Blog > Category: Business
Originally Published in the Star-Tribune on July 3, 2010
As a lifelong businessman, I was surprised to be invited to speak to the Association of Union Contractors last year. They told me they’re searching for “win-win” solutions between their members, the contractors and the owners. For many years they’d seen their membership shrink as owners turned instead to non-union contractors when costs rose to noncompetitive levels.
They recognized that union contractors had been badly hurt by the recession. Instead of continuing the battles through “win-lose” negotiations, they adopted a new approach. They decided to use their members’ expertise to work collaboratively with contractors and owners to find ways to improve construction quality and employee safety while reducing costs and time-to-completion. A win-win solution.
That got me to reflecting, isn’t this what leadership is all about? Isn’t it the ability to solve complex problems that single-minded groups couldn’t resolve by bringing together differing points of view to create win-win solutions? Isn’t this vastly superior to win-lose confrontations that result in damaged relationships, drawn-out strikes that hurt both sides and the inability to work together collaboratively?
Rarely do win-win solutions represent a decisive victory for a single viewpoint. Nor are win-win approaches about Washington-style political compromises in which all parties wrangle until both compromise sufficiently to reach an agreement that too often doesn’t solve basic problems and creates unanticipated consequences.
Rather, great leaders work together with people who represent diverse views to forge solutions that transcend immediate conflicts. Together they devise solutions that will be successful for all parties in the environment of the future. That’s the way great organizations are transformed in order to sustain their success, and the way they ensure superior service to their customers and clients.
IBM is a case in point. To overcome parochialism and traditional squabbles between business and geographical organizations, CEO Sam Palmisano converted IBM’s entire 400,000-employee organization from a geographic structure to an integrated global network, and from a task orientation to “leading by values.”
Palmisano insisted that functional managers and country managers alike give priority to customers scattered around the globe by sending their top people to customer sites instead of hoarding them for their own organizations. That led to a $500 million contract with China’s largest bank, Industrial and Commercial Bank of China, for a fully integrated information and communications network. Palmisano not only enlisted the collaborative support of hundreds of contractors, but insisted they adhere to IBM’s global business practices rather than following their local business traditions.
Other companies ranging from Cisco Systems to Exxon-Mobil, Novartis and Unilever are adopting similar approaches to create win-win solutions for their customers and prevent parochial issues from getting in the way.
The nurses contract
This brings to mind the contentious contract negotiations between the Minnesota Nurses Association and Twin Cities hospitals, where both sides seemed to be digging ever deeper holes for win-lose postures. Ironically, both sides in this dispute share a common goal: to provide superior care to patients.
Looking ahead to the new health care environment, three things are certain: 1) sharp reimbursement reductions for Medicare, Medicaid, and private health plans are coming; 2) to survive in this environment, quality of patient care must go up; and 3) costs must come down.
Nurses should be treated as professionals who are given opportunities to take on greater levels of responsibility in the new health care environment. Using nurses more effectively is vital to raising health care quality at reduced cost. It is well known how much patients value their relationships with their nurses, especially in the Twin Cities, which has one of the best records for patient care of any metropolitan area in the United States.
The nurses’ union and the hospitals reached a tentative agreement Thursday. But since they are both committed to patient care, nurses and hospitals could work together in the coming months to figure out how to improve patient care with higher quality outcomes at lower costs.
In the health care environment of the future, nurses should work in teams with doctors. This would require high levels of collaboration, increased knowledge and skills, and greater flexibility in assignments and scheduling, all of which would lead to increased opportunities for promotion and enhanced compensation.
A new approach
In this context restricting nurses to rigid schedules may be inconsistent with patient needs. This is especially true in the case of those invaluable nurses who engage in delivery of babies, life-altering surgeries, and the frequent emergencies that arise in hospitals. With these broadened professional responsibilities, strikes by nurses would become an anachronism, just like they would be if physicians walked off the job and left thousands of patients without essential medical care.
As we look at the major societal problems we face, it becomes clear that the win-lose approaches are not going to solve the intractable issues in education, in energy and the environment, and in pursuit of global peace. Instead, they are leading to greater conflicts, increased anger on all sides, and extended delays in moving forward to devise and implement workable solutions.
What if we apply the win-win approach to:
- Create more flexible approaches to educating K-12 students, enabling them to learn in their own ways and at their own pace, and ultimately prepare them better for the working world?
- Develop an integrated energy policy that recognizes the need for improved efficiency, reduced carbon emissions, and renewable energy sources, yet recognizes the vital role that fossil fuels will play for the foreseeable future?
- Devise peaceful solutions to intractable ethnic problems that acknowledge the interdependence of all sides and enable the people suffering from the disputes not only to live in peace, but to realize their material and spiritual goals at the same time?
Utopian? Not at all. We know that the consequences of win-lose negotiations mean that everyone loses. We have seen that win-win solutions enable both parties to flourish.
It’s time to give the win-win approach the opportunity to help us solve our most difficult problems.
This morning I was a guest on Minnesota Public Radio's Mid-Morning show with Kerry Miller. Chirs Pinney, Director Research and Policy at The Center for Corporate Citizenship at the Carroll School of Management at Boston College, and I discussed business ethics and the Gulf oil disaster. Below is a link to the audio from that discussion:
Posted by Bill George |
Filed in: Business
The activist investor Carl C. Icahn continues to challenge the biotechnology industry. His latest target is Genzyme, one of the most successful companies in this innovative field, where he is seeking four seats on its board.
This is Mr. Icahn’s sixth biotechnology target, and these moves epitomize the struggle between investors like Mr. Icahn, who advocate maximizing short-term shareholder value, and an industry in which enormous investments and extended time frames are required to create long-term shareholder value.
Genzyme is the biotech industry’s second-largest company, with revenues of $4.5 billion and a market capitalization of about $13 billion. Previously, Mr. Icahn has taken on smaller companies: Biogen-Idec, MedImmune, ImClone Systems, Amylin Pharmaceuticals and Enzon Pharmaceuticals.
The biotechnology industry is one of America’s most promising and innovative, and one in which this country has a clear competitive advantage. It has benefited from billions of dollars in government-sponsored research at the National Institutes of Health and leading research universities. Even so, new biotechnology drugs take 12 to 15 years to bring to market, with the attendant risks of high failure rates in research trials.
Early pioneers like Genentech and Amgen created breakthrough drugs that saved millions of lives while amassing shareholder value of $98 billion for Genentech, after its sale to Roche, and $50 billion for Amgen. Both companies spent more than a decade investing billions of dollars in research before marketing their pioneering products.
In contrast, investors like Mr. Icahn believe shareholders should maximize their short-term value by selling biotech companies to pharmaceutical companies hungry for new drugs. In recent years, the large pharmaceutical companies have struggled to create life-saving drugs in their own laboratories and are often reluctant to tackle the complex diseases that the biotechnology industry has pursued.
What are the implications of these shareholder challenges? No doubt, investors like Mr. Icahn can yield quick profits for investors, but they come with a potentially high cost. In the end, will there be a biotechnology industry capable of the long-term investments required to thrive?
Mr. Icahn made his first move in biotechnology in 2002 with an attempted takeover of ImClone Systems. Following an insider trading scandal that sent the company’s chief executive, Sam Waksal, to prison along with his close friend, Martha Stewart, Mr. Icahn won a 2006 proxy contest to elect four members of ImClone’s board. The interim chief executive, Joseph Fischer, was replaced by Dr. Alex Denner, a genetics professor at Harvard Medical School. In 2008, the company was sold to the pharmaceutical giant Eli Lilly for $6.5 billion.
MedImmune was next in line in 2007. After a short battle, the company was purchased byAstraZeneca for $15.6 billion.
When Mr. Icahn focused on Biogen-Idec in 2007, its board offered the company for sale. When no bids came in, the sale was withdrawn. In 2008, Mr. Icahn again challenged Biogen’s board and its chief executive, James Muller, and began an unsuccessful proxy contest. A second proxy contest succeeded last June in electing two of Mr. Icahn’s candidates to the Biogen board, including Dr. Denner. Mr. Muller resigned in January as Mr. Ichan won board approval to appoint two additional board members.
Meanwhile, two smaller biotechnology companies, Enzon and Amylin, have also experienced Mr. Icahn’s challenges. Since he urged the spinoff of Enzon’s biotechnology business in 2007, Mr. Icahn has been successful in adding two directors and Dr. Denner was elected chairman of Enzon’s board. At Amylin, its chief executive, Joseph Cook, was forced out in 2009 after Mr. Icahn won two board seats.
Now Mr. Icahn has shifted his focus to Genzyme and its longtime chief executive, Henri A. Termeer. Over the past quarter century, Mr. Termeer has built a formidable company respected for its portfolio of drugs. A year ago, Genzyme’s Cambridge., Mass., plant encountered contamination problems and Mr. Termeer immediately shut down the entire facility.
Last fall, Mr. Icahn purchased 4.9 percent stake in Genzyme. In May, he began a proxy contest to replace four Genzyme board members, including Mr. Termeer, with candidates including himself, Dr. Denner and Richard Mulligan, a Biogen board member, along with one other nominee.
Mr. Termeer isn’t sitting still. He has recruited the activist investor Ralph Whitworth to Genzyme’s board and granted him the right to appoint another director. The company is also buying back $2 billion in stock and spinning off certain business units.
Genzyme is also promoting its blood cancer drug Campath for multiple sclerosis in competition with Biogen and challenging Dr. Denner’s and Mr. Mulligan’s potential conflicts of interest in serving simultaneously on the Genzyme and Biogen boards.
These differences will come to a head at Genzyme’s shareholders meeting on June 16, but the longer-term issues will remain. The industry’s scientific approach to drug development has saved many thousands of lives and created enormous long-term shareholder value. The real question is whether the biotechnology industry with its extended time horizons will continue to make the long-term investments required to pursue these life-saving drugs.
Originally Posted on the New York Times' DealBook
Over the past few months there have been a number of books released reviewing, analyzing, and discussing the past two years of economic and governmental change. Here are some of the best of those.
On the Financial Crisis:
How We Got through it:
Two well researched books using first-hand accounts of the 2008 crisis as it unfolded. They both read like fast-paced, exciting novels – except everything here is both real and accurate.
- “Too Big to Fail” by Andrew Ross Sorkin
- “On the Brink” by Ex-Treasury Secretary Henry Paulson
How We Get out of it:
- “The Road from Ruin” by Matthew Bishop and Michael Green – a thoughtful set of ideas of how to get out of our financial peril
- “Too Big to Save” by Robert Pozen, another HBS colleague – a scholarly approach to prevent future crises
Best book on 2008 Presidential campaign:
- “Game Change” by Mark Halperin and John Heileman – fast-paced, inside account of the most dramatic Presidential campaign of our lifetime
Business Development:
- “Winning in Emerging Markets” by Tarun Khanna and Krishna Palepu – excellent new book by my HBS colleagues about succeeding in building businesses in the emerging markets
It’s no secret I have been critical of General Motors management, right up to its bankruptcy filing a year ago. For decades, GM management focused on short-term profits, while it was steadily losing market share – from 53 percent of the U.S. market all the way down to 19 percent. Along the way it was unable to keep pace with international competitors or shifting customer demand and concessions in work rules, health care and pensions to its union that caused the firm to fail when the market collapsed in the fall of 2008.
All that changed rapidly when the Obama administration appointed Ed Whitacre as its chair in July 2009. Whitacre, the highly successful ex-CEO of ATT, took over as CEO as well last fall and immediately started transforming GM into a modern auto company that could compete in both the U.S. and world markets.
He went out on a limb and promised GM would return to profitability within two years and repay its debts to the United States government within seven years. At the time GM was still in the red, while Ford was thriving and Toyota was outpacing both in worldwide production and sales. Furthermore, American consumers were distrustful of General Motors quality and angry that their tax dollars had been used to keep the company on life support.
When Toyota encountered its quality problems earlier this year, Whitacre moved in high gear to capture the available market share. Now he has taken action to fulfill his promises. Not only has General Motors repaid its loan with interest from the United States government, it has continued to improve customer service. Currently, GM is projecting ambitious global growth in 2010 and 2011. In the coming months, the company plans to initiate a public sale of stock, allowing the automaker to regain its independence from the U.S. government.
How did this turnaround happen so rapidly? How did Whitacre restore a bankrupt giant, repay billions to the government, and make bold growth projections for the future?
Whitacre made the tough internal decisions. He shed unprofitable brands like Saturn, Hummer, Saab, and Pontiac, eliminated layers of management, abandoned the company’s fossil-like committee structure, reduced excess global inventory, and closed 1,350 underperforming dealerships. Those were not popular decisions internally or with GM’s bloated dealer structure. But they were necessary steps to shed its losses and transition away from the finance-driven “analysis paralysis” that dominated its management for four decades.
He became the face of the company with the public. With public speeches, press interviews, and even starring in company ads, Whitacre put himself on the line with the American public. Americans wanted a real leader at the helm of GM, and Whitacre was willing to be that person.
He regained trust in the company. By backing up his public promises – and offering himself up as the new face of GM, Whitacre lent personality and warmth to a brand that had become a concrete monolith of stagnation. At risk to his impressive professional career, Whitacre put his reputation on the line. He fought for new customers by making promises about GM’s autos and trucks and their quality, even offering a “money back guarantee.” If nothing else, Americans respect a confident, trustworthy leader who is trying to restore respect for a tattered institutional brand.
He’s not done yet. Whitacre is not one who rests when a preliminary goal is met. In his recent television spot and speeches, it’s clear that he and GM management are focused on improving GM’s product lineup while fulfilling its promises to its customers.
At a time when so many leaders have failed, Americans are pleased to rally around a corporate comeback story built on trust and quality assurance. With Ed Whitacre still at the helm, it’s a comeback story that could keep going for years to come.
Originally posted in the Wall Street Journal on March 19, 2010
A revolution is reshaping America's best-led companies. Authentic leaders focused on customers are replacing the old guard of hierarchical leaders who concentrated on serving short-term shareholders. The old "command-and-control" style is being replaced with an empowering, collaborative style.
During the last half of the 20th century, business leadership became an elite profession, dominated by leaders who ruled their enterprises top down. Influenced by two World Wars and the Depression, organizational hierarchies were structured like military models.
Their leaders used multi-layered structures to establish control through rules and processes. People climbed hierarchies in search of power, status, money and perquisites. As stock holding periods dropped from eight years to six months, hierarchical leaders focused on generating short-term results, often to the exclusion of long- term growth.
In the past decade it all blew up, from the ethical scandals exposed by Enron and WorldCom to the Wall Street meltdown. As a result, people lost trust in business leaders to build sustainable institutions instead of serving themselves and short-term shareholders.
In my 1960s class at Harvard Business School our professor cited the Department of Defense and Catholic Church as the most iconic organizations. Business followed their lead, as General Electric, General Motors, AT&T and Sears became their role models.
By century's end, the latter three were in long-term decline, while GE was revolutionized by Jack Welch. Hundreds of other organizations like Kodak, Motorola and Westinghouse followed similar patterns of self-destruction. The hierarchical model simply wasn't working.
In retrospect, it seems obvious people weren't responding to "top down" leadership. Why not?
- The craftsman-apprentice model has been replaced by learning organizations, filled with workers with greater knowledge than their bosses.
- Young people are unwilling to spend ten years waiting for their chance to lead; instead, they want opportunities now, or they move on.
- People are looking for more than money, as few are willing to spend their lives in unfulfilling jobs, just for the compensation. Rather, they seek genuine satisfaction and meaning from their work.
To lead in this new century, we need authentic leaders who align people around mission and values, empower leaders at all levels, focus on serving customers, and collaborate throughout the organization, in order to achieve superior performance.
Aligning: The leader's most difficult task is to align people around the organization's mission and shared values. Gaining alignment takes regular engagement with employees at all levels. It is especially difficult in far-flung global organizations where local employees may be more loyal to native cultures than their employers, especially regarding business practices and customer relationships.
Global organizations thought they could solve this problem with rulebooks, training programs and compliance systems, and were shocked when people deviated. Aligned employees committed to the mission and values, and want to be part of something greater than themselves, form an enduring organization that is resilient through crises.
Empowering: Hierarchical leaders exert power over others and delegate limited amounts. These days that isn't leadership at all. Authentic leaders recognize they need leaders at all levels, especially on the front lines, where people must lead effectively without direct reports.
The leader's job is to empower people at all levels to step up and lead. Empowered leaders need sophisticated accountability systems with closed-loop management to ensure commitments are met.
Serving: Leaders' first obligation is not to their shareholders, but rather to their customers. Any organization that does not provide its customers with superior value relative to competitors will find itself going out of business. Employees are much more motivated to provide customers with superior products and services than to increase stock prices.
Collaborating: The challenging problems businesses face these days are too complex to be solved by individuals or single organizations. Collaboration—within the organization and with customers, suppliers, and even competitors—is required to achieve lasting solutions. Leaders must foster this collaborative spirit by eliminating internal politics and parochialism and focusing on cooperation internally to be competitive externally.
The ultimate measure of 21st century leaders is superior results. In today's business world, organizations filled with aligned, empowered and collaborative employees focused on serving customers will outperform a hierarchical organization every time. Top-down leaders may achieve near-term results, but only authentic leaders can galvanize the entire organization to sustain long-term performance.
Examples abound of organizations – Procter & Gamble, IBM, Novartis, Cisco, Genentech, Intel, General Mills, PepsiCo and Avon Products, to name a few – demonstrating that 21st century leadership creates lasting shareholder value. Authentic leaders like IBM's Sam Palmisano, Cisco's John Chambers, PepsiCo's Indra Nooyi, General Mills' Ken Powell and Avon's Andrea Jungare the new role models for modern corporations.
We need them to rebuild the trust that has been lost and to validate that capitalism is still the best economic system.
Originally Posted on Harvard Business School Working Knowledge
Toyota's tragic automobile recalls offer a historic opportunity for Ford's CEO Alan Mulally and General Motors' new CEO Ed Whitacre. After years of decline, they can reestablish the preeminence of American-made autos if they are wise at leading through this crisis.
In the past month Toyota has recalled almost 9 million vehicles—more than the entire number it sold the past three years. The irony is that Toyota gained significant market share in the past decade at the expense of its American competitors by offering superior quality vehicles. Now quality has become Toyota's Achilles' heel.
"This [process] will take enormous effort, ingenuity, and discipline along with massive investments."
No doubt Toyota will regain some of its lost market share in the short term, to the extent the automaker's production systems can respond by increasing production rates without incurring problems of their own. The bigger question is, will Ford and GM be able to capitalize on this opportunity for the long term?
I was with Whitacre when he initially learned that Toyota was suspending sales of 57 percent of its autos sold in the United States. He responded immediately by directing his executives to ramp-up production as quickly as possible.
While Whitacre and Mulally maximize current sales, taking advantage of this opportunity in the near term is not a long-term strategy. All too often, both GM and Ford have squandered similar opportunities by simply raising prices and profits, as they did during the three-year import quotas in the mid-1980s. They must recognize that no matter how wounded Toyota is in the short term by its quality problems, this company is a very tough and able competitor that will move quickly to revamp its quality and its product offerings.
On the march
GM and Ford need to move aggressively to secure their market share gains by investing windfall profits to make their auto lineups more competitive for the next decade. That means introducing new designs that offer attractive features, improved fuel efficiency, and better customer value along with superior quality. This will take enormous effort, ingenuity, and discipline along with massive investments.
In this regard, Ford has the jump on GM. When Mulally was hired from Boeing in 2006, Ford was in trouble. The company was stretched thin with too many product lines spanning too many countries and appealing to too few consumers. Mulally's first act was to borrow $23.5 billion by mortgaging the entire company to give Ford the runway necessary to retool its aging lineup.
Mulally moved fast, trimming unpopular lines, cutting management layers, and insisting on an R&D overhaul that hurt short-term profits. Having weathered the 2008 crisis without U.S. government support, Ford has $23 billion in cash in the bank and a lineup of eco-friendly automobiles to which U.S. consumers are gravitating.
GM only emerged from bankruptcy last July, when Whitacre was installed by the Obama administration as its new board chair. Since that time, he has acted decisively, removing Fritz Henderson as CEO and assuming the mantle himself. Whitacre quickly reorganized the company from top to bottom, cut out layers of middle management, initiated new product development programs, and revamped GM's international sales and marketing. He also put himself on the firing line, publicly taking ownership for GM's turnaround and appearing in a series of advertisements challenging consumers to compare GM autos with its competitors.
Glimmers of Ford's and GM's potential shone brightly at the Detroit Auto Show last month. Mulally showcased his new model range. Car experts and reviewers alike agreed the new models revitalized Ford. Whitacre also unveiled a new line of cars, admittedly trailing Ford, particularly in hybrids. He boldly predicted GM would be profitable in 2010 and would pay off its government loans.
January sales for Ford and GM jumped 24 percent and nearly 14 percent, respectively, year over year, in spite of high unemployment and low consumer confidence.
Chrysler falls further
In contrast, look at Chrysler and its new CEO, Sergio Marchionne. He ambitiously projected that Chrysler would become profitable in 2010 on an 18 percent increase in sales. Instead, Chrysler sales dropped 8 percent in January. Marchionne has not been aggressive in revamping Chrysler vehicles, repositioning the company's brand, or reorganizing its beleaguered management. As a result, it is falling further behind and missing this golden opportunity.
The last and perhaps most important lesson for leaders going through a crisis is that they cannot just play defense by cutting costs and waiting for the crisis to pass. They have to go on offense simultaneously by transforming their organizations and investing heavily in revamping their products and their marketing to focus on winning now.
That's precisely what Mulally and Whitacre are doing. They may not be automobile industry veterans, but they are highly competitive leaders, skilled at winning in the marketplace. The American automobile industry is a lot stronger today because of their decisive, visionary leadership.
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.
I was very excited to hear about the Pepsi REFRESH project when it was announced at the beginning of the year. CEO Indra Nooyi’s decision to allocate marketing dollars to a community-reinvestment effort deserves great applause as it stands as a prime example of progressive, conscientious 21st centruy leadership. By shifting Super Bowl advertising dollars to philanthropy, Pepsi is making a smart investment in marketing and in communities.
The program is simple. Pepsi REFRESH invites anyone to submit a grant proposal for a project - all proposals are then judged by the Pepsi's online community, from their dedicated Facebook fans and Twitter followers, and beyond. Grants of $5,000 to $250,000 are awarded to dozens of applicants every month.
This project is exciting on multiple levels. First, it marks an encouraging departure from a dated era where corporate philanthropy and community empowerment was seen
as a “nice-to-do," only done to enhance a firm’s public image. Over the past generation, corporate philanthropy has been impacted by Milton Friedman’s view that business is a “profit maximizing” entity, rather than an institution chartered by society as a steward of its financial and social well-being. But now, the idea that philanthropy is better left to shareholders is fading away - and I am glad to see Pepsi reinforcing a new ideal.
Second, Pepsi Refresh represents a marketing innovation. Indra Nooyi has long been at the forefront of progressive leadership, but green-lighting this project shows that she and her team at Pepsico are committed to exploring new ways of engaging customers. Instead of bombarding viewers with Super Bowl advertisements, Pepsi is seeking out their customers where they live – offline and online – and delivering value to their communities. Millions of Pepsi customers are engaging in social media and connecting online, actively seeking company engagement on this level. People want companies that seek out their advice and ideas, companies that talk with them in the way they want to communicate.
Third, this project is an investment in the next generation of leaders. The Pepsi REFRESH project empowers community activists, students, small business owners, and non-profit overseers in an unprecedented way - with no-strings-attached investments in their projects and complete corporation-backed empowerment. Not only is Pepsi providing funding for these projects, they’ve left the decision-making in the hands of the masses. Votes online will dictate what project - what up-and-coming leader - receives funding, not votes around a boardroom.
The Pepsi REFRESH project represents a monumental effort to be a trend-setter by redefining corporate marketing and customer engagement. If Pepsi is “the choice of a new generation,” then Pepsi REFRESH may well be “the empowerment of a new generation.”
Originally Posted in the Wall Street Journal February 3, 2010
The grim news on jobs confirms the reality that many economists are unwilling to face: American jobs continue on a steady downward slide, with no tangible signs of recovery. As if to epitomize this trend, UPS – that bell-weather of the American economy – raised its 2010 earnings projections as it announced layoffs of 1,800 more of its 405,000 employees.
The first decade of the new millennium will go down in history as “the lost decade” in business. Consider the ugly facts:
- At decade’s end, 25 million Americans – 17.3 percent of the workforce – are searching for full-time work but cannot find jobs.
- In the past decade, the U.S. lost fully one-third of its manufacturing workforce.
- Information technology – the bright spot of job growth in the 1990s – was down 21 percent.
- The only growing sectors – education (up 32 percent), health care (up 30 percent), and government (up 9 percent) – are all funded primarily with taxpayer dollars. As the U.S. continues to shift away from the private sector, government deficits mount.
- The stock market began the decade with the S&P 500 index at 1,469 and ended at 1,115 – down 24 percent. This marked the first decade of declining stock prices, even after the S&P turned in a 24 percent gain in 2009.
- Real wages declined for the first decade since the Great Depression.
“Quick fix” programs like those included in last winter’s stimulus bill will not curb these long-term structural trends. Getting a significant proportion of those 25 million unemployed Americans back to work requires us to shift from a spending economy focused on “instant gratification” to an investment economy willing to support long-term programs that restore America’s economic dominance. If we fail to do so, the U.S. will enter an extended period of stagnation much like Europe and Japan.
Is there a culprit for these trends? Finger-pointing abounds, but I believe the root cause is leaders practicing short-termism.
In the 1980s and 1990s, America looked up to business leaders who created growing companies, dominated world markets, and employed millions in well-paying jobs. Today’s business leaders are so poorly trusted that they rank near the bottom of every poll.
Looking back at the last decade, it’s not hard to see why. The 2000s began with the Enron scandal and ended with global financial market meltdowns. In between, we were treated to the mischief of Bernie Ebbers of WorldCom, Richard Scrushy of Health South, Dennis Koslowski of Tyco, and the infamous Bernie Madoff, all of whom have joined Enron’s Jeff Skilling behind prison bars.
The leadership issues go much deeper than a few high-level crooks tossed in the clinker. As I wrote in Authentic Leadership, capitalism became the victim of its own success. In the early part of the decade, hundreds of corporations restated their revenues and earnings as their leaders were exposed for accounting manipulations that hyped stock prices to maximize shareholder value. In the process many formerly great companies like General Motors, the original AT&T, Sears, and K-Mart were destroyed.
Following the 2003 passage of Sarbanes-Oxley, many corporations cleaned up their acts. They replaced their CEOs with new leaders who have a long-term perspective on serving customers and building shareholder value.
Unfortunately, many Wall Street leaders never got the message. They continued to play the short-term game with excessive risk-taking and leverage. In the infamous words of Citigroup’s Chuck Prince: “As long as the music is playing, you’ve got to get up and dance. We’re still dancing.” In 2008 the boomerang Wall Street threw at the corporate world came back and hit it in the head, knocking out Lehman Brothers, AIG, Bear Stearns, Fannie Mae, and Citi, just to name a few.
In the 20th century, the United States became the world’s dominant economy thanks to leaders like Ford’s Henry Ford, General Motors’ Alfred P. Sloan, IBM’s Thomas Watson, General Electric’s Jack Welch, and Hewlett-Packard’s Dave Packard and Bill Hewlett. In recent years it was sustained by the dynamism of entrepreneurs like Microsoft’s Bill Gates, Intel’s Gordon Moore and Andy Grove, Apple’s Steve Jobs, Wal-Mart’s Sam Walton, and Starbucks’ Howard Schultz.
All of these leaders – and many more like them – believed their task was to build great corporate institutions that could dominate world markets by serving their customers with innovative products and superior services. But many people bought into Milton Friedman’s view that the purpose of the corporation is to maximize shareholder value. They were handsomely rewarded for delivering short-term results, but their collective behavior led to the destruction of long-term shareholder value, and in many cases their institutions as well.
What’s ahead for the next decade? Often a severe crisis is required to lay the groundwork for a major transformation in leadership. That’s exactly what is happening now. A new generation of corporate leaders is stepping forward that recognizes their responsibilities go well beyond enriching their shareholders and themselves. These new leaders recognize their corporations are chartered to serve society by creating value for their customers, sustainable jobs, and lasting value for their owners.
These new leaders face the challenge of building their corporations while at the same time rebuilding America’s dominance of the world economy. Rather than criticizing them, we should get behind their efforts.
