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CHAPTER 5: LEADERSHIP MIND AND HEART 135

IN THE LEAD he understood that the technology had to be first-rate, Semel based his leadership
on the assumption that Yahoo was a twenty-first century entertainment and media

company, not a technology company. He set about methodically reorganizing Yahoo
to meet the goal of entertaining and informing people in a new way. Semel said he
approached running the business from the viewpoint of “a typical user who wants
things to happen with ease and comfort,” rather than from the viewpoint of a tech-
nology whiz.
The shift in mental models had a tremendous impact. From losing $100 million
on $717 million in revenues the year Semel arrived, Yahoo went to earning $239
million on $1.4 billion in revenues 18 months later. By 2005, Yahoo earned $1.2
billion on sales of $5.3 billion, had the widest global reach of any Internet site,
and owned the most-used e-mail, instant messaging, and music Web sites in the
world.
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Mary Meeker, an analyst for Morgan Stanley, said Semel’s mental model—“to
keep the users growing and . . . keep growing usage”—made all the difference.
“It sounds like mom and apple pie,” she says, “but that was something a lot of
people did not get in 2001.” Recently, Yahoo’s numbers have slipped as compe-
tition has increased. Semel may have to shift some of his assumptions to defi ne
priorities, bring focus, and keep the company strong as the online world con-
tinues to change. 15
As the story of Yahoo illustrates, a mental model based on a certain set of as-
sumptions might work great in some circumstances, yet be detrimental to success
in other circumstances. It’s important for leaders to regard their assumptions as
temporary ideas rather than fixed truths. The more aware a leader is of his or her

assumptions, the more the leader understands how assumptions guide behavior.
In addition, the leader can question whether long-held assumptions fi t the reality
of the situation. Questioning assumptions can help leaders understand and shift
their mental models.

Changing Mental Models
The mindset of the top leader has always played a key role in organizational
success. A Harvard University study ranking the top 100 business leaders of the
twentieth century found that they all shared what the researchers refer to as
“contextual intelligence,” the ability to sense the social, political, technological,
and economic context of the times and adopt a mental model that helped their
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organizations best respond. In today’s world of rapid and discontinuous change,
the greatest factor determining the success of leaders and organizations may be
the ability to change one’s mental model. 17
For business leaders, the uncertainty and volatility of today’s environment is
reflected in a sharp increase in the number of companies that Standard & Poor’s

consider high risk. In 1985, 35 percent of companies were rated high risk, with
41 percent considered low risk. By 2006, only 13 percent were in the low-risk
category, with a whopping 73 percent rated high risk. Considering this and other
environmental factors, one business writer concluded: “The forecast for most
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companies is continued chaos with a chance of disaster.” Coping with this vola-
tility requires a tremendous shift in mental models for most leaders. Yet leaders
can become prisoners of their own assumptions and mindsets. They fi nd them-
selves simply going along with the traditional way of doing things—whether it be
managing a foundation, handling insurance claims, selling cosmetics, or coaching