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Bill George

Harvard Business School Professor, former Medtronic CEO

Tag: world business forum

Gary Hamel: We Aren’t in the Knowledge Economy. We’re in the Creative Economy

We’re continuing to process the great #WBF09 talks.  Gary Hamel did not disappoint in his talk on Wednesday.  He opened with a brief tour through history to assert that management is the great innovation over the last 100 years:

  • General Motors pioneered organizational structure that allowed business units to compete against each other. 
  • P&G created systems for managing intangible assets: brands. 
  • Toyota became the world leader in cars because they figured out how to make every employee an expert process manager.  Last year, their employees contributed 540,000 suggestions for improvement.

There is a revolution in management happening.  Your organization will be better off if you lead the innovation rather than follow it.  Many are doing just that already:

  • Gore: every employee can say no to any order or request.
  • IBM: invites thousands of outsiders to help your company develop its strategy. 
  • Google: gives every manager 60 direct reports. 
  • Pfizer: let’s every employee outsource the least stimulating parts of their job.

Hamel, on CHANGE: If we could somehow resurrect 1960’s era CEOs, they would find most things familiar: Resources allocated from top.  Big leaders appoint little leaders.  Even the same titles exist.  But the pace at which industry is moving, and transforming, would blow their minds.  We are at times outpacing our ability to adapt and remain resilient to market changes.

Hamel, on VALUE: We aren’t in knowledge economy.  We’re in the creative economy.  If you don’t want to employ Chinese prison labor, then you must create extraordinary value.  We assume that commodity jobs are filled with commodity people.  Routinization of work led to routinization of people.  So we need to unleash the creative capacity of every single individual.  To do that, we have to turn our management assumptions upside down. 

Hamel, on PEOPLE: You cannot command someone to be passionate.  Someone either brings it or they don’t.  So we have to change the work of managers.  We don’t get people to serve the organizations’ goals.  Our job is to build a work climate that will merit the gifts of passion and creativity.  It takes a fundamental shift in our mental models.  Here’s how to look at it: people join organizations to fulfill a social purpose.  And we want to create an organization that challenges people and gets employees to bring their talent to work. 

Hamel, on CHALLENGING DOGMA: Innovation requires throwing out dogma.  And you cannot meet the challenges those new dogmas lay down without expanding the scope of employee freedom.  One way of doing so is using peer evaluation to increase value for collaboration.  How much control do I really need when people feel responsible for their results?  When it impacts the bottom line?  When it impacts their compensation?

Hamel, on EXPLORING THE FRINGE & EXPERIMENTING:  You have to look beyond benchmarking the Fortune 500 to make progress.  You have to look at the fringe.  The Grameen Bank is a prime example of an organization that operates strictly outside the lines set by previous success stories, and managed to success anyway (or rather, because).

Nobody will give you permission to be revolutionary.  Nobody will ask you “blow up something, and see what happens.”  So, you have to be revolutionary.  Are you thinking about creating a number of risk-bounded management experiments every year?  You should be.

Hamel, on the FUTURE OF MANAGEMENT:

  • Everyone gets heard
  • Commitment is voluntary
  • Power is granted from below
  • The tools of creativity are widely distributed
  • Capability counts more than credentials and titles
  • Individuals are richly empowered with information
  • Authority is fluid and contingent on value-added
  • Resources are free to follow opportunities
  • Ideas compete on an equal footing
  • Communities are self-defining
  • Decisions are peer-based

T. Boone Pickens Interview: “We Pay For Both Sides of the War”

Texas oilman and billionaire investor T. Boone Pickens had a free-flowing conversation with Alan Murray of the Wall Street Journal.  Recently, he has spent $62 million touting the Pickens Plan for national security.  Pickens: “We’re paying for both sides of the war.”

Pickens was folksy as he recounted various business stories, reflected on energy outlook, and shared lots of stories (with his disarming Texas drawl).  It was quite interesting to contrast Rubenstein and Sachs’ commentaries on leverage with Pickens.  Both Rubenstein and Sachs warned of the perils of leverage.  Yet Pickens was worth $24 million at age 68, and a billionaire at age 70—extraordinary leverage!! 

A few standout excerpts of the conversation:

  • “It takes just as much time to do a small deal as a big deal…  My eyes were sometimes bigger than my stomach.”
  • The board of directors should be representing the shareholders, not beholden to the CEO.  Murray said “CEO used to be as comfy a job as tenured professor at a university.”
  • “I’ve always had a shade of green in me.  I want to be a good steward of the land… But the Pickens Plan is about energy security, not just the environment.”
  • Natural gas is the only resource in America that will move an 18-wheeler.  It’s cleaner, it’s cheaper, it’s abundant, and it’s ours.  We should use it instead of foreign diesel.
  • We have 2,000 Trillion cubic feet of reserve.  That is more than Russia, Iran, and Qatar. 
  • GM makes 18 natural gas passenger cars, but doesn’t make a single one in the USA
  • An audience member asked why Pickens is focused on trying to change the politicians’ minds versus changing young peoples’ mindsets. “We need leadership.  If you have the right leadership in Washington or a university, then we can get things on track.  If you don’t have leadership, things drift.”
  • Pickens’ lessons: don’t manage, lead; hire people better than you are.  “I am a really good team builder.  I chant a lot.”
  • “We are buying oil from countries that really don’t like us.  We’re paying for both sides of the war.”

The audience:

  • @chiefhotmomma Oil man T Boone Pickens has made billions, but the audience claps when he mentions his kids & grandkids http://ad.vu/vdsu #WBF09
  • @DonPeppers #wbf09 Pickens: wind power won’t help reduce use of oil really. But plenty of natural gas to do transport AND power generation
  • @Renee_Innosight T Boone Pickens is such a Texan – “how does this connect?” he’s asked. Answer: “I have no idea.” Storytelling for sake of good story! 
  • @AspenDentalJobs TBoones: Everyone claims that they’re an environmentalist but once the costs come in, they bail #wbf09
  • @KenMcArthur You can make it to the finish line on 24 million – T. Boone Pickens #WBF09
  • @bhc3 Pickens: I wasn’t raised to retire. (He’s 78). #wbf09
  • @steveroesler: Pickens: If we go forward with no energy plan, in 10 years we’ll import 75% of oil at $300/barrel. #wbf09
  • @rjmac: T Boone Pickens at #wbf09:: hire, motivate, and lead people better than you are #wbf09
  • @stu Pickens: Politicians would listen to a rich Texan, but will DO something for the 1.6M people who support his plan #wbf09

Overall, great talk.  He’s still charging hard at 78!

Jeffrey Sachs: The US Political System Is Incapable of Dealing with World Problems

Columbia Professor Jeffrey Sachs, Director of the Earth Institute, spoke on the economics of a crowded planet. 

The remarks—sober in tone—narrates a series of global crises related to a “bursting” planet filled with more people and more resource consumption per person than ever before. 

What is happening to the American political system?  It’s not only the global resources challenges, but we have clear failures of American politics that are contributing to the shocks we’re facing.  If you take a non-partisan, dispassionate view of it, our problems of governance extend for 20-25 years.  They are crippling thoughtful decision-making

Here are some highlights, as reported by those in the audience at the blogger hub:

  • @AndreaMeyer Sachs: when financial crisis hit, Chinese leadership immediately understood the decline of exports to US would be deep & swift #wbf09
  • @SethKahan: Sachs:This country is so awash in politics that it cannot make the decisions it needs to make
  • @rjmac: Sachs: Now, multipolar innovation in world. That means new ways to solve problems. #wbf09
  • @DonPeppers #wbf09 Jeffrey Sachs: Malthus redux. Get a grip Sachs. Technology is growing MUCH faster than even your worst resource projections
  • @rjmac The bursting planet compounds our economic problems, says Sachs, and will destroy climate in 30-40 yrs. #wbf09
  • @triplepundit Jeffrey Sachs – Even water is now a binding constraint in much of the world- #wbf09

And perhaps the best Tweet of the afternoon:

  • @ssmirnov: Rubenstein says we’re poor + Sachs says planet imploding, hoping George Lucas shares plans 4 Endor colonization at 5 pm #WBF09

Private Equity King Rubenstein: Crisis Implication And Investment Opportunities

David Rubenstein, the legendary founder of Carlyle, spoke for 30 minutes at The World Business Forum (#wbf09).  Carlyle’s funds have invested $50B + with an IRR exceeding 30% since the funds’ inception.  Highlights:

Rubenstein opened with an audience poll.  The consensus among attendees was pessimistic: taxes will increase; the worst isn’t over; real wealth won’t increase.   Over $14T of real wealth has evaporated in the Current Great Recession.  Here are implications: 

  • Debt.  Right now we have $11.8T of government debt, $5T in government-backed Fannie and Freddie debt, $34T in unfunded Medicare/Medicaid liabilities, $7T in Social Security liabilities. This is $57T in debt.  (Rubenstein didn’t mention the contingent loan commitments from the bailout and implicit guarantees of the banking system, which we’ve seen estimated at over $10T.) We had more debt in the country before this Great Recession than we did before the Great Depression.
  • Deficit.  High deficits will remain with us.  We will have FY $1.5T of debt in the most recent fiscal year.  In the upcoming year: $1.2T or $1.3T.  In the last 50 years, we have had only four surpluses.  By 2019, Rubenstein predicts we will add $9T in debt.  This is expensive: a 1% increase in rates results in a $125B increase in annual rates.  Currently, we pay $425B a year in debt service.
  • Inflation.  Over last 20 years, inflation has been ~2% per year.  In 2-3 years, inflation will creep to 4-5%.
  • Unemployment.  Highest rate in 26 years.  Black 15%.  For ages 16-24, people looking for full-time jobs, unemployment is  53%.
  • Taxes.  Right now, we are taxing a smaller share of GDP than we’ve ever taxed.  Currently we tax 15% GDP – versus a historic average of 18%.
  • Entitlements.  In 1934, Social Security was financed with a 1% tax o the first $3,000 of income. It has grown substantially since then.  Without changes, it will be insolvent by 2040.  Medicare will be broke by 2017; Medicaid is projected to default in 2020.
  • Dollar.  The dollar represents 62% of foreign reserve currencies, versus 70% in 2000.  The dollar’s purchasing power is decreasing.  “I expect its value to continue to decrease.”
  • Savings.  Right before the Great Recession, we were saving 0% of net income.  Now it’s back to 4%.  Personal consumption was 75% of GDP, and while it has down declined to 71%, it is still too high.  Consumption is 40% of GDP in China and 65% of GDP in the U.K.
  • Interest rates.  While currently they remain very low, they will increase substantially in the near to medium-term. 
  • Energy.  The cost of energy is relatively low in real terms.  It is less expensive now to purchase oil than 1980.  This will change.

We have to cut spending dramatically and increase taxes.  Unemployment of 4-5% will not be the norm.  “There are no simple answers to address these things.  If I had a simple answer, I’d be a politician.”

The crisis has had a psychological impact.  Americans are less confident in the future and less trustful of government and big business.  Americans are less willing to take risks.  We see a tendency towards prioritization of liquidity, a willingness to accept lower rates of return, greater public concern about executive compensation, diminished support for entrepreneurial activity, and less interest among young people in financial careers. 

“Where would I invest?”

  • Distressed investing and turnarounds. 
  • Government-supported industries
  • Energy; carbon-related and alternative energy
  • Healthcare.  Will increase 17% to 20% of GDP
  • Natural resources (oil and water)
  • Emerging markets

“Advice for the audience?”

  • Focus on areas that are likely to grow. 
  • Avoid excessive leverage.
  • Persist.  Don’t take “no” for an answer.  This is the most important quality that I’ve gotten out of my business career. 
  • Take some entrepreneurial risk in your career. 
  • Think of yourself as an owner.
  • Improve your skills of persuasion.  We are all selling something.  Improve your ability to convince other people.  Few people
  • Pick partners who you can trust.  Nobody can build a business by themselves.
  • Think like a leader, not a follower. 
  • Don’t worry about making $$ over the longer-term.  If you love what you’re doing, money will flow.
  • Get involved in emerging markets. 
  • You make your own luck.  You take advantage of opportunities that come along.
  • Be involved in your community.   

Pat Lencioni: Building Winning Teams

Pat Lencioni, the management author (One-Minute Manager), did an outstanding talk on how to build winning teams.  Highlights:

Life is ultimately simple and really difficult.  Usually success in life comes down to doing things that are theoretically simple but really hard to do day in and day out. 

There are two requirements to run a successful business: “smart” and “healthy.”  We spend too much time making our organizations “smarter” (strategy, marketing, finance, technology) and not enough time making them “healthy” (minimal politics, minimal confusion, high morale, high productivity, low turnover).  Southwest Airlines isn’t smarter than Delta or United.  They don’t have more PhDs.  Their competitive advantage is that they’ve built a great organization.

It is so easy in an age of nano-second communication to copy a strategy.  You cannot replicate an organization’s culture though.  

Here’s a process for building healthy organizations:

  • Build and maintain a cohesive leadership team
  • Create organizational clarity
  • Over-communicate that clarity (you have to say something 7 times before employees believe it, because phrases like “the customer is our #1 priority” are so common).  If you’re a great leader, your employees should be able to do a great impression of you. 
  • Reinforce clarity through human systems.  These systems need to institutionalize culture without bureaucratizing it.

Some areas we can all develop:

Trusting the team:  Predictive trust (“I know what he’s going to do”) isn’t enough.  Teams need vulnerability-based trust (“I don’t know the answer…”).  Vulnerability-based trust allows human beings can be human beings.  It allows team members to stand in front of the group emotionally naked.  One person on a team who cannot be vulnerable will spread the attitude to the team. 

Managing younger people: They have high needs for understanding why their job matters.  They want to feel part of a team and they need trust.  It’s less about a “job and benefits” for them. 

Dealing with conflict: If you have a marriage where you don’t argue, you don’t have a good marriage.  Great relationships are built on the ability to disagree—even passionately.  Great teams debate things.  Conflict is almost always lacking.  Because CEOs don’t want people to get their feelings hurt.  The organization where people get their feelings hurt the most is church.  When you don’t have conflict around issues and ideas, it ferments into conflict around people. 

Addressing unpleasant behaviors:  Behaviors proceed results. Leaders must confront people about their behaviors.  You need to do this vulnerability, but failing to confront difficult issues is an act of selfishness.  

Bill George: Action Steps To Turn Crisis Into Opportunity

The Bill George Team is covering the World Business Forum 2009 (#wbf09).  We are posting to Twitter, FB, and liveblogging. We’ll also post some speaker summaries on the blog.

Bill George
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?