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An Important New Book: "Conscious Capitalism" by John Mackey

"Conscious Capitalism," the stunning new look at how capitalism should work by Whole Foods Founder John Mackey and Raj Sisodia, hit the market this week.  The authors have completed a series of public interviews describing the book, which is certainly the most important book of the year and possibly the decade.

At Mackey's request, I had the privilege of writing the foreword. I began: "This is the book I always wanted to write."  This is the first book that puts capitalism, and how it can work effectively, in its full context.

It strikes me that Mackey's goal is to return capitalism to its roots. He and co-author Sisodia make a compelling case for capitalism as the greatest wealth creator the world has ever known, even as he derides what he terms "crony capitalism." Decrying companies focused solely on pleasing Wall Street, he believes CEOs and business leaders should focus on serving their customers, employees, suppliers, the environment, and communities as well as their owners and shareholders. He even highlights the importance of respecting the interests of the "outer circle of stakeholders" such as labor unions, consumer advocates, regulators and government officials.

Mackey is a strong believer in venerating the purpose of any business. In Whole Foods’ case, the company’s purpose promotes healthy eating that leads to improved health. He himself is a vegan who tries to avoids sugar, salt and oils. He supports coffee, wine, and cheese, but not diet sodas or sugar-based cereals.  His beliefs stand in sharp contrast to the late Nobel Prize-winning economist Milton Friedman, with whom Mackey had a widely publicized debate.  Whereas Friedman advocated that the only purpose of business is to serve its shareholders, Mackey believes "businesses make a profit in order to fulfill their missions," not the reverse.

In "Conscious Capitalism" Mackey and Sisodia demonstrate unequivocally that leadership matters. They show us how to become conscious leaders, a notion that is virtually synonymous with Authentic Leadership. They recognize how essential it is for leaders to integrate their hearts with their heads by developing self-awareness and emotional intelligence, while empowering other people to do the same. With the enormous loss in confidence in our leaders in the past decade, developing conscious leaders is the best way to rebuild trust in our leaders and to ensure that they follow their True North.

"Conscious Capitalism" is an invaluable treatise on how to integrate all the company’s constituencies for the long-term benefit of creating sustainable organizations that serve society’s interests simultaneously with their own. Mackey refers to capitalism as a “heroic force” addressing society’s greatest challenges. In that sense his ideas dovetail perfectly with those of my Harvard Business School colleague Michael Porter, the pioneer of modern corporate strategy, who has called corporate leaders to contribute to society by “creating shared value.”

I sincerely hope that these ideas became a widely accepted and practiced mode of running corporations in the future, thereby enabling capitalism to flourish in the decades ahead as the dominant force contributing to a prosperous global society. Read it, tweet about it, share it with your friends, and most importantly: bring its principles into your business!  

Making Michigan Workers Competitive Once Again

Why all the fuss over Michigan’s new law to give workers the right to choose whether to join a labor union?

The Michigan legislature has voted decisively to give workers the freedom to choose. Governor Rick Snyder signed them both within hours, calling them "pro-worker and pro-Michigan." This makes Michigan the 23rd state to pass right-to-work legislation. House Speaker Jase Bolger said, "This is about freedom, fairness and equality. These are basic American rights – rights that should unite us."

The protests by the United Auto Workers (UAW) leadership are not surprising, but why has President Obama jumped into the controversy by flying into Michigan to speak out against the legislation? Last time I checked, this is a state issue, not a federal one, so it is not the President’s or Congress’s issue to decide. To the contrary, since this law extends a vital freedom to workers and removes the prohibition to work at a unionized facility if they don’t pay dues to the union, President Obama should support it.

As a native of Michigan, I have witnessed the fifty-year decline of a once-great American industry as the UAW-demanded work rules, pensions and healthcare plans cost Michigan hundreds of thousands of jobs as the Big 3 steadily lost market share to foreign competitors. This handicapped Michigan workers and their employers in competing with Japanese, German and Korean automobile manufacturers, most of whom located major plants in right-to-work states like North and South Carolina, Georgia, Tennessee and Alabama.

These restrictions rendered General Motors, Ford and Chrysler non-competitive, forcing them to relocate their factories to Mexico and China. Whereas the companies can locate their factories wherever they choose, their employees cannot, so they wind up out of work and dependent on government unemployment compensation. As a consequence, Michigan’s unemployment rate far exceeds those states, and its economy is hurting. USA Today reports that in 2000, Michigan was 19th among U. S. states in per capita income; today it’s 36th

As for the charge that companies in right-to-work states won’t pay their employees fairly, the evidence simply doesn’t support it. The employees of factories owned by Mercedes, BMW, Toyota, Nissan, Kia and Hyundai are well paid and fairly treated. They are voting with their feet by lining up by the thousands whenever new jobs are posted. Their quality is exceptional, as any owner of one of these cars will attest. The new factories have created automobile clusters of suppliers and vital infrastructure, as has been seen in South Carolina. That’s good for the U.S. as it creates jobs, reduces unemployment and enhances our trade balance.

With growing interest in bringing manufacturing back to the U.S., the timing of this legislation is perfect. It gives Michigan the opportunity to be fully competitive once again. It supports the revitalization of a vital U.S. industry and aids the transformations underway at the Big 3 U.S. producers. That’s good news for Michigan workers, and it enhances America’s competitiveness in the global marketplace.

Being a right-to-work state can lead to restoring Michigan’s pre-eminence as “the auto capital of the world,” revitalize a wobbling economy and get people off the unemployment rolls and back to work. Sounds like a win-win solution to me.

Integrative Medicine and the Transformation of Healthcare

My wife Penny gave a brilliant speech on “Integrative Medicine and the Transformation of Healthcare” as a keynote speaker at Emory University’s Eighth Annual Symposium on Predictive Health, sponsored by the Emory/Georgia Tech Predictive Health Institute. She shared the podium with Roy Vagelos, MD, former chairman and CEO of Merck, and William Kelley, MD, former executive vice president for health affairs at the University of Pennsylvania, and then joined Roy and Bill for a panel discussion. In her talk she summarizes the progress made in integrative medicine in the last eleven years and its promise for the future. Full text here.

To Save H.P., Break It in Two

Published November 28 in NY Times DealBook: http://dealbook.nytimes.com/2012/11/28/to-save-hewlett-packard-break-it-in-two/

Hewlett-Packard’s $8.8 billion write-down of its Autonomy acquisition is just the latest evidence of the steady decline of one of the world’s great companies. Don’t blame Meg Whitman, the chief executive. She is just cleaning up the messes created since 1999 by her three predecessors and H.P.’s strategically challenged board of directors.

For more than thirty years, Hewlett-Packard served as my role model of a company. Having met David Packard in 1969, I deeply admired his, and Bill Hewlett’s, philosophy of “management by wandering around” and “The Hewlett Way.”

Like the founders of my former company Medtronic, Hewlett and Packard started in a garage. They never forgot that the company was an egalitarian organization focused on innovations that met their customers’ needs. Trying to compete with H.P. in its prime was very difficult because of its innovative products, superior customer service and product quality.

The founders also created a financial model that enabled the company to sustain its growth for 40 years: grow revenue at 20 percent, maintain 20 percent operating margins, and reinvest approximately 10 percent of revenue in research and development. Their internally groomed successors, John A. Young and Lewis E. Platt, carried on their philosophy for another twenty years.

In 1999, everything changed. Based on a consultant’s recommendation, the board decided to spin off its core business of test, measurement and medical instruments in order to focus on the rapidly growing computer business.

Wanting to shift its culture, the board passed over several internal candidates to bring in Carly Fiorina from AT&T and its Lucent spinoff. She quickly abandoned The Hewlett Way, moving aggressively to reshape the company as a prominent marketer of computer equipment and enterprise systems. Her fateful move was acquiring Compaq Computer, despite the objections of several board members, in order to become the leader in low-cost personal computers.

Ms. Fiorina tried to focus simultaneously on high-end enterprise systems. The split focus was costly. In its bid to buy the business consulting practice of PricewaterhouseCoopers, H.P. lost out to I.B.M. As time continued, Hewlett’s growth and profitability stagnated.

Ms. Fiorina was succeeded by NCR’s Mark V. Hurd, who focused on near-term sales growth and cost reduction, doubling the company’s earnings and stock price. Mr. Hurd also acquired Electronic Data Systems’ computer services capabilities, an unfortunate deal that led to an $8 billion write-down in 2012. The company’s investment in R&D, meanwhile, fell to 2.3 percent from 4 percent.

When Mr. Hurd resigned after admitting he had violated company standards, the board hastily hired Léo Apotheker, the failed co-chief executive of the enterprise software giant SAP. Mr. Apotheker proposed selling the company’s PC business and dropping its tablets and smartphones to concentrate on systems and software. He acquired the British software maker Autonomy for $10 billion.

His strategies caused such controversy that he was terminated after only 11 months and succeeded by a board member, Ms. Whitman, the former eBay C.E.O. and unsuccessful Republican candidate for governor of California.

Ms. Whitman has tried to stabilize Hewlett-Packard’s management and strategy by facing the issues forthrightly. She is cleaning house and cutting costs, while deferring hopes for a turnaround until 2014. The company’s share price has continued to fall, hitting a low in November of $11.35, 79 percent below its 2010 high water mark.

With 330,000 employees and $120 billion in revenue, H.P. has become too big to manage.

It is really two businesses: a commodity personal computer and printer business and an enterprise systems, services and software business. The characteristics of these businesses are entirely different.

The commodity business requires low costs and aggressive distribution through multiple channels combined with rapid new product introductions, qualities incompatible with the company’s historically high cost structure and cumbersome organization.

The enterprise systems business requires heavy investments in research and development, including very sophisticated software (an area where H.P. is sorely lagging behind I.B.M., Oracle and SAP), high touch customer service and an expensive support structure to meet its customers’ complex needs.

The time is ripe to split the company into two businesses — enterprise systems and computer hardware — each with roughly $60 billion in revenue, positive cash flow and solid profitability.

Ms. Whitman could run enterprise systems, using her strengths in software and customer relationships to restore the company to its original roots and The Hewlett Way.

Upon being spun off, the new computer hardware company could be run by Todd Bradley, executive vice president of the printing and personal systems group and a former chief of Palm. He could create a leaner, more competitive company to take on Dell, Lenovo and the Japanese printer companies. And the restructuring could eliminate as much as $1 billion of corporate overhead required to manage H.P.’s current set of businesses.

In its current form, Hewlett-Packard is a wasting asset, whose value to customers, employees and shareholders is steadily declining. It is time for the board to move quickly to restore its former status as a company everyone can admire, one that can compete successfully in two very different global markets.

If it does so, Hewlett-Packard’s beleaguered shareholders will finally benefit from a substantial jump in the combined market valuation of the separate companies.

An Independent's Lament: Let Me Out of this Dying Breed

I held back from the 2012 election, in part through taking the Howard Schultz pledge not to give money to any candidate until Washington decides to focus on America’s issues rather than partisan politics. No one noticed my absence except those dozens of robo-callers who learned that “William and Ann don’t live here.” Penny and I instead gave the money to our family foundation where we decided it would do a lot more good – in health care, leadership, spirituality and our community.

I grew up in a Republican family when it was a privilege to be part of a respectable group of people who believed in fiscal conservatism (i.e., living within your means) and social progressivism (i.e., accepting people for who they are, regardless of their differences from me).  In recent years moderates like me have nowhere to go.

The political architects of the modern Republican party, like Karl Rove, have built a coalition that emphasizes social conservatism at the expense of fiscal moderation (reasonable tax policy and reasonable expenditures).  In this party, there is no room for moderate Republicans – decent leaders like my friends Sen. David Durenberger, Prof. David Gergen, Tad Piper, Sec. John Whitehead, Rep. Jim Ramstad, Gov. Al Quie and Gov. Arnie Carlson.  Even my Grand Rapids neighbor President Jerry Ford would not have passed the ideological purity test of today’s Republican primaries. President Ford told my wife shortly before his death that if he were to run for office, he would have to run as a Democrat. So I became an independent who voted for George H.W. Bush and Bill Clinton, and supported President Obama’s 2008 message of hope.

Having lived through twelve years of Presidents who are fiscal liberals, I agonize as I see my generation bequeathing a mountain of debt to our children and grandchildren with entitlements so large they will bury all reasonable government programs. In the end, I voted for Obama – largely to keep the extremists in Romney’s party out of power.  After all, who could affiliate with Senate candidates like Todd Akin who spoke of “legitimate rape” and Richard Murdoch who said that women are raped because “God intended it”?

I now find myself part of a dying breed: an over-45, white, heterosexual, Protestant male college graduate with an income over $50,000. For decades our demographic held most of the leadership roles in this country, but we long ago became the small minority of American voters. Strangely, the Republican Party hasn't yet figured that out. This was the only sub-group of voters that went solidly for Governor Romney, in part reflecting a desire to return to the “good old days.” (The good old days were never as good as we remember.) Meanwhile, I don't want to be identified by this dying breed! I love my friends who are like me in demographic terms, but I also love my friends who are females, blacks, Hispanics, Asians, gays, Hindus, Buddhists, Jews and Muslims, and immigrants. 

Sadly, I anticipate four more years of political gridlock in Washington.  Even if we escape the fiscal cliff, there will soon be yet another politically-motivated game of “Chicken.” Rather than spend wasted hours endlessly debating federal politics, I recommend following the sage advice of Robert F. Kennedy, who said in 1966, “Few will have the greatness to bend history itself; but each of us can work to change a small portion of events, and in the total of all those acts will be written the history of this generation.”

This generation can have the greatest impact by making a difference in our own environment: our communities, companies, non-profit organizations, churches and synagogues, and local governments.  Rather than playing politics, these organizations focus on the big problems troubling us: poverty, homelessness, global peace, education, job creation, the environment and healthy living.

The future belongs to those who would unite us as one people, because of not in spite of our differences, and who are willing to work together to solve intractable problems. They are the real leaders.

Translating Mission & Values into Results

Here is my interview with Bob Vanourek on how to achieve Triple Crown Leadership through ethics & values combined with high performance and leaders at all levels: http://bit.ly/RHwKLf

Full Text Here:

Bill George was the COO, then CEO and Chairman, of Medtronic from 1989 through 2002, the years when annual revenue increased an average 18% and earnings increased 22%. A host of innovative products were introduced during this time, and the price-to-earnings ratio of Medtronic’s stock went from 11 to 45. But the Medtronic story goes beyond growth and earnings, demonstrating how to build an excellent, ethical, and enduring company.

George is the author of Authentic LeadershipTrue North (co-authored with Peter Sims),Finding Your True North, and Seven Lessons for Leading in a Crisis. He currently teaches at the Harvard Business School.

Here are edited excerpts of our interview with him for Triple Crown Leadership.

How would you describe Medtronic’s leadership approach?

George: The company was very mission-focused and values-centered. Our employees were focused on patients, thanks to the annual holiday program, which highlighted Medtronic patients, and the mission-medallion ceremonies that all new employees went through in their first six months.

[Authors’ Note: Medtronic’s bronze medallion bears the words “toward full life” and is intended to remind employees to honor the company's mission: “You are here not to make money for yourself or the company, but to restore people to full life.”]

But what the company lacked was closed-loop management and good discipline. They operated with excuses, alibis, and reasons for non-performance. Products that would normally take 24 months to come to market took 48. We changed that to a 16- to 18-month cycle, which put Medtronic way ahead of its competitors and changed the whole game. But that required disciplined, close-loop management.

The same was true with budgetary controls. People felt that they could overspend budgets. As one senior executive said to me, “I’d rather ask for forgiveness than permission,” and he hired 80 people that weren’t authorized during the middle of a hiring freeze. People could stop the founder, who actually had no managerial responsibility, tell him about a program, and he’d say, “Go for it!” The next thing you know, they’d spent a million dollars on it.

I talked a great deal about empowerment with accountability.

How else did you approach leadership at Medtronic?

George: I embraced the mission and values and talked about them all the time. I believed in being very close to the customer. The organization was very inward looking. So, I started going out to major medical centers and spending a great deal of time with doctors. I said to all of the engineers, “You need to get into medical centers too.”

We also de-layered the company, taking out two to three layers of management. We said, “You don’t need six or eight direct reports; you need twelve to twenty.” That put management much closer to customers and to the action.

How would you describe Medtronic’s culture?

George: The culture was very caring, people-oriented, values-centered, and mission-driven. But the culture was soft. The board used to call it a country club. If there were non-performers, the organization would say, “This person is very loyal.”

The company did not have the leadership skills at the top, that had to be totally rebuilt with new hires as well as picking some people who seemed to have potential and giving them a shot. There were no general managers, so we took some functional heads and made them general managers. Most of them made it; some did not.

It sounds like you were guiding the culture in a new direction?

George: A completely new direction. It was a little jarring to people. We had to grow up. We had to grow from a mid-size company to a large company. I had to get the leadership team on board for this, and pick out those who were on board, and others had to step aside.

A good example was the head of worldwide business, who had the capacity to look the other way when there were ethical deviations. To my knowledge, he never actually conducted any ethical deviations, but he looked the other way. He accepted that as normal.

In the old days, no one wanted to ask what the overseas distributors did. Their independence was a shield for unethical behavior, as long as they signed a statement indicating they would be ethical.

A former general counsel of Medtronic said, “Don’t ask too much about what the distributors do.” I learned certain Korean distributors were providing prostitutes for physicians after they had implanted their pacemakers. I asked the head of international to send a letter that day terminating all four distributors. Everyone said, “You won’t have anyone in Korea.” I said, “We’ll start over. We don’t tolerate unethical behavior.” 

What other changes did you make when you came in?

George: We had major quality problems, so I put in our own internal focus on quality, made that the driving force of closed-loop quality measurement and getting the actual quality results up in the eyes of the customer.

Human Resources was supporting many of the poor performers. They thought loyalty was more important than performance, that management was too tough and that we needed managers who were people oriented. Sometimes, people give the impression of being people-oriented. They say all the right words, and people love to work with them, but they never get results. So, I changed the Human Resources leadership.

We had a series of ethical crises internationally because leaders accepted that this was the way that business was done. We had to fire a lot of managers and send others over to hold the fort. We put in performance-management systems, did not tolerate unethical behavior, and weeded out the poor performers.

What role did the board take in creating this new culture?

George: One of the reasons the board hired me was to put in closed-loop management. I was the first executive hired from the outside. I had free rein to run the business, and I quickly reorganized it into strategic business units and away from the worldwide functional organization. The board was extremely supportive.

Did you consider Medtronic to be a high-performance organization?

George: It was not a high performance organization early on, but from about 1994, yes. I would define a high-performance organization as one that can sustain its growth by excelling in the areas where it considers itself the best. Medtronic was the best innovator and the best provider of customer services. Those were the two areas where it excelled. Business Week once called Medtronic an “innovation machine.”

Medtronic then got lots of awards as the most ethical company, most innovative company, most admired company in the industry, and one of Fortune’s most admired, year after year.

What did you look for in your leaders?

George: The most important thing was to be passionate about the mission, to believe in and execute the values of the company, and to translate those into actual results. People who really got it from a mission standpoint, who were committed to and would practice the values every day, and would translate that into results for patients. Those are the best leaders.

How important is a healthy personal core in leaders?

George: Extremely important. Long before I joined, the company had a meditation room, which was symbolic of the fact that people needed to be reflective. I spent a lot of time encouraging people to think about how their personal values aligned with the company’s values, and how their personal mission of leadership aligned with the company’s mission. If they couldn’t do that, it was best that they leave. Some people saw the world strictly as numbers. They didn’t get what was at the other end of those numbers.

Our cafeteria served only healthy foods. We put major fitness centers in every one of our facilities. We put one in our new headquarters, and within six months, we had to double the size because it was being used so heavily. As a result, Medtronic’s healthcare costs were less than half of the national average.

I used to leave meetings regularly at 5:30 and go coach soccer. People would say, “Where are you going?” I’d say, “I’m going to coach my son’s soccer game.” That sent a message.

Did you change the mission, values, or vision of the company?

George: Our mission and values were well established. The vision did change in 1990, and I changed it again in 2000 because I think that visions should change every ten years. In 1990, we established a ten-year vision for Medtronic to become the world’s leading medical technology company. Then in 2000 it changed to “creating lifelong solutions for people with chronic disease.”

We created a series of task teams to look at different aspects of what the world would look like in the year 2010, including the technology, marketplace, and disease states. The head of strategic planning led the teams. It took about nine months. We had an executive-level committee team that reviewed the ideas and came up with the new vision after reviewing what the various teams had to say.

We brought a lot of new people in, and the key was making sure that the newcomers got fully inculcated into the culture. First, we interviewed for it. Second, we got them involved in their own mission medallion ceremonies, so they “got it.”

Do you think that leadership has a hard edge and a soft edge?

George: I don’t like the words “hard” and “soft” because I think that the hardest job any leader has is to align the people around the company’s mission and values. It’s really hard work. In a global organization, it’s extremely hard. But I think that one must do both, and that’s a fact in closed-loop management that you have to expect people to deliver. What good is a mission or a value if there’s no performance?

You have to have leadership to do both. The top person can’t be the soft side, and then have someone else, the number two person, lean the hard way. You’ve got to do both yourself. I don’t think it’s too much to ask from your leadership team. If you want to be a leader in Medtronic, you’ve got to do both. You’ve got to embrace the mission and values, and you have to perform, or you can’t work here.

Was leadership at Medtronic concentrated or disbursed?

George: I believe leadership is everyone’s job. The top leader’s job is to get others to lead. I think that leadership should be distributed widely throughout the organization, and the compensation system, such as bonuses and stock options, should be aligned with that distributed notion. People repeatedly said, “Don’t give me all those stock options. Let’s spread them around to my people.” It became a very normal kind of thing, so we very broadly spread the compensation system in our company. At our 50th anniversary in 1999, everyone got 100 shares of the stock.

Did you ever struggle to bite your tongue to keep from dominating a meeting?

George: All the time. I got pretty good at that. I wanted to get my opinions out, and I wanted you to take me on. I don’t want you to bother with authority. So that was hard, yes. I tend to be very direct, and I assume that you’re strong enough to take me on. Not everyone is. Some people still have deference to power. It took a while for people to realize that it wasn’t just a hard edge that I had.

What was it like leading at Medtronic?

George: You have a team of people around you that are really trying to make a difference, and you hit barriers, and the team really comes together, taking on really tough problems, working together in the trenches to get it done. People who have more expertise step up. People are willing to give everything they’ve got and be honest and open about problems they have, and they call on support from others.

Any other thoughts on leadership?

George: You can’t drive high performance today from the top. You have to empower people to perform. Just having processes and disciplines will not be sustainable. It may get results for a short time, it may pull you out of some difficulties, but it will not be able to sustain success. The reason is that people in organizations today are not going to work in a large, bureaucratic, command-and-control organization. The key is giving young people an opportunity to step up and lead, giving them chances to show what they can do. People in organizations are looking for more than money. I think that the economists in the nineties got it wrong by saying that it’s all about maximizing shareholder value, and that the stock price is the single point to measure everything by. That’s nonsense.

The reality is that when you operate with marginal values, and you have a marginal strategy, and you’re a heroic figure in the eyes of the media, you’re probably going to destroy the organization.

There is too much focus on the short term. The short-term focus has blown up. Academics will say there’s no difference between the long-term and short-term because you use present-value analysis. That meant projecting the value of an instrument ten or twenty years out, as many of those failed financial institutions did. They didn’t really know. Everything was on short-term, fee-based income, and this whole instant gratification, instant bonuses, just destroyed so many institutions.

How would you describe great leadership?

George: Great leadership involves a vision of what can be, the courage to take it on, and the ability to bring people together and align them around that vision and mission. It takes the capacity to practice those values–your values and the organization’s values–every day. It needs discipline at that practice. You can’t say one thing and do another. Great leaders know how to empower other people to step up and lead. They don’t exert power over other leaders. That’s an old-fashioned notion. They know how to empower other people at all levels to step up and lead.

HBR Blog on Disruptive Technologies

Here is my latest HBR blog, "The Idea that Led to 10 Years of Double Digit Growth" - Clay Christensen and Joe Bower's "Disruptive Technologies" that we used at Medtronic to spawn our 18% per annum growth (http://bit.ly/Rv6Uqj).

Full Text Here:

In the mid-90s as CEO of Medtronic, I was concerned about whether we could sustain the remarkable success in innovation that we had enjoyed during the previous 10 years. As we grew, I knew it would be very difficult to continue to create the breakthrough innovations that had led to Medtronic's high growth rate, which had exceeded 18% per annum for a decade. Then I read Clay Christensen and Joe Bower's 1995 article "Disruptive Technologies: Catching the Wave" in HBR. 

Christensen and Bower's article offered the counterintuitive notion that great companies fail for the same reasons they initially experience success. They listen to their best customers — something we did religiously at Medtronic — making increasingly complex products to meet those customers' most sophisticated needs. This process leaves companies vulnerable to competitors who develop new forms of technology that initially fail to serve the "best" customers well, but quickly improve.

This process of "disruptive innovation" enabled new competitors to create entirely new product categories. For example, early cell phones were woefully unreliable, and their voice quality paled in comparison with land lines. Then rapid improvement in cell phone technology combined with sharp reductions in cost opened up massive new markets that existing terrestrial business telecommunications companies had missed.

Impressed by the HBR article's framework for resolving the tension between existing businesses and innovative ideas, I wrote an article for our employees titled "Reinventing Medtronic" that captured the essence of what was required to sustain our growth. We then initiated 12 radical innovations that challenged our conventional businesses. We organized these initiatives around small venture units, incubating them separately (and far away) from existing businesses. Venture innovators had greater freedom to deploy their independent R&D budgets. In financial terms these were small bets, with very low overhead. (See Peter Sims' book, Little Bets, for a more complete description of how this works.)

One example was Medtronic's reinvention of mainstream coronary artery bypass surgery. This involved minimally invasive cardiac surgery that eliminated the need to crack open a patient's chest and put the heart on Medtronic's bypass equipment. Clearly, this was threatening to people in Medtronic's core business. Nevertheless, we steadfastly supported the venture. The new procedure proved to be effective and now accounts for 20% of heart surgeries while producing better outcomes.

Another innovation was a super low-cost pacemaker that reduced production costs 80% by challenging many of the traditional rules of pacemaker design. The product worked effectively, but never became a big seller. Still, it enabled Medtronic to expand into the Chinese market. Meanwhile, the mainstream pacemaker designers borrowed many of the creative ideas, resulting in a 40% cost reduction across the entire line. As I told our executives, "If we don't make these innovations, our competitors will."

All in all, the "Disruptive Technologies" article helped Medtronic broaden its ability to fulfill the mission of "alleviating pain, restoring health, and extending lives." First, we increased our R&D budget from 9% to almost 12% of revenue. Second, we separated the ventures from existing business units so they could focus on disruptive innovations while the strategic business units focused on better engineering our existing product categories. Third, we made selected acquisitions of new technologies that fit in our product platforms or enabled Medtronic to expand into related product categories. Finally, our top executives gave the ventures the support required to go full throttle on innovation, spending time in the labs with them, understanding their work, and championing it throughout Medtronic.

Thanks to the HBR article, Medtronic avoided the lost years of stagnation that Hewlett-Packard and other once-great innovators experienced because they were unable to reinvent themselves. As a result, Medtronic's revenue growth continued at 18% per annum for the next decade. 

Mindfulness Helps You Become a Better Leader

For Harvard Business Review

Ever since the financial crisis of 2008, I have sensed from many leaders that they want to do a better job of leading in accordance with their personal values. The crisis exposed the fallacies of measuring success in monetary terms and left many leaders with a deep feeling of unease that they were being pulled away from what I call their True North.

As markets rose and bonus pools grew, it was all too easy to celebrate the rising tide of wealth without examining the process that created it. Too many leaders placed self-interest ahead of their organizations' interests, and ended up disappointing the customers, employees, and shareholders who had trusted them. I often advise emerging leaders, "You know you're in trouble when you start to judge your self-worth by your net worth." Nevertheless, many leaders get caught up in this game without realizing it.

This happened to me in 1988, when I was an executive vice president at Honeywell, en route to the top. By external standards I was highly successful, but inside I was deeply unhappy. I had begun to focus too much on impressing other people and positioning myself to become CEO. I was caught up with external measures of success instead of looking inward to measure my success as a human and a leader. I was losing my way.

My colleague, Harvard Professor Clayton Christensen, addressed this topic in his HBR article, How Will You Measure Your Life? Clay observed that few people, if any, intend at the outset of their career to behave dishonestly and hurt others. Early on, even Bernie Madoff and Enron's Jeff Skilling planned to live honest lives. But then, Christensen says, they started making exceptions to the rules "just this once."

At Harvard Business School, we are challenging students to think hard about their definition of success and what's important in their lives. Instead of viewing success as reaching a certain position or achieving a certain net worth, we encourage these future leaders to see success as making a positive difference in the lives of their colleagues, their organizations, their families, and society as a whole. The course that I created in 2005, Authentic Leadership Development (ALD), has become one of the most popular elective MBA courses, thanks to my HBS colleagues who are currently teaching it. It enables second-year MBAs to ground their careers in their beliefs, values, and principles, following the authentic leadership process described in my 2007 book, True North. More recently, ALD has become a very popular course for executives of global companies.

With all the near-term pressures in today's society, especially in business, it is very difficult to find the right equilibrium between achieving our long-term goals and short-term financial metrics. As you take on greater leadership responsibilities, the key is to stay grounded and authentic, face new challenges with humility, and balance professional success with more important but less easily quantified measures of personal success. That is much easier said than done.

The practice of mindful leadership gives you tools to measure and manage your life as you're living it. It teaches you to pay attention to the present moment, recognizing your feelings and emotions and keeping them under control, especially when faced with highly stressful situations. When you are mindful, you're aware of your presence and the ways you impact other people. You're able to both observe and participate in each moment, while recognizing the implications of your actions for the longer term. And that prevents you from slipping into a life that pulls you away from your values.

I don't use the word "practice" lightly. In order to gain awareness and clarity about the present moment, you must be able to quiet your mind. That is tremendously difficult and takes a lifetime of practice. In 2012, I had the privilege of presenting my ideas on authentic leadership to his Holiness the Dalai Lama. When I asked him what it took to become an authentic leader, he replied, "You must have practices that you engage in every day."

My most important introspective practice is mediation, something I try to do for twenty minutes twice a day. In 1975 I went with my wife Penny to a Transcendental Meditation (TM) Workshop. Although I never adopted the spiritual portion of TM, the physical practice became an integral part of my daily routine. Meditation has been a godsend for me. As an active leader who has held highly stressful roles since my mid-twenties, I was diagnosed with high blood pressure in my early thirties. When I started meditating, I was able to stay calmer and more focused in my leadership, without losing the "edge" that I believed had made me successful. Meditation enabled me to cast off the many trivial worries that once possessed me and gain clarity about what was really important. I gradually became more self-aware and more sensitive to the impact I was having on others. Just as important, my blood pressure returned to normal and stayed there.

In recent years, medical studies have found evidence of meditation's many benefits, including protecting against health problems from high blood pressure and arthritis to infertilityreducing stress, improving attention and sensory processing; and physically altering parts of the brain associated with learning and memory, emotional regulation, and perspective-taking — critical cognitive skills for leaders attempting to maintain their equilibrium under constant pressure.

While many CEOs and companies are embracing meditation, it may not be for everyone. The important thing is to have a set time each day to pull back from the intense pressures of leadership to reflect on what is happening. In addition to meditation, I know leaders who take time for daily journaling, prayer, and reflecting while walking, hiking or jogging. I also find it extremely helpful to share the day's events with Penny and seek her counsel.

Regardless of the daily introspective practice you choose, the pursuit of mindful leadership will help you achieve clarity about what is important to you and a deeper understanding of the world around you. Mindfulness will help you clear away the trivia and needless worries about unimportant things, nurture passion for your work and compassion for others, and develop the ability to empower the people in your organization.

Developing the Global Leader

By Julia Hanna for Harvard Business School Working Knowledge

What skills do today's executives need to develop to become effective global leaders of tomorrow? And how do corporations teach these skills to their own leaders?

"The shift from a country centric corporation to one that is more global in its outlook will have a radical impact on leadership development," says Professor of Management Practice William George, the former chairman and chief executive officer of Medtronic.

George developed and taught for many years the popular second-year MBA course Authentic Leadership Development (ALD), which he has compressed into a five-day Executive Education program at Harvard Business School.

"The most successful leaders will not necessarily be those with the highest IQ," he says. "Of course, they will need to be intelligent. But they'll also need to have a high level of cultural and emotional intelligence."

According to George, additional characteristics of a successful global leader include:

  • An intellectual understanding of the global business context—in other words, an ability to comprehend just how complex it can be to do business around the world.
  • The capacity to simultaneously develop a global and local perspective. "This is much easier said than done," George says. "And it's almost impossible to achieve without a great deal of experience living in different parts of the world."
  • Being able to overcome the dominant thinking at headquarters. "Leadership has to lean in favor of nondominant thinking," says George. "That requires a tremendous amount of intercultural empathy and a passion for diversity in life experiences." In other words: "An insatiable need to learn about other cultures."
  • A knack for cross-boundary partnering. "You need to feel comfortable engaging a team in India and giving them as much power as a team in Germany or the United States. There's a certain level of executive leadership maturity involved in having the respect and capacity to pull the best out of each area of the corporation."
  • A self-awareness and self-assurance when it comes to one's values and sense of purpose. At the same time, however, "you need to be flexible in learning from and empowering others."
  • The ability to develop networks that are internal and external to the organization. "It's a process of shifting from vertical management to horizontal collaboration. One's title and role are far less important than the capacity to get things done."

How should one cultivate these qualities? One of George's first recommendations for would-be global leaders is to live in a country where the language spoken is different from that in one's home country.

"When my wife and I lived in Japan we had a two-year-old child, which meant we had to dive in and learn very quickly," he recalls. "Doing this gives you a heightened sensitivity to cultural differences, and how those differences are tied up in language."

After 60 or so hours of Japanese language instruction, George could more or less carry on a conversation, and did so with a retired chairman of Mitsubishi—who gently informed him that he was speaking "female Japanese."

Get lost

"These are great learning experiences," he says. "The first weekend after I had moved to Belgium, I asked someone how I should explore and get to know the place. I was told to go get lost, which is great advice. It's about really engaging in the culture and learning to be vulnerable."

Accepting one's vulnerabilities is a primary objective of ALD, which requires participants to work together in six-person groups.

"It's more than a knowledge transfer from HBS to individuals; it's also an exchange between people and a process of understanding who I am, what I desire, what is my purpose, and what are my values," says George, who notes that this year the number of participants who can enroll in ALD has doubled to 240 people.

Also coming next July is The Global Enterprise Leader, a course developed with Professor Krishna Palepu that will extend ALD's objectives to include cultivating a greater capacity for cultural intelligence. "It's not so much about understanding geopolitics," George says. "The characteristics that I've cited above are far more important."

Aligning employees across a diversity of geographies and experiences is easier said than done, George concedes, although he does highlight a few standouts, including Coca-Cola (which has had five non-American CEOs), Nestlé, Unilever, Siemens, IBM, and Novartis, among others.

"Ultimately, a global organization is measured by how well the diversity of its leadership reflects the diversity of its customer base and how well that leadership can leverage the skills of teams working around the world," he says, adding that Medtronic's CEO is Omar Ishrak, a native of Bangladesh who was educated in London and has worked in the United States for nearly 20 years.

"We're looking to companies to create a global cadre of people who are comfortable operating anywhere in the world," George concludes. "That's where we're heading."

Documentary: Integrity in Business with Robert Maybery

Here is a recent documentary I did on integrity in business with Robert Maybery, a South African business executive. Your feedback is welcome. The documentary is in four parts: http://youtu.be/wvybgXJcggk