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In the 20th century, a select group of leaders — General Motor's Alfred Sloan, HP's David Packard and Bill Hewlett, and GE's Jack Welch — set the standard for the way corporations are run. In the 21st century only IBM's Sam Palmisano has done so.
When Palmisano retired this month, the media chronicled his success by focusing on IBM's 21% annual growth in earnings per share and its increase in market capitalization to $218 billion. But IBM hasn't flourished because it kowtows to Wall Street. In fact, five years after Palmisano took over, IBM stock was stuck where it had been when his tenure began.
The real story behind IBM's success is the course Palmisano set for 21st century global enterprises. Recognizing that the company's command-and-control culture wouldn't work in the 21st century, he defined leadership as leading by values and created a unique collaborative organizational structure.
In 2002 Palmisano succeeded a legendary leader in Lou Gerstner, who saved IBM from being broken up and put it on a viable course. Whereas Gerstner famously declared "the last thing IBM needs is a vision," Palmisano had a clear vision for the company. He saw its unique strength as offering complete solutions tailored to customers' needs — something no other company could match. To concentrate on customer solutions, Palmisano spun off personal computers and disk drives and acquired PriceWaterhouseCoopers' consulting business.
Executing this strategy required seamless integration of IBM's product capabilities with its geographic reach. This meant abandoning IBM's existing organization, in which product silos and geographic entities operated independently and frequently were more competitive than collaborative. Palmisano reorganized IBM into a "globally integrated enterprise" focused on worldwide collaboration. He cajoled, pushed, and pulled the company into a client-centric, agile structure able to customize delivery of IBM's software assets, hardware assets, and intellectual property.
With 440,000 employees in 170 countries, Palmisano recognized that IBM couldn't be run solely from the top; rather, it needed thousands of leaders operating collaboratively around the globe to fulfill its customers' diverse needs. His first act was to abolish IBM's corporate executive committee.
Palmisano understood that reorganizing IBM's formal structure wouldn't be sufficient; he had to thoroughly transform the company's culture and do so in a sustainable way. His ingenious first step toward creating a collaborative culture was a massive, global collaboration. In 2003 he launched an online, interactive "values jam" involving all employees for 72 hours to determine what IBM's values should be. The three principles that emerged from that event guided decision-making throughout the organization, giving IBM's huge, globally dispersed workforce the discipline necessary to execute the company's new strategy.
Palmisano could not have succeeded at placing values at the center of IBM's operations without strong principles of his own. These are the qualities I believe made him the best CEO, so far, of the 21st century:
Humility and openness. Palmisano has an engaging manner and keen sense of humor. Colleagues say his humility and humor are disarming. In a speech on IBM's 100th anniversary, he said:
The old model of the heroic superman is increasingly archaic. The most active and successful leaders today see themselves as part of the global community and peer groups. They listen as well as they speak. Never confuse charisma with leadership. The first job of a leader is to enable an organization to survive without him or her. The key to that is to build a sustainable culture.
He practiced this by listening intently to employees throughout the organization. He also talked to customers on a daily basis and circumnavigated the globe six times a year to meet customers in person. These relationships were essential in gaining the confidence of customers who had qualms about outsourcing to IBM.
Patience and a long-term view. Palmisano warned against prioritizing shareholders or other constituents, calling this "a false choice," and explaining that "Long-term management is a serious challenge in a world driven by short-term thinking. Forward-thinking leaders are not just achieving measurable success in the short-term. They are innovating in ways that create virtuous circles for a generation or more." He was comfortable making smart bets to position IBM for decades-long growth, such as creating the Emerging Business Organization to incubate new businesses and shield them from P&L pressures. And his time leading IBM's Asia-Pacific business taught him about the value of building long-term relationships, not just doing transactions.
Directness. Palmisano believes the technology industry requires "a high-performance, in-your-face, speak-your-mind culture." He's personable, but blunt. Known for walking out of long meetings to make sales calls, he shortened IBM's two-month annual budget process to six days. Instead of formal performance reviews, he regularly engaged in short conversations, focusing on key initiatives. Many who know him cite his impatience as a strength; it kept him relentlessly focused on execution.
Pragmatism. When the U.S. government cut back on work permits for foreign nationals, IBM had thousands of Indian employees forced to return to their home country. He turned that problem into competitive advantage by relocating most of IBM's software operations to India as its Indian operations grew from 3,000 to 100,000 employees. He also forced partners and distributors to commit in writing to uphold IBM's strict ethical standards. In 2009 he called off the $7 billion acquisition of Sun Microsystems in part due to Sun's egregious golden parachutes.
As Palmisano built IBM into the world's leading information technology company, its competitors dithered. HP suffered from a progression of strategic missteps and failed leaders. Microsoft's enterprise services stagnated. Cisco now sells mostly commoditized products. In contrast, IBM kept laser-like focus on building the global organization to execute its strategy, and financial results followed.
Palmisano once said, "The CEO is not the brand! It is not about you. You are a temporary steward of a wonderful enterprise, so leave it in better shape than you find it." As he concludes his career, he leaves his successor, Virginia Rometty, with an iconic giant poised to dominate its industry for decades to come.
Originially Written for
Harvard Business Review on January 18. 2012
This post draws upon several resources, including: the IBM archives; Palmisano's own article, "The Globally Integrated Enterprise" in Foreign Affairst and his speech on the Future of Leadership; aHarvard Business Review interview with Palmisano, "Leading Change When Business is Good;"Rosabeth Moss Kanter's case on IBM and Joseph Bower and Sonja Ellington Hout's case on IBM. The author and Sam Palmisano together serve on the board of directors of the Exxon Mobil Corporation.
MUNICH, GERMANY - The United States seems in awe of China's economic miracle, but rather disdainful of Europe, especially Germany. To the contrary, there is great wisdom in the German economic model from which Minnesotans can learn.
Germany is a jobs machine. Its unemployment is just over 5 percent vs. 8.5 percent in the United States. In Munich unemployment is only 2.2 percent. Germany exports four times as much as the United States with only 30 percent of the population. It has a positive $200 billion trade balance, compared with negative $700 billion for America, and favorable trade balances with China, India and Japan, as well all European countries.
Germans are well-paid, have excellent health care and pension benefits, and save 11 percent of their income. Yet German health care costs only 9 percent of GDP compared with 17 percent in the U.S.
Politically, the country operates like a grand coalition, with narrow differences between moderates on both sides. Politicians put the country's interests ahead of their parties. A decade ago the government went through a restructuring that moderated the cost of wages and benefits to be competitive with Asian countries. Germany is fiscally responsible: inflation is just over 1 percent, and deficits are 3.3 percent of GDP compared with 11 percent for the U.S.
German industrial strategy focuses on sectors where its technology and highly skilled workforce provide competitive advantage: machine tools, automobiles and auto parts, chemicals, electrical equipment and construction. Its financial sector finances German industry at home and around the world. It operates with conservative ratios that enabled most German banks to escape the 2008 financial meltdown.
Leading German companies like Siemens, BMW, Volkswagen, Daimler, BASF, and Thyssen-Krupp are flourishing these days. But there are deeper reasons for Germany's success: relationships between labor and management; its apprentice system, and the Mittelstand -- small and medium-size privately held enterprises.
Labor-management relations. German unions have long practiced "co-determination" with management on corporate boards, but their approach differs dramatically from American counterparts. They are committed to ensuring that their companies do well, produce superior products, and are cost-competitive. Work rules are flexible. Strikes are rare. They focus on collaborative relationships to make their enterprises competitive on a world scale.
Apprentice system: German education utilizes a rigorous system of preparing students for jobs and careers. Students are divided into those who enter gymnasium (high school) to prepare for university education and others who are better suited for careers in skilled positions in 342 recognized trades. They complete their education prepared for a career suited to their talents; dropouts are rare. Those in skilled-labor tracks move into three-year apprenticeships where they learn specific skills, such as computer programming or operating complex computer-controlled machinery. Educators work closely with industrial counterparts to understand skills required for future jobs. Heinrich Heimbold, CEO of Thyssen-Krupp, the world's second-largest steel company, believes labor relationships and apprentices have given his company advantage over U.S. and Asian competitors.
Mittelstand companies. These small and medium-sized firms are export-oriented and focus on high-value manufactured products utilizing skilled apprentices. Typically, they are rural and privately owned and occupy worldwide niche market leadership positions. Mittelstand companies combine long-term approaches with modern management practices like lean manufacturing and total quality management. They work closely with universities and researchers and cluster around large manufacturers. Owner-managers often rub shoulders with workers.
Steven Rosenstone, the new chancellor of Minnesota State Colleges and Universities, believes in the German approach to education and industrial competitiveness. "It's a painful reality that many of the 215,000 Minnesotans without jobs don't have the education needed for the new economy," he said. "By 2018, 78 percent of all Minnesota jobs will require some post-secondary education." Rosenstone is restructuring MnSCU to train people for future needs, and also creating custom retraining programs for existing employees.
Minnesota's CEOs are recognizing the importance of Minnesota's skilled workforce. Cargill CEO Greg Page is leading a task force to address these education issues. Ecolab CEO Doug Baker Jr., who chairs Greater MSP, said: "Ultimately, the education and skills of the workforce is MSP's competitive advantage."
In my view, Minnesota gave up too soon on manufacturing competitiveness to focus on the service sector. It's time to refocus on manufacturing advanced technology products, using skilled labor to enable Minnesota companies to compete globally and restore full employment. It's not too late.
Originially Posted in the Minneapolis Star Tribune on January 7, 2012
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The 2011 National Leadership Index indicates that Americans’ confidence in its leaders has hit new low points: the overall index has fallen from 101.4 in 2005 to 89.4 in this month’s survey, even below the 2008 level in the midst of the financial meltdown. (100 is the normative level of confidence.)
The index is highly reliable as it is based on interviews of 1,065 Americans and conducted by the Center for Public Leadership, headed by Professor David Gergen at Harvard Kennedy School. These results are very worrisome to me, as without trust and confidence in our leaders, America cannot recover the energy and optimism required to restore its domestic economy and global leadership.
The survey indicates that 77% of Americans believe the U.S. has a leadership crisis. Without better leaders, America will decline as a nation, according to 77% of those interviewed. Seventy-six percent disagree with the proposition that our country’s leaders are effective and do a good job.
Among leadership categories, military and medical leaders continue to top the list, scoring at 112 and 105, respectively. At the very bottom are Congressional and Wall Street leaders, with ratings of 73 and 71, both down sharply from the upper 90’s in 2005. Business leaders fare slightly better at 87, with the White House at 84.5 and media at 84.
The survey’s authors’ observe, “Americans have deeper, more abiding confidence in leaders who can still get something done, and do so with a clear commitment to a greater social good, such as security or health. And they are largely withholding confidence from sectors such as Congress, Wall Street, the media, and the Executive Branch, whose leaders convey the impression that they cannot act effectively for the common good.” Painfully, many leaders in these latter sectors consistently put self-interest ahead of their responsibilities to their institutions and to society as a whole, something I believe it is the greatest failing in this generation of leaders.
The survey concludes on an upbeat note, “For leaders in every sector, and especially those who now inspire very little confidence, these findings are a call to prompt action and substantial changes in behavior. The stakes are high; the nation’s challenges are grave, and the consequences of failed leadership today will be felt
for decades to come.” In the survey’s only hint of optimism, 77% believe the nation’s problems can be solved with better leaders, indicating the extreme importance of effective leadership.
I strongly support these conclusions, and the urgent need for the United States to develop and select new leaders who are committed to put the common good ahead of their own interests. Then, and only then, can the vitality of the United States be restored to its position of global leadership. Kudos to CPL for its vital role in developing this new generation of leaders.
Leadership Kudos this week go to John Hope Bryant, founder, chairman and CEO of Operation Hope, the nation's leading non-profit organization committed to financial literacy. Since founding Operation Hope in 1992, Bryant has raised more than $500 million to help the poor achieve financial literacy. He is vice chair of the President's Advisory Council on Financial Literacy, appointed by former President George W. Bush and reappointed by President Barack Obama. Bryant is a Young Global Leader of the World Economic Forum and author of Love Leadership. With HRH Crown Prince Haakon of Norway and Finnish philosopher Pekka Himanen, Bryant founded Global Dignity Day, which has had global impact in restoring dignity for all people of the world. Most recently, Bryant started the Silver Rights Movement to help all people achieve financial literacy and 5MK - or Five Million Kids - to help children become financially literate. He is a remarkable leader: compassionate, passionate, and focused on helping the poor around the world.
Leadership Gaffes go to Corporate Lobbyists for their attempts to water down the Foreign Corrupt Practices Act (FCPA). While some clarifications in definitions may be necessary, we shouldn’t lose sight that FCPA has been an important force for the integrity of U.S. corporations in doing business overseas, setting a higher standard than those practiced by many other nations. The act has given the United States more than the moral high ground, it has also given American companies a competitive advantage. By taking a higher road of ethical standards and focusing on product and service superiority, rather than paying bribes, U.S. companies outmatch non-U.S. companies in terms of real value creation. Indirectly, FCPA is having the impact of encouraging other nations also to set high standards of business practice. Reducing the U.S. standards for integrity would be a major mistake.
Gov. Mark Dayton's jobs summit last month was a remarkable example of the extraordinary collaboration taking place between business leaders and government officials to rebuild Minnesota's jobs machine.
Historically, Minnesota has benefited from diverse industries including agriculture and food products, financial and professional services, health care, education, and high-technology manufacturing that allowed us to offset economic downturns. But after outpacing the nation for 30 years in job creation, Minnesota has fallen behind since 2003.
The 800 business and civic leaders who jammed into the ballroom at the Crowne Plaza in St. Paul engaged in serious discussions about how to stimulate job growth in Minnesota and re-create the Minnesota Miracle. This convergence of business and government leaders was a welcome contrast to the political gridlock that shut down state government in July.
At the summit the governor wasted no time in making his position clear: "It is the task of private enterprise to create jobs and wealth," he said. "The government's role is to create the environment and rules that make that possible." Dayton put substance behind his pledge, announcing a $100 million fund for small business loans, distributed through 300 Minnesota community banks.
These efforts are none too soon. Alarmed by declining job trends, a group of leading CEOs and civic leaders formed the Itasca Jobs Task Force in 2009. Chaired by Ken Powell of General Mills and Marilyn Carlson Nelson of Carlson Companies, their 2010 report highlighted three strategic initiatives to improve the region's competitiveness:
•Address the cost of doing business.
•Develop a vision, strategy, and approach for regional economic development.
•Enhance entrepreneurship and innovation.
To implement the report's recommendations, Itasca formed a team of 60 participants, chaired by HealthPartners CEO Mary Brainerd. "For us, this is the most important thing we have been part of,'' Brainerd said. "The commitment to a thriving community is really extraordinary."
In addition, the Minnesota Business Partnership, which includes the heads of 150 local companies, formed three task forces of its own under the leadership of Ecolab CEO Doug Baker Jr. The partnership made concrete recommendations to the governor and Legislature regarding fiscal policy, health care, and education.
Also last month, 12 large companies joined with local municipalities to launch Greater MSP, with Baker as its chairman. A $2 million budget was established, with 70 percent from the 12 companies and the remainder from government units. Its mission is to recruit out-of-state and international companies to locate in Minnesota and to encourage local companies to expand locally. Michael Langley was hired as executive director, coming from Pittsburgh, where he led a comparable initiative.
These remarkable efforts are a testament to the quality of Minnesota's leaders. Our state is blessed to be home to 20 Fortune 500 companies led by progressive leaders who understand that Minnesota's quality of life and a well-educated workforce are essential to their success -- and necessary to offset negatives like high taxes, high cost of living and weather.
Historically, Minnesota's strength has been the quality of its workforce. Thanks to efforts put in place 50 years ago, the Twin Cities leads the nation with 93 percent of citizens holding high school diplomas, and is third in bachelor's or graduate degrees with 37 percent. Ecolab's Baker notes, "Ultimately, the education and skills of the workforce are MSP's competitive advantages."
But this advantage appears to be at risk. The Itasca report forecast a gap by 2030 of 322,000 skilled workers that could constrain the region's growth. Bush Foundation President Peter Hutchinson notes that these other efforts will be in vain unless the region has the right workforce. He favors investments in infrastructure, K-12 schools, and higher education.
"It's a painful reality that many of the 215,000 Minnesotans without jobs don't have the education needed for the new economy,'' said Steven Rosenstone, the new chancellor of Minnesota State Colleges and Universities (MnSCU). "By 2018, 78 percent of Minnesota's jobs will require postsecondary education."
Minnesota has its challenges. But given the remarkably committed leaders we have today, I feel confident that these new initiatives will bear fruit and create the second Minnesota Miracle.
Originially posted: StarTribune
November 19, 2011
Leadership Kudos for the week go to Andrew Mason, CEO of Groupon, for leading his creative web-based company to a successful initial public offering whose value results from a unique marketing and promotional idea. After much controversy over the summer months, Groupon’s IPO came to market during a turbulent period for stocks. Priced at $20.00 per share, Groupon rose almost immediately by 31% to $26 per share. After five trading days, it sustained most but not all of its increased value, closing last week at $24.25, a 21% increase above its initial offering. Throughout this period Mason has been steady and committed to moving his young company ahead.
Leadership Gaffes go to Silvio Berlusconi, the now deposed leader of Italy, who finally stepped down officially as prime minister over this past weekend. Berlusconi’s flagrant mismanagement of Italy’s finances has brought the country to the brink of bankruptcy. He served three times as prime minister, dating back to 1994, yet today is one of the world’s richest people with nearly $8 in net worth. Berlusconi’s ethics are highly questionable, as he continues to favor his own enterprises to the detriment of his country. His successor, Mario Monti, is a man of the highest integrity, economic understanding, and the character to lead Italy through the current crisis.
Leadership Kudos for the week go to Germany Chancellor Angela Merkel and French President Nicholas Sarkozy. Their tenacity and political courage enabled them to forge a deal to prevent the pending default in Greece and requiring the bankers to take a reduction of 50 percent in the value of their bonds. This was not an easy sell politically in either country, but they both recognized the importance of the Euro and keeping a single trading group in Europe. Only time will tell whether Europe’s other high-debt nations like Spain, Italy and Portugal will move aggressively to get their economies in order and reduce their debt, but Merkel and Sarkozy have sent an important signal of what is required to save the Euro.
Leadership Gaffes go to MF Global and CEO Jon Corzine for taking the firm into bankruptcy by betting $6.3 billion on the sovereign debt of Italy and Spain, refusing to listen to colleagues who pleaded with him to reduce the risk, and declaring “our positions have relatively little underlying principal risk.” In this volatile era solid risk management, adaptability to changing markets, and high levels of liquidity are essential for survival.
Leadership Kudos this week go to President Barack Obama, who had "a very good week." Obama's steady head about foreign policy - tough-minded but cool - and the tireless efforts of Secretary of State Hillary Clinton are showing consistent results. The latest was the ultimate success of Obama's policy in Libya that paid off when strongman Colonel Moamar Gaddafi was killed in Thursday's shootout. On Friday the President announced the end of U.S. engagement in Iraq with all troops slated to come home by the end of the year, a peaceful end to nine years of bloodshed. These successes add to his support of the Arab Spring and the liberation of Egypt and mounting signals that he would like to move away from involvement in Afghanistan. Meanwhile, the President is being very tough with the Pakistanis and holding off Iran's advances in the Middle East. Finally, he signed at long last three free trade bills with South Korea, Columbia, and Panama that will give a boost to the economy, in spite of opposition from his own party.
Leadership Gaffes go to Abbott Labs and its CEO Miles White for breaking up a great health care company by spinning off Abbott's $18 billion pharmaceutical business in search of "unlocking shareholder value." In his 12 years as Abbott's CEO, White has done a good job in moving the company into medical devices and expanding its revenues in all its businesses. It is hard to see how any sustainable economic value will be created by this bit of financial engineering. Abbott's move seems intended to mask the reality that the company has been unable to fulfill its mission of discovering drugs and is facing the loss of patent protection on its leading drug. To its credit Abbott has followed a broad health care strategy similar to Johnson & Johnson and Novartis, but the latter two firmly believe their breadth and impact on health care are well served by their strategies. After decades of success, why shift to chasing short-term shareholder value?
Leadership Kudos for the week go to U.S. Justice Department for presenting a carefully constructed case for insider trading against Raj Rajaratnam, leader of the Galleon Fund. The case led to his criminal conviction and sentence of eleven years in federal prison, the longest ever for insider trading. Sadly, Rajaratnam drew many other people into his illegal trades, often with money and favors, who have already pled guilty to participating with him in these activities
Leadership Gaffes go to Reverend Robert Jeffress and backer of Governor Rick Perry for calling the Mormon faith "a cult," and those Republican presidential candidates who failed to denounce him. The separation of church and state is a bedrock principle of the United States, and as long as candidates for president adhere to that principle, their religion should not become a political issue. Our political leaders should be focusing on the many problems the country is facing by uniting us, not by permitting attacks on candidates for their religious beliefs that only tend to divide the nation.
Leadership Kudos go to all those who have finally recognized Steve Jobs’ leadership legacy. Jobs didn’t fit anyone’s classic description of a leader but he was always authentic, passionate, visionary and committed to the highest standards – AND he grew wiser by understanding his failures and following his heart to the end. It is great to see him so recognized at his passing. His best advice that we can all follow: "Your time is limited, so don't waste it living someone else's life. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition."
Leadership Gaffes this week go to Reed Hastings of Netflix who tried to be too clever with Qwikster. He got caught with chasing his escalating stock price . . . and wound up destroying 65% of Netflix market cap. Hasting needs to get back to focusing on his customers before he loses them to competitors Amazon and Apple. While Hastings admitted his error, he doesn’t seem to acknowledge the root cause of his mistakes. As Rob Kaplan says, it’s time to look at the person in the mirror.
