Winning
Page 13
And now for the five assumptions to keep in mind when a crisis happens.
Assumption 1: The problem is worse than it appears. No matter how hard you might wish and pray, very few crises start small and stay that way. The vast majority are bigger in scope than you could ever imagine with that first phone call—and they will last longer and get more ugly. More people than you thought will be involved, more lawyers than you’ve ever seen will poke their noses in, and more terrible things will be said and published than your worst nightmare.
So adjust your mind-set early on. Go into every crisis assuming the absolute worst has occurred somewhere in your organization and, just as important, that you completely own the problem. In other words, go so far as to assume your company did it and you have to fix it.
My tepid response to the time card crisis is case in point here about the importance of having the right mind-set, which I did not. With my lack of experience in crisis management, I assumed the problem just couldn’t be that bad, given that no one stood to gain personally from misallocating their hours. Maybe a few people had been sloppy with their time cards and winged it, I thought—but so what?*
The “so what” was all in the timing. Caspar Weinberger had just been named secretary of defense, and he was spearheading President
Reagan’s campaign against government “fraud, waste, and abuse.” The newspapers were filled with stories about companies charging the government $400 for hammers and $1,000 for toilet seats. We were up next.
The facts, as we came to learn, were that 99.5 percent of the thousands of time cards filed in the Pennsylvania plant had been filled out correctly. It didn’t matter—0.5 percent of them were not and that was a violation. Instead of facing that, we got all caught up in our own logic. It went like this: most of the time cards were correct and the errors were accidental…overall we had actually undercharged the government…this is all just a political witch hunt.
With a seasoned mind-set, I would have said, “We were wrong. Let’s do what it takes to correct the situation and put it behind us.”
I’m not saying that the correct mind-set means you should always fold at the get-go. Sometimes you are absolutely clean and you need to fight. In 1992, a former employee turned whistle-blower from our diamond business claimed that we had colluded with De Beers to set prices in the industrial diamond market.
Knowing the people charged with collusion, I felt certain that this was just a case of a disgruntled guy who should have been let go with more sensitivity. Nevertheless, we dug into the investigation as if we were guilty, looking for every shred of evidence that could be used against us. We turned up nothing. That allowed us to take on the government with everything we had, and we won big when a federal judge threw out the government’s case in 1994.
The same “we own it” mind-set got us successfully through another crisis. In the late ’80s, the people running our appliances business in Louisville, Kentucky, began to hear rumblings from the field that an unusual number of refrigerator compressors were requiring repair a year or two out of the factory. The highest volume of breakdowns was coming from the warm-weather states. After a few months, the problem spread north, and I was brought into the loop.
We immediately assembled a SWAT team of experts from every part of the company—metallurgists and statisticians from corporate R & D, design engineers from Aircraft Engines who had experience with rotating parts, and marketing people who had studied the consumer impact of other national product recalls.
The team met weekly for a month and spoke on the phone every day to review new data and sort through options. Within three months, it was clear that the only course of action was a national recall. We had to take a $500 million write-off, and we received some unpleasant coverage about our technical capabilities in the Wall Street Journal. But grasping the scope of the problem early and taking ownership of its solution ultimately resulted in a lot of goodwill from consumers.
The point is, at the first glimmer of a crisis, don’t flinch. Get into a worst-case scenario mind-set and start digging.
Assume you have a major problem on your hands that’s yours to fix.
Assumption 2: There are no secrets in the world, and everyone will eventually find out everything. In the chapter on people management, discussing the corrosive effect of layers, I mentioned the children’s game of telephone. In it, the first person in a circle whispers a secret to the second, who passes to a third, and round it goes until the last person announces what message has reached him. Not surprisingly, the final version has no resemblance to the original.*
Telephone gets played during crises too.
Information you try to shut down will eventually get out, and as it travels, it will certainly morph, twist, and darken.
The only way to prevent that is to expose the problem yourself. If you don’t, you can be sure someone will do it for you, and you will look the worse for it.
Now, I know what you’re thinking; “Legal won’t let us.” And you’re right. During a crisis, your lawyers will tell you to say less, not more. They will warn you not to implicate Joe or Joyce because their involvement is not yet clear.
That advice is not all wrong. But don’t take it as gospel. Push lawyers to let you say as much as you can. Just make sure that what you do say is the total truth, with no shades of gray.
Cases of full disclosure in business abound, but Johnson & Johnson probably set the gold standard with its handling of the Tylenol crisis in the 1980s. It held press conferences every day, and sometimes more than once, to describe the situation and its scope. It opened its packaging factories up for scrutiny, and kept the public posted on a frequent basis on its investigation of the problem and its recall efforts.
But perhaps some of the best examples of full disclosure come from the newspaper industry. In 1980, the Washington Post ran a detailed series describing how one of its reporters, Janet Cooke, managed to fool her editors, the public, and the Pulitzer Prize jury into believing a horrific tale of an eight-year-old heroin addict.
Or take the New York Times and its coverage of Jayson Blair, its reporter who fabricated numerous articles. The paper put its best investigative reporters on the case, and their articles left no part of the story untouched. The paper’s own practices and leaders were challenged so thoroughly and personally that at times the coverage felt like an unedited family movie.
And yet, in the end, it was the Times’ transparency during the crisis that saved its credibility. The more it said about Jayson Blair’s falsifications, the more people trusted it—not less. The more it revealed the internal dynamics that let Blair’s lying slip by, the more people knew the paper was invested in finding a solution to the underlying problems that caused the breach.
The same is true during any crisis. The more openly you speak about the problem, its causes, and its solutions, the more trust you earn from everyone watching, inside the organization and out.
And during a crisis, trust is what you need at every turn.
Assumption 3: You and your organization’s handling of the crisis will be portrayed in the worst possible light. In some industries, insiders keep score by market share. In others, they keep score by revenue growth, or number of new franchises opened in a year, or customer satisfaction figures.
In journalism, they keep score by toppled empires and naked emperors. The profession’s calling, as it were, is to question authority in its every form.
I speak, of course, from experience! During my very public divorce in 2002, a controversy erupted around the perks that made up my retention contract, and the media had a field day. But that was hardly the first time I’d gotten my clock cleaned by the press. Not long after I was made CEO, during a period of wide-scale layoffs, I got labeled Neutron Jack, after the bomb that leaves buildings standing but kills people. A year later, I was named one of the toughest bosses in America, and believe me, the implication was not positive. During the Kidder Peabody crisis in 1994, I appeared on the cover of
Fortune magazine under the headline “Jack’s Nightmare on Wall Street.” The article included a thesis about the cultural breakdown at Kidder Peabody brought on by earnings pressure from GE.*
Public skewerings are awful—you’re indignant and enraged. But no matter how innocent you think you are, or how superbly you think your organization is handling its troubles, it doesn’t matter. Reporters are not in the business of telling your side of the story. They are in the business of telling the story as they see it.
That’s the way the business works, and during normal times, you’re usually happy for the good read that journalists provide. And in my case, over the course of my career, I got more than my fair share of positive media coverage.
But during a crisis, all bets are off. You and your organization will be portrayed in a light so negative you won’t recognize yourselves.
Don’t hunker down.
You may want to, but you can’t.
Along with disclosing the full extent of your problem as we discussed in the previous assumption, you’ve got to stand up and define your position before someone else does. If you don’t, your lack of visibility will be taken as an admission of guilt, the same way it looks to lay people (albeit not lawyers!) when someone does not take the stand in his own defense.*
Now, not all organizational crises have a public face. A middle manager leaves and takes his team with him. The reorganization of a business or unit causes enormous upset and turmoil. A big customer defects with complaints about your service. A fired employee makes angry charges of discrimination by senior management.
Even if the media has no interest in these events, your people will.
The same principles still apply.
Openly discuss the situation. Define your position. Explain why the problem happened and how you are handling it.
And just as with big, public crises, don’t ever forget you have a business to run. Make sure you are running it.
Assumption 4: There will be changes in processes and people. Almost no crisis ends without blood on the floor. Most crises officially end with a settlement of some kind—financial, legal, or otherwise.
Then comes the cleanup, and cleanups mean change.
Processes usually get overhauled first.
With the time card situation, for instance, we instituted Policy 20.11, which formalized all dealings with the government. The policy was excruciatingly detailed, requiring us to cross every t and dot every i. I am no fan of bureaucracy, but the time card situation demanded just such a process fix.
Sometimes, however, process fixes are not enough. We had had a policy about improper payments on our books for more than thirty years—Policy 20.4 to be exact—that was supposed to prevent bribery. But it didn’t help us back in 1990, when a regional sales manager for Aircraft Engines conspired with a general in the Israeli Air Force to divert money from major contracts for GE to supply engines for Israeli F-16 warplanes.
This was no small-potatoes operation. The two men had set up a joint Swiss bank account and a fake contractor in New Jersey to cover their tracks. The media coverage around the world lasted nineteen months, through congressional hearings and a criminal trial against the GE employee, Herbert Steindler. At the end, he went to jail, and we paid the government a $69 million fine.
In this case, the problem was not process, but people not enforcing an existing policy. No one in the business actually knew what Steindler was up to, and none of them gained a penny from the scheme, but some ignored warning signs that something was amiss. Eleven people had to resign, six were demoted, and four were reprimanded.
Crises require change. Sometimes a process fix is enough. Usually not. That’s because the people affected by the crisis, or sometimes those just watching it, demand that someone be held responsible.
It sounds awful, but a crisis rarely ends without blood on the floor. That’s not easy or pleasant. But sadly, it is often necessary so the company can move forward again.
Assumption 5: The organization will survive, ultimately stronger for what happened. There is not a crisis you cannot learn from, even though you hate every one of them.
From the time card crisis, we learned that when you deal with the government, there can be no looseness with regulations, even if it means installing lots of detailed bureaucratic procedures. That’s the price you pay for doing business with public agencies.
From the compressors situation, we learned to bite the bullet early on product recalls. Doing that cuts your losses and pays off in consumer goodwill.
From Kidder Peabody, we learned to never buy a company with a culture that didn’t match ours.
From the bribery case, we learned that policies age and even die unless managers work constantly to keep them alive.
After a crisis is over, there is always the tendency to want to put it away in a drawer.
Don’t. Use a crisis for all it’s worth. Teach its lessons every chance you get.
In doing so, you’ll spread the immunity.
There will always be crises.
And when they erupt, it’s awful! It really does feel like your house is on fire and you can’t get out.
As hard as it sounds, try to remember in the heat of it all that eventually the flames will die down. And they will die down because of what you do. You will face the enormity of the problem and own its solution, while at the same time running the business as if there is a tomorrow.
Then one day, you will realize tomorrow has arrived. The smoke will have cleared, and the damaged parts of the structure will have been replaced or repaired.
You will never be happy for what happened, but stepping back, you’ll see something that might surprise you—the whole place looks better than ever.
YOUR COMPETITION
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11. STRATEGY
It’s All in the Sauce
12. BUDGETING
Reinventing the Ritual
13. ORGANIC GROWTH
So You Want to Start Something New
14. MERGERS AND ACQUISITIONS
Deal Heat and Other Deadly Sins
15. SIX SIGMA
So You Want to Start Something New
Strategy
* * *
IT’S ALL IN THE SAUCE
MORE THAN A FEW TIMES over the past three years, I have been on a speaking program or at a business conference with one big strategy guru or another. And more than a few times, I have listened to their presentations in disbelief.
It’s not that I don’t understand their theories about competitive advantage, core competencies, virtual commerce, supply chain economics, disruptive innovation, and so on, it’s just that the way these experts tend to talk about strategy—as if it is some kind of high-brain scientific methodology—feels really off to me.
I know that strategy is a living, breathing, totally dynamic game.
It’s fun—and fast. And it’s alive.
Forget the arduous, intellectualized number crunching and data grinding that gurus say you have to go through to get strategy right. Forget the scenario planning, yearlong studies, and hundred-plus-page reports. They’re time-consuming and expensive, and you just don’t need them.
In real life, strategy is actually very straightforward. You pick a general direction and implement like hell.
Yes, theories can be interesting, charts and graphs can be beautiful, and big, fat stacks of PowerPoint slides can make you feel like you’ve done your job. But you just should not make strategy too complex. The more you think about it, and the more you grind down into the data and details, the more you tie yourself in knots about what to do.*
That’s not strategy, that’s suffering.
Now, I don’t want to write off strategy gurus. Some of their concepts have merit.
But I do want to disagree with the scientific approach to strategy that they propagate. It is taught in many business schools, peddled by countless consulting firms, and practiced in far too many corporate headquarters.
It
’s just so unproductive! If you want to win, when it comes to strategy, ponder less and do more.
I’m certainly not alone in this view. In speaking with many thousands of businesspeople around the world, I can count the number of strategy questions on one hand. Virtually every other topic—from managing a temperamental employee to the dollar’s effect on trade—gets more interest by orders of magnitude.
Obviously, everyone cares about strategy. You have to. But most managers I know see strategy as I do—an approximate course of action that you frequently revisit and redefine, according to shifting market conditions. It is an iterative process and not nearly as theoretical or life-and-death as some would have you believe.
Given this view, you may be wondering what I’m going to say in this chapter.
The answer is, nothing that’s going to get me tenure!
Instead, I’m going to describe how to do strategy in three steps. Over my career, this approach worked incredibly well across varied businesses and industries, in upturns and downturns, and in competitive situations from Mexico to Japan. Who knows—maybe its simplicity was part of its success.
The steps are:
First, come up with a big aha for your business—a smart, realistic, relatively fast way to gain sustainable competitive advantage. I don’t know any better way to come up with this big aha than by answering a set of questions I have long called the Five Slides, because each set fits roughly onto one page. This assessment process should take a group of informed people somewhere between a couple of days and a month.
Second, put the right people in the right jobs to drive the big aha forward. This may sound generic; it’s not. To drive your big aha forward, you need to match certain kinds of people with commodity businesses and a different type entirely with high-value-added businesses. I don’t like to pigeonhole, but the fact is, you get a lot more bang for your buck when strategy and skills fit.