Leaders make a difference – P&G, GM, AT&T

by | Jun 10, 2009 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lock-in

As I've given presentations around the country the last year I'm frequently asked about the role of leadership in Phoenix Principle companies.  All people can bring Phoenix Principle behaviors to their work teams and functional groups.  Yet there is no doubt that organizations do much better when the leaders are also committed to Phoenix Principle behaviors. 

Unfortunately, all too often, top leaders are more interested in Defend & Extend Management.  BusinessWeek's recent article "How to Succeed at Proctor & Gamble" talks about replacing CEO icons such as Charles Schwab, Michael Dell and Jack Welch.  Unfortunately, only one of these was a real Phoenix Principle leader – and the others ended up coming back to their organizations when the replacements tried too much D&E behavior – leaving their shareholders with far too low returns and only dreams of rising investment value.  Even more unfortunate is the fact that too many management gurus simply love to wax eloquently about leaders of big companies – regardless of their performance.  Such as Warren Bennis's description of A.G. Lafley at P&G as "Rushmorian."  Those at the top are given praise just because they got to the top.  Yet, we've all known leaders who were far from being praise-worthy.  Even the mundane can be loved by business reviewers that rely on them for money, access, ad dollars and influence.

There's a simple rule for identifying good leadership.  Grow revenues and profits while achieving above average rates of return and positioning the organizations for ongoing double digit growth upon departure.  It's not the size of the organization that determines the quality of a leader, it's the results.  We too often forget this.

Back to departing P&G CEO, Mr. Lafley.  Preparing to retire, he's taken the high ground of claiming to be "Mr. Innovation" for P&G.  Experts on innovation classify them into Variations, Derivatives, Platforms or Fundamental.  Using this classification scheme (from Praveen Gupta Managing Editor of the International Journal of Innovation Science and author of Business Innovation) we can see that Mr. Lafley was good at driving Variations and Derivatives at P&G.  But under his leadership what did P&G do to launch new platforms or fundamental new technologies?  While variations and derivatives drive new sales – "flavor of the month" marketing as it's sometimes called – they don't produce high profits because they are easily copied by competitors and offer relatively little new market growth.  They don't position a company for long-term growth because all variations and derivatives eventually run their course.  They may help retain customers for a while, but they rarely attract new ones.  Eventually, market shifts leave them weaker and unable to maintain results due to spending too much time and resource Defending & Extending what worked in the past.  Mr. Lafley has done little to Disrupt P&G's decades-old Success Formula or introduce White Space that would make P&G a role model for the new post-Industrial era. 

Too often, bigness stands for goodness among those choosing business leaders.  For example, GM is replacing departed CEO Rick Wagoner with Ed Whitacre according to the Detroit Free Press in "Former AT&T chief to lead GM."  Mr. Whitacre's claim to fame is that as a lifetime AT&T employee, when the company was forced to spin out the regional Bell phone companies he led Southwestern Bell through acquisitions until it recreated AT&T – as a much less innovative company.  Mr. Whitacre is a model of the custodial CEO determined to Defend & Extend the old business – in his case spending 20+ years recreating the AT&T judge Green took apart.  Where a judge unleashed the telecommunications revolution, Mr. Whitacre simply put back together a company that is no longer a leader in any growth markets.  Market leaders today are Apple and Google and those who are delivering value at the confluence of communication regardless of technology.

Today, few under age 30 even want a land-line – and most have no real concept of "long distance".   Can the man who put back together the pieces of AT&T, the leader in land-line telephones and old-fashioned "long distance service" be the kind of leader to push GM into the information economy?  Does he understand how to create new business models?  Or is he the kind of person dedicated to preserving business models created in the 1920s, 30s and 40s?  Can the man who let all the innovation of Ma Bell dissipate into new players while recreating an out-of-date business be expected to remake GM into a company that can compete with Kia and Tata Motors?

Any kind of person can become the leader of a company.  Businesses are not democracies. The people at the top get there through a combination of factors.  There is no litmus test to be a CEO – not even consistent production of good results.  But in far too many many cases the historical road to the top has been by being the champion of D&E Management; by caretaking the old Success Formula, never letting anyone attack it.  They have avoided Disruptions, ignored new competitors, and risen because they were more interested in "protecting the core" than producing above-average results (often protecting a seriously rotting core).  Much to the chagrin of shareholders in many cases.

Now that the world has shifted, we need people leading companies that can modify old Success Formulas to changing market circumstances.  Leaders who are able to develop and promote future scenarios that can guide the company to prosperity, not merely extend past practices.  Leaders who obsess about competitors to identify market shifts and new opportunities for growth.  Leaders who are not afraid to attack old Lock-ins, Disrupting the status quo so the business can evolve.  Leaders who cherish White Space and keep multiple market tests operating so the company can move toward what works for meeting emerging client needs.  Leaders like Lee Iacocca, Jack Welch, Steve Jobs and John Chambers.  They can improve corporate longevity by shifting their organizations with the marketplace, maintaining revenue and profit growth supporting job growth and increased vendor sales.

From GM to Cisco – changes in the DJIA

by | Jun 1, 2009 | Current Affairs, Disruptions, In the Rapids, Leadership, Openness

June 1, 2009 will be remembered for a really long time.  As I last blogged, I think the iconic impact of GM as one of the most successful and profitable of all industrial companies makes its bankruptcy more important than almost any other company.

As GM loses its market value, it was forced off the Dow Jones Industrial Average.  In "What's behind the Dow changes?" (Marketwatch.com) we can read about how the Wall Street Journal editors selected Cisco to replace GM.  I've long been a detractor of GM for its slavik devotion to its outdated Success Formula.  For an equally long time I've long been a fan of Cisco and how it keeps its Success Formula evergreen.  Cisco reflects the behaviors needed to succeed in an information economy, and its addition to the DJIA is a big improvement in measuring the American economy and its potential for growth. 

What I most admire about Cisco is management's requirement to obsolete the company's own products.  This one element has proven to be critical to Cisco's ongoing growth – and the company's ability to avoid being another Sun Microsystems.  By forcing themselves to obsolete their own products, Cisco doesn't get trapped in "cannibalization" arguments.  Management doesn't get trapped into listening to big customers who want Cisco to slow its product introduction cycle.  Leaders end up Disrupting the company internally to do new things that will replace outdated revenues.  It sounds so simple, yet it's been so incredibly powerful.  "Obsolete your own products" is a statement that has helped keep Cisco a long-term winner.

Since even before writing "Create Marketplace Disruption" I've espoused that Cisco is a Phoenix Principle kind of company.  One that uses extensive scenario planning to plan for the future, one that obsesses about competitors in order to never have second-place products, willing to Disrupt its product plans and markets to continue growing, and loaded with White Space developing new solutions for new markets.  It's a great choice to be on the Dow – which will eventually have to replace all the outdated companies (like Kraft) with companies that rely on information – rather than industrial production – to make money.