and a veteran of the Boston Consulting Group. ''I think the most significant thing we have to do,'' says David, ''is recognize who the competitor is. There isn't any doubt in my mind that our competitor is absolutely the Japanese.'' Under David, United Technologies' Otis Elevator subsidiary doubled its market share in Japan, to 12%, over the course of six years. Says he: ''The Japanese live and breathe technology and quality. We must recognize that we cannot be complacent. We can no longer say that we preside over this gigantic American homogenous market.'' David argues that American business must put more time and money into research and development, even at the expense of quarterly profits. ''I'm a nut about this,'' he says. ''If you don't invest for the long term, there is no short term.'' In the past four years David has doubled his manpower in R&D while tripling Otis's research spending, constructing a $20 million, 29-story elevator test tower in Bristol, Connecticut, in the process. Even with this kind of capital spending, Otis's profits are at record levels. T. J. Rodgers, 41, a Silicon Valley wunderkind, has come up with a way to foster innovation by radically changing the design of an organization. In 1983, Rodgers -- the initials stand for Thurman John -- founded Cypress, a semiconductor manufacturer that has enjoyed nine consecutive quarters of record earnings. Financial analysts predict it will have annual sales of over $200 million in 1989. Because of inevitable bureaucratic inertia, Rodgers believes that innovation comes hard to large organizations. So instead of developing a new product line within the existing corporation, he creates a separate startup company under the Cypress umbrella. Says Rodgers: ''I would rather see our billion-dollar company of the 1990s be ten $100 million companies, all strong, growing, healthy, and aggressive as hell. The alternative is an aging billion-dollar company that spends more time defending its turf than growing.'' So far Rodgers has four successful startups under the Cypress aegis. Three have developed new semiconductors, and the fourth is a chip factory that acts as a separate, arm's-length supplier to the other companies and outsiders. Rodgers's system differs from a traditional divisionalized company because each startup is run by a president who has much greater authority than a divisional manager. He can change product design, build factories, issue stock, raise money, up wages, and hire and fire. Rodgers meets with his four presidents once a week to see whether there's anything he can do for them. If a president flounders, Rodgers can replace him, which he's already done once. Cypress owns 81% or more of each of the four, with the remaining stock owned by the employees as an incentive.

SERVICE, SERVICE, SERVICE With more dual-career couples squeezed for time and baby-boomers hitting their affluent years, customers in the 1990s will demand better service. Says Richard Sharp, CEO of Circuit City Stores, a home electronics and appliances retailer and one of the fastest-growing chains in the U.S.: ''The winners of the 1990s will be those who can boost service and cut prices at the same time.'' To do this, Sharp, 42, envisions computerized files that will contain a complete profile of each customer -- what he bought, his charge-account status, and his service record. If someone has a problem with a television bought from Circuit City, he just calls the company's service representative. A computer screen will show the product's serial number and whether it's still under warranty. The system would then forward the information to a service technician, who could quickly check what parts may be needed, and whether they're in stock, before rolling off in his truck to make the repair. The computer would also identify Circuit City's best customers -- the retail equivalent of frequent fliers -- and give them priority service. If the computer shows that the customer bought a new TV two years ago and a VCR last year, it might dispatch him a flier pitching video cameras. Before going to Harvard to teach management, Leonard Schlesinger, 36, worked at Procter & Gamble in manufacturing and then at Au Bon Pain, a successful fast-French-food chain, as its chief operating officer. Today he teaches a course on service management that, among other ideas, raises the off-beat but intriguing possibility of bringing the mom and pop store to the big retail chains. ''To get closer to the customer, what we really have to focus on is bringing the family back into running the business,'' argues Schlesinger. ''In the 1950s and 1960s you had neighborhood shopkeepers, and they gave great service because they cared.'' Schlesinger suggests that big chains could put to work thousands of industrious immigrant families that enter the country each year. With, say, the Chang family in charge of the glove department, Susie and her mom could work alternate days, and if Susie got sick, Uncle Lee could cover for her. Schlesinger says some direct-selling organizations like Amway and Tupperware have been ''very, very effective at engaging the entire family in the effort and blurring the distinctions between family life and work life.'' Tomorrow's leaders will have to find new, more sophisticated ways to reach their customers, says Louise McNamee, president of Della Femina McNamee WCRS Inc., the avant-garde New York City ad agency that created the award-winning Joe Isuzu ads. ''Now we are marketing to several generations of people who have grown up totally on television,'' says McNamee. ''They understand how it works, and you have to give them credit for knowing how it works.'' Simply asserting that your product is better than Brand X doesn't fly anymore. A pitch has to be funny or become part of what the product stands for. So when people think about buying an Isuzu, they think about Joe, the mendacious salesman who claims Isuzus can go 350 miles per hour (downhill in a hurricane). Viewers know there are shady car dealers, and know that Isuzu knows, and end up liking Isuzu because they think it must be honest to make fun of such things. Observes McNamee: ''Good advertising defines and creates the character of the product. In a world of products that look alike and perform pretty much the same, people buy what they like.'' As never before, in the 1990s leaders will have to understand what makes people tick, for people will have more choices in the marketplace, more say at work, and a greater role in shaping the future of their organizations. ''The next ten years,'' predicts Colgate's Mark, ''will have little to do with, 'Well, should we build that plant or not build that plant.' It's a whole complex host of issues like who do you promote, who do you give authority to, who do you trust, who do you not trust -- all skills developed by dealing with human issues, and by an awareness of history, literature, philosophy, and psychology.'' Turn off the TV. Get out a book. Observe, listen, and learn.