‘The Founder’s Mentality’ Recommended For Your Summer Reading

‘The Founder’s Mentality’ Recommended For Your Summer Reading

Summer is here, and everyone needs a business book or two to read. I’m recommending The Founder’s Mentality – How To Overcome the Predictable Crises of Growth by two very senior partners and strategy practice heads at Bain & Company — Chris Zook and James Allen. Bain is one of the top three management consulting firms in the world, with 8,000 consultants in 55 offices, and has been ranked as one of the best places to work in America by Glass Ceiling.

Since both authors are still part of Bain, the book is somewhat bridled by their positions. No partner can bad mouth current or former clients, as it obviously could reveal confidential information — and it certainly isn’t good for finding new clients who would never want to risk being bad-mouthed by their consultant. So don’t expect a lambasting of poorly performing companies in this review of global cases. But after reviewing the work at their clients for over 20 years, and many other cases available via research, these fellows concluded that most companies lose the original founder’s mentality, get bound up in organizational complexity, and simply lose competitiveness due to the wrong internal focus. And they offer insights for how underperformers can regain a growth agenda.

founders mentality

Photo courtesy of Chris Zook

Moving From Mediocre To Good

I interviewed Chris Zook, and found him rather candid in his observations. When I asked why people should read The Founder’s Mentality I really liked his response, “Many people have read Good to Great. But, honestly, for many organizations the challenge today is simply to move from mediocre to good. They are struggling, and they need some straightforward advice on how to make progress toward growth when the situation likely appears almost impossible.”

 You should read the book to understand the common root cause of corporate growth problems, and how a company can address those issues. This column offers some interesting thoughts from Chris about how to apply The Founder’s Mentality to eliminate unnecessary complexity and make your organization more successful.

Adam Hartung: What is the most critical step toward undoing needless, costly, time consuming complexity?

Chris Zook: The biggest problem is blockages built between the front line and the top staff. Honestly, the people at the top lose any sense of what is actually happening in the marketplace — what is happening with customers. 80% of the time successfully addressing this requires eliminating 30-40% of the staff. You need non-incremental change. Leaders have to get rid of managers wedded to past decisions, and intent on defending those decisions. Leaders have to get rid of those who focus on managing what exists, and find competent replacements who can manage a transition.

 Hartung: Market shifts make companies non-competitive, why do you focus so much on internal organizational health?

Zook: You can’t respond to a market shift if the company is bound up in complex decision-making. Unless a leader attacks complexity, and greatly simplifies the decision-making process, a company will never do anything differently. Being aware of changes in the market is not enough. You have to internalize those changes and that requires reorganizing, and usually changing a lot of people. You won’t ever get the information from the front line to top management unless you change the internal company so that it is receptive to that information.

Hartung: You say simplification is critical to reversing a company’s stall-out. But isn’t focusing on the “core” missing market opportunities?

Zook: Analysts cheered Nardeli’s pro-growth actions at Home Depot. But the company stalled. The growth opportunities that external folks liked hearing about diverted attention from implementing what had made Home Depot great — the “orange army” of store employees that were so customer helpful. It is very, very hard to keep “growth projects” from diverting attention to good operations, and that’s why few founders are willing to chase those projects when someone brings them up for investment.

Hartung: You talk positively about Cisco and 3M, yet neither has done anything lately, in any market, to appear exemplary

Zook: It takes a long time to turn around a huge company. Cisco and 3M are still the largest in their defined markets, and profitable. Their long-term future is still to be determined, but so far they are making progress. Investors and market gurus look for turnarounds to happen fast, but that does not fit the reality of what it takes when these companies become very large.

Hartung: You talk about “Next Generation Leaders.” Isn’t that just more ageism? Aren’t you simply saying “out with the old leaders, you have to be young to “get it.”

Zook: Next Generation Leadership is not about age. It’s about mentality. It’s about being young, and flexible, in your thinking. What’s core to a company may well not be what a previous leader thinks, and a Next Gen Leader will dig out what’s core. For example, at Marvel the core was not comics. It was the raft of stories, all of which had the potential to be repurposed. Next Gen Leaders are using new eyes, dialed in with clarity to discover what is in the company that can be reused as the core for future growth. You don’t have to be young to do that, just mentally agile. Unfortunately, there aren’t nearly as many of these agile leaders as there are those stuck in the old ways of thinking.

Hartung: Give me your take on some big companies that aren’t in your book, but that are in the news today and on the minds of leaders and investors. Apply The Founder’s Mentality to these companies:

Microsoft

Zook: Did well due to its monopoly. Lost its Founder’s Mentality. Now suffering low growth rates relative to its industry, and in the danger zone of a growth stall-out. They have to refocus. Leadership needs to regain the position of attracting developers to their platform rather than being raided for developers by competitive platforms.

Apple

Zook: Jobs implemented The Founder’s Mentality brilliantly. Apple got close to its customers again with the retail stores, a great move to learn what customers really wanted, liked and would buy. But where will they turn next? Apple needs to make a big bet, and focus less on upgrades. They need to be thinking about a possible stall-out. But will Apple’s current leadership make that next big bet?

WalMart

Zook: One of the greatest founder-led companies of all time. Walton’s retail insurgency was unique, clear and powerful. Things appear to be a bit stale now, and the company would benefit from a refocusing on the insurgency mission, and taking it into renewal of the distribution system and all the stores.”

It’s been almost a decade since I wrote Create Marketplace Disruption – How To Stay Ahead of the Competition. In it I detailed how companies, in the pursuit of best practices build locked-in decision-making systems that perpetuate the past rather than prepare for the future. The Founder’s Mentality provides several case studies in how organizations, especially large ones, can attack that lock-in to rediscover what made them great and set a chart for a better future. Put it on your reading list for the next plane flight, or relaxation time on your holiday.

Investing in, or against, indexes – DJIA, GM and Cisco

Unless you have a lot of time to research stocks, you probably invest in a fund.  Funds can be either an index, or actively managed.  People like index funds because you aren't relying on a manager to have a better idea.  Index funds can only own those stocks on the index.  Like the S&P index fund – it can only own stocks in the S&P 500.  Nothing else.  Interestingly, the Dow Jones Industrial Average is considered an index fund – even though I don't know what it indexes.  And that is important if you are an investor who benchmarks performance against the Dow.  It's even more important if you invest in the Dow (or Diamonds – the EFT for the Dow Industrials).

GM is now off the Dow ("What does GM bankruptcy mean for Index Funds?").  Because it went bankrupt, the editors at Dow Jones removed it.  But it wasn't long ago that the editors removed Sears and Kodak.  But not because these companies filed bankruptcy.  Rather, the Dow Jones editors felt these companies no longer represented American business.  So the Dow is a list of 30 companies. But what companies is up to the whim of these Dow editors.  Sounds like an active management (judgement) group (fund) to me.

Go back to the original DJIA and you get American Cotton Oil, American Sugar, Distilling & Cattle Feed, Leclede Gas Light, Tennesse Coal Iron and Railroad and U.S. Leather.  Household names – right?  As the years went buy a lot of companies came and went off the list.  Bethlehem Steel, Honeywell, International Paper, Johns-Manville, Nash Motor, International Harvester, Owens-Illinois, Union Carbide — get the drift?  These may have been successful at some time, but the didn't exactly withstand "the test of time"  all that well.  Even some of the recent appointments have to be questioned – like Home Depot and Kraft which have had horrible performance since joining the elite 30.  You also have to wonder about the viability of some aging participants, like 3M, Alcoa and DuPont.  So the DJIA may be someone's guess about some basket of companies that they think in some way represents the American economy – but it's definitely subject to a lot of personal bias.

Like any basket of stocks, when the DJIA is lagging market shifts, it is not a good place to investAnd the editors are greatly prone to lagging.  Like their holdings in agriculture and basic commodities years ago, through holding big industrial companies in the 1990s and 2000s.  And the over-weighting of financial companies at the turn of the century when they were merely using financial machinations to hide considerable end-of-value-life  problems.  When the DJIA is holding companies that are part of the previous economy, you don't want to be there. 

The Dow should not be a lagging indicator.  Rather, given its iconic position, it should hold the "best" companies in America.  Not extremely poorly performing mega-bricks – like GM.  GM should have been dropped several years ago.  And you should be concerned about the recent appointment of Kraft.  And even Travelers. 

Those companies that will do well are going to be good at information, and making money on information.  So who's likely to fall off (besides Kraft)?  DuPont, which has downsized for 2 decades is a likely candidateCaterpillar is laying off almost everyone, and cutting its business in China, as it struggles to compete with an outdated industrial Success Formula.  Bank of America has shown it is disconnected from understanding how to compete globally as it has asked for billions in government bail-out money.  And the hodge-podge of industrial businesses, none of which are on the front end of new technologies, at United Technologies makes it a candidate — if people ever recognize that the company would quickly disintegrate without massive U.S. government defense spending.  Even 3M is questionable as it has slowed allowing its old innovation processes to keep the company current in the information age.

Adding Cisco was a good move.  Cisco is representative of the information economy – as are Verizon, AT&T (which was SBC and before renameing, GE, HP,  Intel, IBM, Microsoft, Merck and Pfizer (if they transition to biologics from old-fashioned pharmaceutical manufacturing ways – otherwise replace them with Abbott).  But all those other oldies – like Walt Disney (sorry, but the web has forever changed the marketplace for entertainment and Walt's folks aren't keeping up with the times), Boeing (are big airplanes the wave of the future in a webinar age?), Coke (they've kinda covered the world and run out of new ideas), P&G (anybody excited about Swiffer variation 87?), and Wal-Mart – which couldn't recognize doing anything new under any circumstances.

As an investor, you want companies that can grow and create a profit.  And that's increasingly not the DJIA – even as it slowly adds a Microsoft, Intel and Cisco.  You want to include companies in leadership positions like Google and AppleTheir ability to move forward in new markets by Disrupting their Lock-ins and using White Space to launch new projects in new markets gives them longevity.  As an investor you don't want the "dogs" – so why would you want to own DuPont, et.al.?

Investors may have been stung by overvaluations in technology companies during the 1990s.  But that was the past.  What matters now is future growth ("Technology on the comeback trail").  And that can be found by investing in the future – not what was once great but instead what will be great.  Invest for the future, not from the past.  And that can be found outside the DJIA.  Unless the Dow editors suddenly change the portfolio to match the shift to an information economy.

(For additional ideas about recomposing the DJIA, see my blog of 3/12/09 "Dated Dow")

About Adam Hartung

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Adam Hartung helps companies innovate to achieve real growth. He began his career as an entrepreneur, selling the first general-purpose computing platform to use the 8080 microprocessor when he was an undergraduate. Today, he has 20 years of practical experience in developing and implementing strategies to take advantage of emerging technologies and new business models. He writes, consults and speaks worldwide.

His recently published book, Create Marketplace Disruption: How to Stay Ahead of the Competition (Financial Times Press, 2008), helps leaders and managers create evergreen organizations that produce above-average returns.

Adam is currently Managing Partner of Spark Partners, a strategy and transformation consultancy. Previously, he spent eight years as a Partner in the consulting arm of Computer Sciences Corporation (CSC) where he led their efforts in Intellectual Capital Development and e-business. Adam has also been a strategist with The Boston Consulting Group, and an executive with PepsiCo and DuPont in the areas of strategic planning and business development.

At DuPont Adam built a new division from nothing to over $600 million revenue in less than 3 years, opening subsidiaries on every populated continent and implementing new product development across both Europe and Asia.

At Pepsi, Adam led the initiative to start Pizza Hut Home Delivery. He opened over 200 stores in under 2 years and also led the global expansion M&A initiative acquiring several hundred additional sites. He also played a lead role in the Kentucky Fried Chicken acquisition.

Adam has helped redefine the strategy of companies such as General Dynamics, Deutsche Telecom, Air Canada, Honeywell, BancOne, Subaru of America, Safeway, Kraft, 3M, and P&G. He received his MBA from Harvard Business School with Distinction.