Let’s return to customer satisfaction at IBM. After we developed truly effective, independent measurements to ascertain how our customers viewed us and our competitors, it was clear that one of our biggest problems was with how easy—or not—it was to do business with us. Our customers liked our products, liked our breadth of experience, liked our ability to help them solve problems, but they often found us to be maddeningly difficult to deal with and/or to get answers from quickly.
Addressing this issue was not easy. There was not a single silver bullet we could fire to solve the problem. There was not a single project we could heap a bundle of money on to make sure the mission got
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done. It involved hundreds of projects, cutting across the entire company from salespeople to lawyers to telephone clerks.
In some companies such a project, mundane in its day-to-day activities but essential in its strategic context, would die of its own weight and its lack of connectiveness to the daily grind in a relatively short period of time. We had to work hard to maintain its vitality, funding, and focus. It worked, but it was a reminder to me of how difficult it is to get large organizations to give meaningful resources and attention to matters that offer little or no benefit to quarterly results, but which are critical to long-term success.
Survival of the Fattest
Here’s my last observation on focus: The Darwinian concept of survival of the fittest unfortunately doesn’t work in a lot of companies. Instead, too often the rule is “survival of the fattest.” Divisions or product lines that are successful today always want to redeploy their cash and other resources into existing products and existing markets. Finding ample resources to fund new growth and new businesses is one of the hardest tasks of a corporate leader.
While we never reached the level of performance I would have liked at IBM, we worked very hard at the process of starving the losers and investing in new big bets. It required a very different process than the one necessary for developing strategy. It required a rigorous portfolio review in which we said to the entire company: Investment dollars belong to Corporate, all of them, not just the discretionary new capital. We try to start with all of our businesses—successful and not so successful—as a zero-sum planning process every few years. This allowed us to kill thousands of research projects, eliminate hundreds of products, sell large businesses, and redeploy resources into promising new ventures. Even then we could not be sure we had effectively redeployed our assets. Those new ventures had to be protected from
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the normal budgetary cycle because if things get tight, more often than not, profit-center managers would be tempted to starve the future-oriented projects.
This is not the place to explain the many things we did to avoid the problems and to support new businesses, but it is a very important aspect of my overall conviction that focus is a critical element of institutional success. If a management team doesn’t believe that it has identified and is seriously funding new growth opportunities, then it is likely to wander off and drink the heady brew of acquisitions and diversification—and ultimately fail.
24
Execution-Strategy
Goes Only So Far
E xecution—getting the task done, making it happen—is the most unappreciated skill of an effective business leader. In my years as a consultant, I participated in the development of many strategies for many companies. I will let you in on a dirty little secret of consulting: It is extremely difficult to develop a unique strategy for a company; and if the strategy is truly different from what others in the industry are doing, it is probably highly risky.
The reason for this is that industries are defined and bounded by economic models, explicit customer expectations, and competitive structures that are known to all and impossible to change in a short period of time.
Thus, it is very hard to develop a unique strategy, and even harder, should you develop one, to keep it proprietary. Sometimes a company does have a unique cost advantage or a unique patented position. Brand position can also be a powerful competitive position—a special advantage that competitors strive to match. However, these advantages are rarely permanent barriers to others.
At the end of the day, more often than not, every competitor
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basically fights with the same weapons. In most industries five or six success factors that drive performance can be identified. For example, everyone knows that product selection, brand image, and real estate costs are critical in the retailing industry. It is difficult, if not impossible, to redefine what it takes to be successful in that industry. Dot-com retailers were a good example of a spectacular failure to understand that you cannot suspend the fundamentals of an industry.
So, execution is really the critical part of a successful strategy.
Getting it done, getting it done right, getting it done better than the next person is far more important than dreaming up new visions of the future.
All of the great companies in the world out-execute their competitors day in and day out in the marketplace, in their manufacturing plants, in their logistics, in their inventory turns—in just about everything they do. Rarely do great companies have a proprietary position that insulates them from the constant hand-to-hand combat of competition.
People Respect What You Inspect
At McKinsey my colleagues and I were continually frustrated to see one company after another invest thousands of hours and millions of dollars to develop solid, effective statements of strategic direction and then waste all the time and money because the CEO
was unwilling to drive change through the organization. At other times, the CEO thought change was taking place in the organization but failed to inspect what, in fact, was going on.
Perhaps the greatest mistake I’ve seen executives make is to confuse expectations with inspection. I have sat through hundreds of meetings in which strategies—good, solid strategies—have been presented and the business leader has agreed: “Yes, this is what we’re
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going to do.” I’ve seen well-written, sometimes brilliant strategy documents promulgated to the organization. I’ve seen great video, intranet, and face-to-face messages describing with excitement and passion a new and daring direction for an enterprise. But, alas, too often the executive does not understand that people do what you inspect, not what you expect.
Execution is all about translating strategies into action programs and measuring their results. It’s detailed, it’s complicated, and it requires a deep understanding of where the institution is today and how far away it is from where it needs to go. Proper execution involves building measurable targets and holding people accountable for them.
But, most of all, it usually requires that the organization do something different, value something more than it has in the past, acquire skills it doesn’t have, and move more quickly and effectively in day-to-day relationships with customers, suppliers, and distributors. All of this spells change, and companies don’t like to change because individuals don’t like to change.
As I’ve mentioned earlier, IBM knew what was going on in the computer industry in the late 1980s and early 1990s. It had documented numerous strategies to deal with a changing world. One document described the environment as “a sea of speedboats surrounding a floundering super tanker [IBM].” Newspaper accounts in the early 1990s suggested that my predecessor was exhorting and pressing the company to pursue new strategies. So what happened?
The strategic requirements were clear, the CEO was demanding their implementation, but the company stood still in the water.
Execution is the tough, difficult, daily grind of making sure the machine moves forward meter by meter, kilometer by kilometer, milestone by milestone. Accountability must be demanded, and when it is not met, changes must be made quickly. Managers must be asked to report on their perfor
mance and explain their successes and failures. Most important, no credit can be given for predicting rain—only for building arks.
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I believe effective execution is built on three attributes of an institution: world-class processes, strategic clarity, and a high-performance culture. Let me touch briefly on each.
World-Class Processes
Earlier in this section I mentioned that in every industry it is possible to identify the five or six key success factors that drive leadership performance. The best companies in an industry build processes that allow them to outperform their competitors vis-à-vis these success factors. Think about great companies: Wal-Mart has superb processes in store management, inventory, selection, and pricing.
GE is world-class in cost management and quality. Toyota is best-in-class in product lifecycle management.
At IBM we know that the product design function—the process by which we decide what products to build, with what attributes and features, at what cost, and at what time to be delivered to the marketplace—is critical in our industry. (This function is also critical, for example, to the automobile industry but not, say, to the petroleum industry.)
Consequently we worked very hard for five years to build a world-class process for product design. It involved millions of dollars of investments, thousands of hours of work, and, eventually, changed the way tens of thousands of IBMers worked. (We have done the same thing with six other processes that we consider crucial to competitive success.)
Great companies cannot be built on processes alone. But believe me, if your company has antiquated, disconnected, slow-moving processes—particularly those that drive success in your industry—you will end up a loser.
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Strategic Clarity
Remember the old saying: “If you don’t know where you are going, any road will get you there.”
No sports team can score if the players don’t know what play is called. If everyone has to think about what to do before acting, then confusion and ineptitude are inevitable.
Companies that out-execute their competitors have communicated crystal-clear messages to all their employees: “This is our mission.”
“This is our strategy.” “This is how you carry out your job.” But high-caliber execution cannot simply be a matter of exhortation and message. Execution flows naturally and instinctively at great companies, not from procedures and rule books. Manuals may play a role in early training activities, but they have limited value in the heat of battle.
Superb execution is more about values and commitments. At American Express we knew we provided the best customer service in the industry—not because our training manuals said it was important but because our people on the firing line, those who talked to customers all day, believed it. They knew it was a critical component of our success.
The wonderful sales force at The Home Depot who eagerly seek to help you when you visit their stores have a clear understanding of their role in making the company successful. Their behavior emanates from conviction and belief, not from procedures.
On the other hand, too many companies send conflicting signals to their employees. “We want the highest quality in the industry,”
says the CEO in January. “We need to cut expenses by 15 percent across the board,” says the CFO in March. How do the people facing the customer in this enterprise behave the next time a conflict arises over an important customer need?
Mixed signals can be pervasive and difficult. For example, IBM,
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I’m sure, always preached the importance of teamwork, yet everyone’s pay was based on individual unit performance. We said we value customers above all else, but no one in the field could make a pricing decision without a sign-off from the finance staff.
If you want to out-execute your competitors, you must communicate clear strategies and values, reinforce those values in everything the company does, and allow people the freedom to act, trusting they will execute consistent with the values.
High-Performance Culture
Superb execution is not just about doing the right things. It is about doing the right things faster, better, more often, and more productively than your competitors do. This is hard work. It calls for a commitment from employees that goes way beyond the normal company-employee relationship. It is all about what I call a high-performance culture.
High-performance cultures are harder to define than to recognize.
Once you enter a successful culture, you feel it immediately. The company executives are true leaders and self-starters. Employees are committed to the success of the organization. The products are first-rate. Everyone cares about quality. Losing to a competitor—whether it be a big fight or a small one—is a blow that makes people angry. Mediocrity is not tolerated. Excellence is praised, cherished, and rewarded.
In short, businesses with high-performance cultures are winners, and no person of substance would work anywhere else.
25
Leadership Is Personal
I deliberately left the subject of personal leadership to last because it is, in my opinion, the most important element of institutional transformation. I mentioned in the chapters on culture that at the end of the day great institutions are the length and shadow of individuals. Great institutions are not managed; they are led. They are not administered; they are driven to ever-increasing levels of accomplishment by individuals who are passionate about winning.
The best leaders create high-performance cultures. They set demanding goals, measure results, and hold people accountable. They are change agents, constantly driving their institutions to adapt and advance faster than their competitors do.
Personal leadership is about visibility—with all members of the institution. Great CEOs roll up their sleeves and tackle problems personally. They don’t hide behind staff. They never simply preside over the work of others. They are visible every day with customers, suppliers, and business partners.
Personal leadership is about being both strategic and operational.
Show me a business executive who doesn’t completely understand the financial underpinnings of his or her business and I’ll show you a company whose stock you ought to sell short.
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Personal leadership is about communication, openness, and a willingness to speak often and honestly, and with respect for the intelligence of the reader or listener. Leaders don’t hide behind corporate double-speak. They don’t leave to others the delivery of bad news. They treat every employee as someone who deserves to understand what’s going on in the enterprise.
Most of all, personal leadership is about passion. When I think about all the great CEOs I have known—among them Sam Walton of Wal-Mart, Jack Welch of General Electric, Juergen Schrempp of DaimlerChrysler, and Andy Grove of Intel—I know that the common thread among them is that they were or are all passionate about winning. They want to win every day, every hour. They urge their colleagues to win. They loathe losing. And they demand corrections when they don’t win. It’s not a cold, distant, intellectual exercise.
It’s personal. They care a lot about what they do, what they represent, and how they compete.
Passion. As a student going through Harvard Business School, I would never have guessed that passion would be the single most important element of personal leadership. I don’t recall the word ever being spoken during my classroom time at Harvard.
In fact I know I was not sensitive to its role in leadership because of an incident that has stuck in my mind for thirty-seven years. I was interviewing for jobs toward the end of my last year at Harvard.
I had narrowed down my search to two companies: McKinsey and Procter & Gamble, the consumer packaged-goods company. At that time, consulting and consumer marketing were considered the two hottest areas in America for MBAs.
The incident took place during my last interview w
ith a very high-level executive at P&G’s headquarters in Cincinnati, Ohio. I was an impressionable 23-year-old and had probably never met an executive as senior as this person.
As the interview progressed, I think he sensed my uncertainty (indeed, I was leaning at that time toward consulting). He said some
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thing I have never forgotten: “Lou, let’s suppose it’s Friday night and you are about to leave the office when you get the latest Nielsen report (market-share data for consumer packaged-goods companies).
It indicates that you have lost two-tenths of a point of share in the last month in Kentucky. Would you cancel all of your activities for the next day, Saturday, and come to the office to work the problem?”
I remember being startled by the question, and though I didn’t give him a definitive answer at the time, the response running through my head was no. I wound up at McKinsey, convincing myself perhaps that I was better off in an environment where the requirements were more “intellectual” and that I would perhaps find it hard to get excited about decimal-point market-share loss of a toothpaste brand.
How wrong I was. As I’ve stated earlier, a decade later I was frustrated with the detachment and lack of accountability of a consultant. I longed for the opportunity to be responsible for making things happen and winning, winning, winning. That senior executive at Procter & Gamble was describing the passion that drives successful executives.
Passion Is for Everyone
All great business executives—CEOs and their subordinates—have passion and show it, live it, and love it. Now, don’t get me wrong.
I’m not talking about superficial rah-rah optimism or backslapping and glad-handing. Remember my description of personal leadership.
It starts with the hard work of strategy, culture, and communications.
It includes measurement, accountability, visibility, and active participation in all aspects of the enterprise. Without that, passion is simply a cheerleader doing flips on the sideline while the team gets crushed, 63-0 (maybe 8-0 for those of you who follow soccer).
Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change Page 22