Culture Creates Lasting Value

I recently heard from my old friend and past boss Klaus Entenmann, Chairman of the Board of Daimler Financial Services. He sent me and a couple of my past colleagues an email to let us know the large-scale culture change we started in 2005 has become part of the lifestyle of the organization. Nine years after we had our first meeting to determine what would energize the culture, the company has incorporated those values and principles as its own. This culture is delivering results as proven by the fact that Daimler Financial Services is the first German company to make it into the top 25 Great Places to Work and are continuing year over year to produce strong and impressive business results.

This is the challenge of culture change. Often leaders are focused on an immediate need and as a result, read some new leadership book and then buy into the idea that changing the culture will fix that immediate need. In most cases, it doesn’t work that way. Culture is established over a long period of time. The rules of the new culture have to be established and then tested over and over again. If we say that we are now customer-focused, we have to have those hard moments when customer-focus is difficult. When we say we will only accept integrity, we have to have those moments where costly decisions are made in the name of protecting integrity. This is how we determine if the new value is real

With a short-term focus, these “values” end up being seen for what they are…great ideas, aspirational goals, and transitory. Leaders who are playing the long game and truly trying to change the way their organization lives and breathes understand this. They actually look for those opportunities to show their followers they mean exactly what they say and they are willing not only to invest in this new direction but to pay the price of their commitment.

The other lesson to gain from this is that culture change is enabled from the top. Sometimes it starts there, sometimes it starts at the grassroots level, but in either case, if the leadership of the organization does not commit, it just isn’t going to happen. In the case of Daimler Financial, a huge investment was made in bringing the senior leadership along into this new culture. For some, it was no longer a good fit and they moved on to other things. For others, it was exactly what they had envisioned when they first decided they wanted to become leaders.

Culture is hard to understand and to wrap your arms around. It’s that white space between decisions, it’s a belief system and it’s a set of rules that are unspoken but understood. Culture requires faith in your own leadership and in the abilities of your followers. And rather than a management function, creating the environment where a strong culture can evolve is pure leadership. To be a small part of a significant and lasting culture change is a unique experience but well worth the effort.

Does your culture create value? We would love to hear about it so please share!

CEOs Plan for 2014

It’s an interesting phenomenon that every year the media tells us that American business is suffering.

CEO ResolutionsThey tell us that our leadership is lacking and that the coming year will be worse than the one before for our business leaders and managers.  Yet my experience has been that most leaders see every year as simply a new challenge to be met that may shape their actions to some degree but will not throw them off course.

For the past five years I have validated this experience through conducting a series of interviews with CEOs from companies large and small, public and private, profit and non-profit.  These interviews have created an annual CEO New Years Resolutions report that I publish along with Northwood University and the DeVos Graduate School of Management.

Every year I have found that CEOs are realistic but excited about the possibilities of the future.

In fact, most of them will say that they don’t actually construct “New Year’s Resolutions” per se because they are constantly looking at what’s coming and making commitments for the future. And these aren’t small commitments.

Patrick Doyle, CEO of Dominos told me he is devoted to maintaining momentum. “Most importantly, I will be vigilant that we don’t become complacent with our progress and continue to build a team that is excited to drive change.” This is no small task as Dominos now sits as the second largest U.S. pizza chain and the largest in the world with over 10,000 stores in over 70 countries. He not holding back in 2014…he’s going for it bigger and better than before.

Other interviewees in this year’s report include Melanie Bergeron, CEO of the largest independent moving company in the country, Two Men and a Truck. She wants to encourage other leaders to focus on job creation. Mike Ferretti, CEO of Great Harvest Bread Company wants to create clear communication within his organization by eliminating meaningless buzz words from communication with his leadership team and employees.  Jerry Yeager of SYM Financial Advisors thinks it’s time to payback his employees for their hard work by providing for their retirement planning with the same services they provide for their high-level clients.

If you have a few minutes you should really read the report that you can find here:
http://www.northwood.edu/documents/publications/CEO-Resolutions-2014.pdf

Whenever you’re watching the commentators and pundits talk about how pathetic our corporate leaders are, ask yourself if you are hearing the truth or hearing a limited number of examples that create the tension that the news cycle needs. Great leaders focus not just on their personal success but also on the success of others. And there really are a lot of great leaders around us.

Todd Thomas, Ph.D., is a contributing blogger for JenningsWire.

Mayer vs Gillard—A contrast in leadership success

An interesting pairing of events has occurred recently which brings up a good question. On the one hand, the first prime minister of Australia,  Julia Gillard, lost her position in a barrage of what appear to be just poor decisions, bad timing, and bad communication. While she herself has argued that it’s more than just gender, others have decided to make it an example of how female leaders are set up to fail. Ms. Gillard stated, ” The reaction to being the first female PM does not explain everything about my prime ministership, nor does it explain nothing about my prime ministership.”

Marissa Mayer

Mayer had a good year

Julia Gillard

Gillard not so much

At the same time, Marissa Mayer celebrated her first year as CEO of Yahoo! on July 16th. For the most part, she has been successful, even with some tough press regarding some of her more aggressive decisions (like bringing workers back into the office). Yahoo!’s stock (sorry—the brand and the apostrophe just look silly don’t they?) has risen over 70% since she has taken the helm and although Yahoo! is still not a major threat to Google, she is also only a year in. Her focus has been on culture change but she has managed to shore up earnings at the same time. That’s pretty impressive.

So, is the failure of Gillard a result of gender? Is the success of Mayer a result of gender? Is it possible to even tell?

The problem with a bully pulpit is that it always oversimplifies the situation. To imagine the Ms. Gillard failed only because the system defeats female leaders is to ignore all of the other elements that play a role in a leader’s success. To imagine that Mayer has been successful, even though she is a woman, is the same type of limited thinking. Of course these leaders have had to deal with specific constraints and battles because of their gender, but they have also battled against market and political forces that are gender neutral.

To reduce the debate to a single factor, whether it is gender, generation, ethnicity, whatever not only oversimplifies the situation but it takes away from the true leadership abilities of the person in question. Gillard may turn out to be a strong politician and moving force in Australia yet…she’s fearless and focused. Mayer may yet struggle, but she also has strong capabilities for which she deserves credit regardless of gender. We need leaders, whether women or men, and we should celebrate when we find them and learn from them regardless of their chromosomes.

What do you think?

 

Culture Truly Matters

How ambidextrous is your organization? If you want it to be around for awhile, the answer should be “Very.” Take a look at this recent article, written by Marina Krakosvky and reprinted by Quartz.com.

The one thing that makes a company last forever

By Marina Krakovsky, Stanford Graduate School of Business June 5, 2013

IBM’s survival tactic: innovative thinking. AP Photo/Focke Strangmann

All companies hit rough patches from time to time. But only a few manage to survive decade after decade—some of them in a form that bears no resemblance to the original organization. Nokia began in 1865 as a riverside paper mill along the Tammerkoski Rapids in southwestern Finland. In the late 1880s, Johnson & Johnson got its start by manufacturing the first commercial sterile surgical dressings and first-aid kits. And in 1924, the founder of Toyota came out with his company’s first invention—an automatic loom.

What explains the longevity? Stanford Graduate School of Business professor Charles O’Reilly calls it “organizational ambidexterity,” the ability of a company to manage its current business while simultaneously preparing for changing conditions. “You often see successful organizations failing, and it’s not obvious why they should fail,” O’Reilly says. The reason, he says, is that a strategy that had been successful within the context of a particular time and place may suddenly be all wrong once the world changes.

Staying competitive, then, means changing what you’re doing. But the change can’t be an abrupt switch from old to new—from print to digital distribution, say, or from selling products to selling services—if that means abandoning a business that’s still profitable. Hence the call for ambidexterity. You can’t just choose between exploiting your current opportunities and exploring new ones; you have to do both. And the companies that last for decades are able to do so time and time again.

O’Reilly’s work builds on that of other organizational scholars who have noted the value of a two-pronged survival strategy. In a seminal paper published in 1991, Stanford professor James March wrote about the need for organizations to do two things at once, and articulated the challenge. “Both exploration and exploitation are essential for organizations,” March wrote, “but they compete for scarce resources.” That means organizations that try to do both face difficult trade-offs, choosing one only at the expense of the other. Harvard professor Clayton Christensen went a step further, pointing out in The Innovator’s Dilemma in 2011 that the very things that make an organization successful today will actually work against it as conditions change. It’s not just that resting on your laurels is tempting, or that managers are blind to the changes around them. Rather, innovation can easily seem like a threat to a business that is already working well.

When Christensen wrote The Innovator’s Dilemma, he saw no way out, O’Reilly says, except to spin out the innovative part of the organization. According to that approach, the best way for Wal-Mart Stores Inc., for example, to cope with the advent of internet retailing was to continue to focus on its brick-and-mortar stores and to spin off website Walmart.com as a separate company, as it did in 2000.

But a spinoff doesn’t really solve the problem, O’Reilly says, because it doesn’t help Wal-Mart make money in the long run. A better way, his research suggests, is to run the mature business alongside the newer business under the same organization—but, crucially, to do it in a way that makes smart use of the organization’s resources.

A good model is the way in which Wal-Mart is rolling out its Express stores, the much smaller alternatives to the company’s behemoth supercenters and among its best hopes for continued growth. This venture, which is moving in on the turf occupied by the likes of CVS and Walgreen, seems likely to pay off, O’Reilly says, because Wal-Mart’s senior managers aren’t merely moving into a new, related business; they’re leveraging “the strengths of the mother ship” to do so. For Wal-Mart, those strengths are in real estate, purchasing, logistics, and information technology—all capabilities that will be useful in the drugstore business, too.

Christensen, O’Reilly says, now sees ambidexterity as the solution to the innovator’s dilemma, but not everybody does. The idea that organizations can reshape themselves to adapt to change runs counter to a decades-old tradition in organizational studies that says, in effect, that organizational survival is a matter of luck. That school of thought, influenced by evolutionary theory and known as organizational ecology, holds that the companies that survive today are products of natural selection. These organizations have the right features to thrive in their current environment, organizational ecologists say, but sooner or later, the environment is bound to change. And if it changes in ways that favor a different set of traits, the argument goes, an individual business can’t adapt any more than a zebra can change its stripes.

That view is too fatalistic, O’Reilly believes, because it ignores managers’ power to learn and change. If Wal-Mart is continuing to grow while Sears is in decline, it’s because Wal-Mart’s leaders are deliberately doing the right things.

O’Reilly and his colleagues, especially his close collaborator Michael Tushman, of Harvard Business School, have found what some of those things are. Above all, an ambidextrous organization needs a leader with an “overarching vision,” or clarity about why different businesses within the organization are important. But their research also shows that problems arise when other senior managers disagree with that vision. Therefore, the leader must also “make sure that everybody is singing off the same hymnal,” O’Reilly says.

Managers must make sure their organizations actually align with that vision, as well—a difficult feat, given that different business units’ cultures and incentives might be tugging them in different directions.

The best leaders manage to pull it off. One example is Glen Bradley, who in the early 1990s led Ciba Vision, a maker of contact lenses that was losing ground to Johnson & Johnson. Johnson & Johnson had the economies of scale to defeat Ciba Vision in the market for conventional lenses, so Bradley redirected his organization’s resources toward developing innovations, such as contacts that people could wear while sleeping. At the time, the concept of extended-wear contact lenses was to conventional contacts what digital photography had been to Kodak’s film business: If successful, many feared, the new product would kill the old one.

To make clear why the old business should support the exploratory projects, Bradley crafted a new vision for the entire company: “Healthy Eyes for Life,” a statement whose breadth conveys the idea that the company should pursue whatever technologies and opportunities they had to promote healthy eyes. To forestall conflicts over resources, he set up a separate organization for each project, each with its own research and development, marketing, and finance group, and each headed by a leader given free rein to create the right culture to meet that organization’s goals.

At the same time, Bradley wanted to make sure the new projects benefited from the expertise of the old business, so he put all of them under the control of a single executive, who knew the old business and had the personal relationships to facilitate sharing across divisional boundaries. Bradley also revamped the company’s incentive systems, to reward managers mainly for the performance of Ciba Vision as a whole. Thanks to these efforts, the new project teams became remarkably productive: Besides new types of contact lenses, Ciba Vision successfully introduced a drug to fight eye disease and pioneered a manufacturing process that greatly reduced the cost of making lenses. In the first 10 years after Bradley’s move to ambidexterity, the company’s annual revenues grew from $300 million to more than $1 billion.

Ciba’s experience shows that with deft ambidextrous leadership, an underdog can stand up to a powerful rival. But Johnson & Johnson could have done what Ciba did. We often think of large organizations as lumbering bureaucracies incapable of swift change, a notion perpetuated by highly visible David-and-Goliath stories in business. (Think Netflix trouncing Blockbuster, which had years to respond to the little company with the red mailers.) In fact, large companies are often better-positioned for ambidexterity than small ones, O’Reilly says, because one bad bet won’t wipe them out. “If you’re a small company, you place all your chips on this one thing, whereas a large organization can do lots of experiments,” he explains.

IBM, an organization that O’Reilly has studied extensively (and for which he and Tushman have consulted), is a case in point. In 2000, the company’s leaders, acknowledging that running their existing businesses with incremental improvements wasn’t enough to grow revenue, launched a project to foster more exploration. Called Emerging Business Opportunities, the initiative might sound like just another stuffy big-company acronym. But reading O’Reilly’s descriptions of the EBOs makes them look almost like startups within Big Blue, with each reporting to a division head and to the head of new growth opportunities—somewhat the way entrepreneurs remain accountable to their funders. Like actual startups, some of these organizations failed to bear fruit. But there were enough of them (seven in the beginning) that in the first five years alone, the EBOs added $15.2 billion to IBM’s top line, O’Reilly and his colleagues report, or more than twice as much as acquisitions did.

A recent study by O’Reilly and colleagues suggests that while IBM’s experience was extraordinary, the company does have something in common with other thriving organizations. The researchers looked specifically at what type of corporate culture was associated with growth in revenue and net income, and found that more adaptive cultures, or ones that emphasized speed and experimentation, did much better. “A culture that says, ‘We don’t have all the answers; we’ve got to try these experiments’—that’s the type of culture that promotes ambidexterity.”

What determines the ideal balance between exploration and exploitation is one of the big open questions in the research on ambidextrous organizations. It’s safe to say, though, that the right amount of experimentation has much to do not only with a company’s resources, but also with the pace of change in its industry. “If the industry isn’t changing rapidly, doing 100 experiments is unproductive and expensive. But if you don’t do experiments, you’re likely to be in trouble if the industry is changing.”

This piece was originally published by the Stanford Graduate School of Business and has been reprinted with permission. Follow the school on Twitter at @StanfordBiz

Marina Krakovsky is a Bay Area writer whose work has appeared in Discover, the New York Times Magazine, Scientific American, Slate, Stanford Magazine, and the Washington Post.

The Passing of a Great Leader: Prime Minister Margaret Thatcher

 

Being powerful is like being a lady. If you have to tell people you are, then you aren’t.  

 

Margaret Thatcher, 10/23/25-04/08/13

thatcherIt has always amazed me that in America we are so often “surprised” when women are chosen for high levels of leadership responsibility and we are truly challenged at the idea that a woman could just as easily be the best choice for national leadership as a man. If we were to elect a female president, there would be a certain amount of self-pride that we are so diverse and accepting as to consider that the gender of the top leader makes little difference.

Yet, one of the strongest democratic, free market leaders of all time was none other than Prime Minister Margaret Thatcher. The longest serving prime minister of the United Kingdom since the beginning of the 20th century, Mrs. Thatcher died today at the age of 87.

From a leadership perspective, Prime Minister Thatcher defied much of the myth of what it takes to become a great leader…especially as a woman. She was born in 1925 to very common means. Her father taught her about politics as she grew up, but not as a political relate. Mr. Roberts (her dad) was a member of the town council.

It is clear that the way Margaret Thatcher became the dominant leader that she became was by something pretty simple…she decided to do so. She entered politics in the 50s, losing her first foray but learning an enormous amount from the experience and gaining a reputation in the eyes of the public and her peers. The battle was a tough one, so much so that in 1973 she was quoted from a television appearance as saying, “I don’t think there will be a woman prime minister in my lifetime.”

Next lesson then—not only did she want to be a leader, she persevered even when she believed it was impossible. In May of 1979 she became that person that she thought would never exist when she was elected Prime Minister.

If you have any interest in leadership and you have not read her biography, you really should. Her terms were amazingly challenging for anybody but as a woman, she destroyed every myth. She was decisive in military challenges, open in taking on adversaries, and wise in knowing when to push and when to pull.  She had guts and she had compassion. After three terms as prime minister, Margaret Thatcher left the post in 1990 yet continued as an active member of the House of Lords. She went on to write several books, the only one of which I have read being Path to Power(2005) which is an amazing study of her life.

The legacy of Prime Minister Margaret Thatcher is one of many lessons. While I would still argue that her example makes most arguments of concern about women in leadership positions sound ridiculous, the lessons of her life are applicable to leaders of all gender and race. They are also important for new leaders and tenured ones. If you know what you stand for and are convinced that your leadership would benefit those around you, you owe it to yourself and others to claim the responsibility to make it happen.  If you do this, and you stay true to your beliefs, you can change your team or your company and perhaps, the world.

Does Your Competency Model Include Leadership?

What Drives PromotionWhat drives the identification, development and promotion of leaders in your organization? Is it actually the person’s ability to lead? For many organizations, the leadership qualities of a candidate for promotion or hiring may be a small part of the consideration, but the real focus is the competence of the leader in whatever technical area is represented. This is especially true in middle level positions as individual’s rise to higher levels of leadership responsibility, in many cases because they are the best technically at what they do.

Author and consultant Mike Myatt, in a recent post on Forbes, argues,

We live in a time that has moved well beyond competency driven models, yet organizations still primarily use competency-based interviews, competency-based development, competency-based performance reviews, and competency-based rewards as their framework for doing business. It remains the best practices mentality that rules the day, when we’re long overdue for a shift to next practices.

I have also been railing about this practice for a long time, but in reality, what are we asking organizations to do? Hasn’t the expert earned the right for the higher position by working harder and having greater competency than those are her? Is there anybody else who can better advise the troops and ensure the work is done well than the person who is the best at it?

Here’s the problem. It’s not that organizations promote the highly competent to leadership positions, it’s that they don’t develop these folks as their career is coming together to be managers and leaders. As an MBA professor I can say that there are some skills and ideas of which a person can be made aware in a classroom setting, but the way to develop a leader is to give them space to USE these ideas to create their own leadership competency. You can’t become a great sales person without selling anything, and you can’t become a great leader without leading.

Developing leadership is a long-term proposition and should begin earlier in a person’s career than most organizations start to push for it. Classes, workshops and real hands-on opportunities can be offered early in the career of a competent employee. This doesn’t have to be expensive as some of the greatest learning comes from being mentored and having the opportunity when it arises to develop leadership skills. A small amount of intent on developing leadership earlier in the careers of your employees can have tremendous pay offs in the end.