I would like to thank Inc. Magazine and 800-CEO-Read for including 7 Lessons for Leading in a Crisis on their business book bestseller list. It is a privilege to be included along with these other great works on business, economic, and leadership development. This is a topic about which I am very passionate, and I look forward to continuing to share my thoughts and experiences with you as we all continue in our leadership development.
Blog > Category: 7 Lessons
Originally Posted in Harvard Business School Working Knowledge on February 22, 2010
Toyota's ever-widening problems are a tragic case study in how not to lead in crisis.
Under the media spotlight, Toyota CEO Akio Toyoda, grandson of the founder, went into hiding and sent American CEO Jim Lentz to make apologies. (Editor's note: Toyoda has agreed to appear before a Congressional inquiry this week.) Meanwhile, he let serious product quality issues spiral out of control by understating safety risks and product problems. This left the media, politicians, and consumers to dictate the conversation, while Toyota fumbled the responses.
Disingenuous quasi-apologies and disjointed plans for resolution have been Toyota's substitute for crisis response. As accounts pour in about declining quality, the company parades out relatively unknown mid-level managers to quell the firestorm.
It won't work. "You live by the sword; you die by the sword." Toyota's weapon of choice has always been quality, a competitive advantage that prompted many Americans to stop buying GM and Ford brands. Toyota can only regain its footing by transforming itself from top to bottom to deliver the highest quality automobiles.
When terrorists laced Tylenol capsules with cyanide in the mid-1980s, Johnson & Johnson CEO Jim Burke understood his company credo challenged him to put the needs of customers first. Although J&J was not responsible for these problems, Burke nevertheless recalled every Tylenol product from the market.
This is not a crisis of faulty brakes and accelerators, but a leadership crisis. During Chrysler's 1980s crisis, CEO Lee Iacocca took charge, restoring consumer trust and prosperity. When General Motors emerged from bankruptcy last summer, Chairman Ed Whitacre became the trustworthy, determined face of the company's comeback.
Toyota needs a credible leader with a strong, cohesive plan. Mr. Toyoda is anything but. His uninspired words of optimism from Davos only unnerved customers and U.S. regulators. Meanwhile, Ford and GM are working hard to regain the market share they lost at Toyota's expense.
How can Akio Toyoda get Toyota back on track? I offer recommendations based on my recent book, 7 Lessons for Leading in Crisis.
1: Face reality, starting with yourself. Faced with multiple reports of accidents from sticking accelerators, Toyota blamed the problems on stuck floor mats and panicky drivers. Instead, Toyota should acknowledge that its vaunted quality system failed. CEO Toyoda should take personal responsibility by saying that he pushed too hard for growth and neglected quality. By admitting his errors, he gives every Toyota employee permission to acknowledge mistakes and to get on with correcting them, instead of denying reality.
2: Don't be Atlas; get the world off your shoulders. Toyoda cannot expect to solve problems of this magnitude himself. Instead, he needs a crisis team reporting directly to him, working 24/7 to get problems fixed—permanently. He also needs outside counsel, as he appears to be listening only to insiders who are defensive about criticism. He should add the world's top quality experts to his fix-it team and listen carefully to their advice.
3: Dig deep for the root cause. When Toyota's problems first surfaced, the company blamed a symptom—loose floor mats—and exonerated the accelerators. Instead, management should have required its best engineers to get to the root cause of this problem and every other quality problem being reported. This is basic engineering and quality discipline.
4: Get ready for the long haul. These problems won't just fade away. In fact, they are likely to get worse before getting better. Just as the seeds were sown over the past ten years by placing growth ahead of customer concerns and quality, digging deep into problems will likely uncover more quality concerns that will take years to resolve. Toyota must invest heavily in corrective actions while its sales shrink and profits implode, requiring major cash resources until its reputation can be restored.
5: Never waste a good crisis. For all the pain Toyota is experiencing, this crisis provides a unique opportunity to make fundamental changes required to restore Toyota quality. The crisis is melting away the denial and resistance that existed in recent years. Employees are ready for new direction, and they are willing to make radical changes to renew the company. With Toyoda's leadership, Toyota automobiles can be restored to the world's highest quality.
6: You're in the spotlight: follow True North. In a crisis, people insist on hearing from the leader. Akio Toyoda can't send out public relations specialists or his American executives to explain what happened. Having lost sight of his company's True North—its values and principles—Toyoda must come out of hiding, take personal responsibility, and subject himself to intense questioning by regulators and the media. Then he should make a personal commitment to every Toyota customer to repair the damage, including buying back defective cars.
7: Go on offense; focus on winning now. Coming out of this crisis, the market will never look the same. GM and Ford are rapidly regaining market share, while the confidence of Toyota's loyal customers is badly shaken. Toyota cannot wait until all its quality problems are resolved. It must play defense and offense simultaneously. To win, Toyota has to offer advanced features and superior quality, better value for consumers, greater safety, and improved fuel efficiency.
This is a challenging menu, and this crisis is the true test of Akio Toyoda's leadership. Is Toyota up to these challenges? I believe this is a great company that will resurrect its reputation and restore its leadership.
Steve Cunningham, President and CEO of Polar Unlimited, recently created a ”ReadItFor.Me” video-review of 7 Lessons for Leading in Crisis. I wanted to be sure to share that video here as Steve has done a phenomenal job of capturing the core message of 7 Lessons while interweaving it in a very entertaining forum.
Complete with music, pictures, and an enthusiastic, engaging voice-over, Steve has managed to condense the pages of 7 Lessons down into a 10 minute video. He also includes an excerpt from a conversation he and I had earlier this year about crisis-time leadership and the role that 7 Lessons can play.
I encourage you to watch the video in its entirety here. And be sure to pass along your thoughts to Steve and myself.
Last week John Hope Bryant, Warren Bennis, and I had a leadership discussion, moderated by Dean Jim Ellis of USC Marshall School of Business. John wrote a great recap of the event, complete with pictures, which you can read here.
Back in October John and I had a similar dialogue with former Atlanta Mayor Andrew Young at the Andrew Young School of Policy Studies at Georgia State. Young has some especially interesting things to say about his relationship with Martin Luther King, Jr. C-SPAN2 recently aired our conversation, you can see a video of that event here.
Stephen Gill of the “Performance Improvement Blog” wrote a great blog piece yesterday on the economic crisis and the flawed bank and financial institution leadership which helped create it. He also made reference to 7 Lessons for Leading in Crisis, and I wanted to be sure to highlight his fine analysis here. Gill very zeroes in on two themes that run throughout the book (about which I am in complete agreement):
“One is the notion that truly high performing leaders take responsibility in a crisis. They own the organization’s failures, learn from those mistakes, are transparent about this, and apply that learning to the next crisis. The other theme is that high performing leaders keep an ethical compass pointed at their personal “True North."
And he concludes with what I think is a very concise and accurate summation of our current situation:
“It’s easy to fix blame for the failure of banks on regulators who face a great deal of resistance when they try to enforce rules and regulations. The more fundamental problem is with the failed leadership of banks."
Be sure to check out this post in its entirety – a good read for today.
At the World Business Forum this past September, I had the pleasure of hosting a reception with the top business bloggers in the country who in attendance cover the events.
I’ve remained in contact with many of them, and recently connected with Jonathan Fields for a podcast to discuss my latest book, 7 Lessons for Leading In Crisis. We also took a deeper dive on crisis-time leadership and social media.
Here’s what Jonathan had to say about the conversation:
“In this candid interview, Bill and I cover everything from leading in a time of crisis to the true meaning of success on a personal level. He reveals not only his thoughts on business, but on family, life, passion and people. And, you’ll never believe what he’s been doing twice a day since the 70s; it’s something he says has been instrumental in his success.”
You can listen to the entire conversation here: Behind The Leader: A Candid Conversation with Bill
* * * * * *
“Overall I enjoyed the unique point of view on the financial crisis, as well as the framework for evaluating leadership. It's a good reference book to keep handy during tough times.”
“If I want to evaluate my own leadership skills during a crisis, the book is an excellent place to turn. If I want to evaluate a public official, or a corporate executive, and formulate a thoughtful opinion of their performance during a crisis, I would refer to this book.”
You can read the rest of the review here: Book Review: 7 Lessons For Leading In Crisis.
Many thanks again to Steve and Jonathan!
I wanted to compile a single post of summary blogs out of the Bloggers Hub at World Business Forum.
2. Vault.com - Bill George at the World Business Forum
World Business Forum Highlights
The crisis isn’t over. Just ask the 25 million underemployed or unemployed Americans. But a smooth sea never created a great mariner. Crisis is the real test.
In 2008, Bernake and Paulson had limited options. Bernake was a rock, and Paulson figured out how to save the system. I don’t think that anyone realized how close we came to the system imploding in September 2008. As the crisis impacts companies, who will step up? How will leaders in your organization act?
- Face Reality: As CEO of Medtronic, I appointed someone president of Medtronic Europe. Four months later I found out he was involved in Italian bribery scheme. This violated our values, so firing him wasn’t hard. What was hard was admitting that I had a role in this. I didn’t check out his values before I promoted him. I had to look in the mirror and admit that I was part of the problem.
- Get the World off your Shoulders: On the Target Board, we faced an attack from Pershing Capital. The CEO asked me to help, because while he was a great retailer he didn’t have a strong financial background. If you can’t ask for help, you can’t make it through a crisis. Meditation, jogging, and my relationship with my wife provide the support I need to lead.
- Dig Deep for the Root Cause: In medicine, if you diagnose a symptom –not the cause—you treat the wrong thing. In New York, the root cause of the problem is short-termism. Innovation takes years, not quarters. You have to move past the focus on “quick hits” if you’re going to create long-term value
- Get Ready for the Long Haul: In early 2007, the Goldman Sachs had managers come in to brief us on subprime mortgages. The traders had lost money and realized they had made a mistake. In August 2007, they had a problem with their quantitative funds. The exceeded their risk benchmarks three times in a week, so they focused on building short-term cash reserves. So in Fall 2008, they had the cash to withstand the crisis of confidence. Crisis often keeps happening.
- Never Waste a Good Crisis: The Chinese symbol for crisis is made of two symbols: danger and opportunity. A crisis can be turned into an opportunity. The Jack Welch focus on top performing business got rid of corporate politics… he made the culture about business performance. And by moving out underperforming managers, he gave ambitious young people a shot. The opportunity today is to invest in innovation.
- Follow Your True North: You can lose 30 great years in 30 minutes. The velocity of information has increased. You cannot control the distribution of your story. So be honest. Get out there. Tell your story.
- Focus on Winning Now: Steve Jobs changed the game at Apple. He had courage to go on offense, move past computers and try a music player… then try a phone. Indra Nooyi at Pepsi has gotten out in front of the game, and address the health implications of sugar-based drink consumption. Jeff Kindler at Pfizer is breaking up his research groups to increase innovation. I’m a director at Exxon. We’re putting $25 billion into capital projects now, even as oil has plummeted. But we’re looking towards the future.
Robert F. Kennedy said that few will have the greatness to bend history. The sum total of all our efforts will shape history. A small group of people are going to tackle the great problems of today: global health, energy, job creation, peace. What role will you pay?
As I explore in “7 Lessons for Leading in Crisis,” every leader faces a defining moment that shapes their career. Below, I’ve selected an excerpt from “7 Lessons” that describes my defining moment:
My defining moment came in 1988 on a beautiful fall day in Minnesota, with the maple trees ablaze in reds and oranges. Driving around the lake near our home, I looked in the rear view mirror and saw a person in agony who was in the midst of a crisis and drifting away from his True North.
I asked myself, how could this be? In my wife Penny I had an amazing life partner of twenty years, two wonderful sons, and a great job as executive vice president of Minneapolis’ leading company.
What I saw in that mirror was a person striving so hard to become CEO of a large company like Honeywell that he was rapidly abandoning his True North. I was getting caught up in the politics and appearances at Honeywell, which were rampant at the time, rather than ignoring them as I had done in the past. I was even wearing cufflinks to impress senior people, something I had never done before.
In that instant I recognized that Honeywell was not the right place for me, nor was I proud of what was happening to me in this environment. That was the defining moment when I decided to stop striving to become CEO of Honeywell and to get back to focusing on values-centered leadership.
I drove home and told my wife Penny what I was feeling. She said wisely, “I’ve been trying to tell you this for a year, but you weren’t prepared to hear it.” How right she was. Often it is the person closest to us who looks through our blind spots and sees us as we really are.
Just three months before, I had turned Medtronic down for the third time in ten years to become its president, most likely because the company wasn’t large enough to fit my image of what I should be doing. When I walked through Medtronic’s front door six months later as its new president, I felt like I was coming home – home to an organization where I had never been before. It felt like home, a place where I could grow personally and make a difference in helping to fulfill our shared mission of “restoring people to full life and health.”
Everything that has happened in my professional life in the past twenty years followed from that decision, from my thirteen years at Medtronic to my focus the last seven years on helping leaders develop themselves.
It didn’t take long to encounter my first big crisis in business. As a 27-year-old going into my first line assignment, I was packing my bags to move to Minneapolis to become assistant general manager of Litton Industries’ microwave oven business when the news came over the radio. “The Surgeon General has just declared that microwave ovens may be hazardous to your health,” the announcer said.
The next morning I arrived at my new office to find chaos and fear wreaking havoc with people in the fledgling microwave oven organization, just as its first consumer products were being launched. We had only one product, the microwave oven. If the Food and Drug Administration (FDA) pulled it from the market, we were out of business. This event became the ultimate test for a young organization already suffering from weak leadership and a lack of confidence.
A week later the corporation’s executive vice president arrived on the scene. He arbitrarily directed us to recall the first one thousand products shipped, much to the dismay of our customers. My first instinct was to challenge him because we thought the products were safe. He was correct, of course. He may not have had all the facts, but he had the wisdom to take the more conservative course.
His decision may have saved the business. It forced us to recognize that our designs were not robust enough to meet the pending Food and Drug Administration standards. Nor did we have the disciplined quality control procedures to produce consistent products.
As we struggled to meet the emerging federal standards for microwave emissions, I learned just how tough a crisis can be. Several nights I went into our factory at 3 am to work with the engineers and quality experts to determine whether we could start the production line the next morning. After nine months of wrestling with the problems that ensued, I said out of exasperation, “In business school I never realized it was this hard to make money.”
The lessons from this experience have stayed with me throughout my career and were especially useful years later at Medtronic. I found out the hard way how important it is to get to the bottom of a problem, rather than fixing it on the fly. I also recognized how easy it is to underestimate its consequences, especially when you’re receiving so much negative publicity.
I learned first-hand the importance of understanding the mindset of regulators and government officials and of building a cooperative, problem-solving relationship with them instead of being defensive. I realized that in a crisis you have to set aside your near-term profit plans and get the problems fixed, no matter how high the cost. Most important of all, I learned not to judge leadership from the outside before understanding what is going on internally.
The preceding was a slightly-extended excerpt from my recent book, 7 Lessons for Leading in Crisis.