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Leading For Change III - Final Installment
March 12th, 2007


Management Notes:

Economic Notes:

Top 10 Cities 2005 & 2020

Economic Notes:


 

SCORECARD

The CEO's role in leading transformation III

The CEO (Mayor, Chair, Director)helps a transformation succeed by communicating its significance, modeling the desired changes, building a strong top team, and getting personally involved.

Third and Last Installment

In today’s business environment, companies cannot settle for incremental improvement; they must periodically undergo performance transformations to get, and stay, on top. But in the volumes of pages on how to go about implementing a transformation, surprisingly little addresses the role of one important person. What exactly should the CEO be doing, and how different is this role from that of the executive team or the initiative’s sponsors?

As the interviews in this publication show, there is no single model for success. Moreover, the exact nature of the CEO’s role will be influenced by the magnitude, urgency, and nature of the transformation; the capabilities and failings of the organization; and the personal style of the leader.

Adopt a personal approach

Openly engage others

‘Sharing success stories helps crystallize the meaning of the transformation and gives people confidence that it will actually work’

Spotlight success

Role-modeling desired mind-sets and behavior

Transform yourself

Take symbolic action

Building a strong and committed top team

The CEO’s team can and should be a valuable asset in leading any transformation. As Deutsche Post’s Zumwinkel suggests, “You need excellent individual players, but you also need players who are dedicated to playing as a team.” Sharing a meaningful story and modeling the right role will certainly increase the odds of getting the team on board, but it is also vital to invest time in building that team.

Assess and act

Successful CEOs take time to assess the abilities of individual members of the team and act swiftly on the result. In some cases, input from third parties (such as executive search firms) is sought to create a more objective fact base. Many CEOs find it useful to map team members on a matrix, with “business performance” on one axis and “role-modeling the desired behavior” on the other. Those in the top-right box (desired behavior, high performance) are the organization’s stars, and those in the bottom-left box (undesired behavior, low performance) should be motivated, developed, or dismissed. The greatest potential for sending signals involves the employees in the box of “undesired behavior, high performance.” When clear action is taken to improve or remove these managers, the team’s members know that role- modeling and teamwork matter. Banca Intesa’s Passera affirms that, “If necessary, you have to get rid of those individuals, even the talented ones, who quarrel and cannot work together.”

How do CEOs know when to intervene with the strugglers? They can reflect on the following questions:

  • Do team members clearly understand what is expected of each of them in relation to the transformation?
  • Is the CEO serving as a positive role model?
  • Does everyone recognize the down- side and upside of getting on board and doing what is required?
  • Have struggling team members received a chance to build the needed skills?

If the answer to all of these questions is yes, decisive action is justified.

Experienced CEOs attest to the positive impact this can have on the rest of the company. EMC’s Tucci says he had to take “public” action to tackle the “whiff of arrogance” that used to characterize certain parts of the company. TXU’s Wilder recalls that “When we did a cultural audit, we found that the number-one complaint was that management was not dealing with employees that everyone knew weren’t carrying their load.“

Invest team time

Even with the right team in place, it takes time for a group of highly intelligent, ambitious, and independent people to align themselves in a clear direction. Typically, the first order of business is for members to agree on what they can achieve as a team (not as individuals), how often the team should meet, what transformation issues should be discussed, and what behavior the team expects (and won’t tolerate). These agreements are often summarized in a “team charter” for leading the transformation, and the CEO can periodically use the charter to ensure that the team is on the right track.

Intesa’s Passera speaks of how he brought his team together regularly to “share almost everything,” to make it “clear to everyone who is doing what,” and to “keep the transformation initiatives, budgets, and financial targets knitted together.” P&G’s Lafley emphasizes the importance of spending the time together wisely: “You need to understand how to enroll the leadership team.” As a rule of thumb, 80 percent of the team’s time should be devoted to dialogue, with the remaining 20 percent invested in being “presented to.”

Effective dialogue requires a well-structured agenda, which typically ensures that ample time is spent in personal reflection (to ensure that each person forms an independent point of view from the outset), discussion in pairs or small groups (refining the thinking and exploring second- and third-level assumptions), and discussion by the full team before final decisions are made. In this process, little tolerance should be shown for minutiae (losing the forest for the trees) and for any lack of engagement. Face-to-face meetings, as opposed to conference calls, greatly enhance the effectiveness of team dialogue.

Relentlessly pursuing impact

As this publication consistently emphasizes, organizational energy—collective motivation, enthusiasm, and intense commitment—is a crucial ingredient of a successful transformation. There is no substitute for a CEO directing his or her personal energy toward ensuring that the company’s efforts have an impact.

Roll up your sleeves

Initiatives with a significant financial or symbolic value require the CEO’s personal involvement for maximum impact. There may be several beneficial effects, among them ensuring that important decisions are made quickly—without sacrificing the value of collective debate—and sowing the seeds of a culture of candor and decisiveness.

Leaders must be willing to leave the executive suite and help resolve difficult operational issues. Peter Gossas, president of Sandvik Materials Technology and a man with lifelong experience in the steel industry, observes, “If there’s a problem, it can be helpful if I come to the work floor, step up on a crate so that everyone can see me, and hold a discussion with a shift unit that may be negative to change.” He adds, “It’s hard for me to walk into a melt shop and not begin discussing ways to solve operational problems.”

Hold leaders accountable

Successful CEOs never lose sight of their management responsibility to chair review forums. Through these, they compare the results of the transformation program with the original plan, identify the root causes of any deviations, celebrate successes, help fix problems, and hold leaders accountable for keeping the transformation on track, both in activities (are people doing what they said they would?) and impact (will the program create the value we anticipated?). A central role for the CEO during these review forums is to ensure that decision making stays grounded in the facts. As Narayana Murthy wryly observes, “We have embraced the adage 'In God we trust; everyone else brings data to the table.’”

The CEO also plays a critical role in ensuring an appropriate balance between near-term profit initiatives (those that deliver performance today) and organizational-health initiatives (those that build the capacity to deliver tomorrow’s results). This is a lesson applied by John Varley, CEO of Barclays: “For several years, the focus on initiatives to improve financial performance dramatically crowded out attention on franchise health, leaving us with a set of issues in some businesses that needed urgent attention. We are addressing those issues.” During the transformation, some CEOs even choose to hold separate review meetings for short- and long-term objectives in order to ensure that companies maintain a balance between operational improvement (tactical strategies, wage management, productivity, and asset management) and long-term growth (revenue and volume growth through market share, new products, channels and marketing, M&A, talent, and capability management).

For CEOs leading a transformation, no single model guarantees success. But they can improve the odds by targeting leadership functions: making the transformation meaningful, modeling the desired mind-sets and behavior, building a strong and committed team, and relentlessly pursuing impact. Together, these can powerfully generate the energy needed to achieve a successful performance transformation.

Source: McKinsey & Company, Inc.


Greetings!

Thanks to all of you who sent excellent comments on The CEO's (Mayor's, Chair's, Director's) role in leading transformation article.

Best,

Bob Springmeyer

Bonneville Research


  • Management Notes:
  • Are You a Wal-Mart Customer?

    In their first interviews since a management shuffle last month, John Fleming, the new chief merchandising officer, and Stephen Quinn, the new chief marketing officer, said that after a year of intense research, the discount giant is seeing its 200 million customers as belonging to three groups.

    They are:

    • “brand aspirationals” (people with low incomes who are obsessed with names like KitchenAid),
    • “price-sensitive affluents” (wealthier shoppers who love deals), and
    • “value-price shoppers” (who like low prices and cannot afford much more).

    The new categories are significant because for the first time, Wal-Mart thinks it finally understands not just how people shop at its stores, but why they shop the way they do.

    Source: New York Times, 2007

    The new metrics of corporate performance: Profit per employee

    • Today's approach to measuring financial performance is geared excessively to the capital- intensive operating styles of 20th-century industrial companies. It doesn’t sufficiently account for factors such as the contributions of talented employees that, more and more, are the basic source of wealth.
    • Financial performance—observed through balance sheets, cash flow reports, and income statements—is and always will be the principal metric for evaluating a company and its managers. But greater attention should be paid to the role of intangible capital and the ways of accounting for it.
    • The superior performance of some of the largest and most successful companies over the past decade demonstrates the value of intangible assets.
    • Companies can redesign the internal financial performance approach and set goals for the return on intangibles by paying greater attention to profit per employee and the number of employees rather than putting all of the focus on returns on invested capital.

    What is the appropriate metric for public or not-for-profit entities?

    Source: McKinsey & Company - 2007

  • Economic Notes:
    • Productivity and Costs
    • As expected, productivity growth for the fourth quarter was revised much lower. Nonfarm business productivity grew 1.6% (SAAR), compared to 3.0% in the preliminary release. This revision was due to a much lower estimate of output. Growth in unit labor costs saw an enormous upward revision, from 1.7% (SAAR) to 6.6%; this was much a bigger revision than the consensus expected. Hourly compensation also saw a large upward revision. The larger than expected upward revision to unit labor costs is distressing news from an inflation perspective.
    • Factory Orders (M3)
    • Factory orders fell a larger-than-expected 5.6% in January following a 2.6% gain in the prior month. Ex transportation orders were down 2.9% and core capital goods orders fell 6.3%. Nondurable goods orders fell 2%. Inventories were down 0.2%, reversing the gain in December but the I/S ratio ticked up to 1.23.
    • Consumer Credit (G19)
    • Consumer credit increased in January by $6.4 billion to $2.4 trillion. The details of the report show that the latest jump in consumer credit was primarily driven by a gain in nonrevolving credit, which increased by 4.4% at an annual rate. Revolving credit rose a more timid 1.1% at an annual rate.
    • MBA Mortgage Applications Survey
    • Mortgage demand increased 7.3% in the week ending March 2. Purchase applications increased 1.0% and refinance applications increased 15.0%. The raw numbers are up, but purchase increases are weak and refinancing is driving the size of the increase. Expect that purchase applications will remain relatively flat in the near term.
    • Chain Store Sales
    • Chain store sales grew 2.5% in February, down from 3.7% in January and modestly below expectations, according to the ICSC chain store index. Results were broadly mixed, although there were many high profile negative surprises. Weather received much of the blame, although rising gasoline prices, slower employment growth, housing market weakness and deteriorating credit quality also contributed to the weakness.
    • Jobless Claims
    • U.S. jobless claims dropped by 10,000, slightly more than anticipated, to 328,000.
    • Monster Employment Index
    • The Monster Employment Index jumped nine points in February, with a reading of 177 compared to 168 in January. The details of the report were equally upbeat with most industries and occupations and all U.S. Census regions seeing an increase during the month. This is a significant improvement in the index over last month’s weak results.
    • Oil and Gas Inventories
    • Another strongly bullish report on oil inventories: Crude oil inventories fell by 4.8 million barrels for the week ending March 2, according to the Energy Information Administration, far below the 2 million barrel build expected. Gasoline stocks plummeted by 3.8 million barrels, well above the 1.4 million barrel drop expected. Refinery activity improved marginally. Distillate inventories fell 1.3 million barrels, less than the 2.5 million barrel draw expected. Refinery utilization inched lower, and a disruption in the Houston Ship Channel disrupted oil imports.

    Source: Economy.com, Financial Times

  • Top 10 Cities 2005 & 2020
  • Top 10 Cities by estimated GDP - 2005

    1. Tokyo
    2. New York
    3. Los Angeles
    4. Chicago
    5. Paris
    6. London
    7. Osaka/Kobe
    8. Mexico City
    9. Philadelphia
    10. Washington DC

    Top 10 Cities by estimated GDP - 2020

    1. Tokyo
    2. New York
    3. Los Angeles
    4. London
    5. Chicago
    6. Paris
    7. Mexico City
    8. Philadelphia
    9. Osaka/Kobe
    10. Washington DC

    Source: PwC

  • Economic Notes:
    • Productivity and Costs
    • As expected, productivity growth for the fourth quarter was revised much lower. Nonfarm business productivity grew 1.6% (SAAR), compared to 3.0% in the preliminary release. This revision was due to a much lower estimate of output. Growth in unit labor costs saw an enormous upward revision, from 1.7% (SAAR) to 6.6%; this was much a bigger revision than the consensus expected. Hourly compensation also saw a large upward revision. The larger than expected upward revision to unit labor costs is distressing news from an inflation perspective.
    • Factory Orders (M3)
    • Factory orders fell a larger-than-expected 5.6% in January following a 2.6% gain in the prior month. Ex transportation orders were down 2.9% and core capital goods orders fell 6.3%. Nondurable goods orders fell 2%. Inventories were down 0.2%, reversing the gain in December but the I/S ratio ticked up to 1.23.
    • Consumer Credit (G19)
    • Consumer credit increased in January by $6.4 billion to $2.4 trillion. The details of the report show that the latest jump in consumer credit was primarily driven by a gain in nonrevolving credit, which increased by 4.4% at an annual rate. Revolving credit rose a more timid 1.1% at an annual rate.
    • MBA Mortgage Applications Survey
    • Mortgage demand increased 7.3% in the week ending March 2. Purchase applications increased 1.0% and refinance applications increased 15.0%. The raw numbers are up, but purchase increases are weak and refinancing is driving the size of the increase. Expect that purchase applications will remain relatively flat in the near term.
    • Chain Store Sales
    • Chain store sales grew 2.5% in February, down from 3.7% in January and modestly below expectations, according to the ICSC chain store index. Results were broadly mixed, although there were many high profile negative surprises. Weather received much of the blame, although rising gasoline prices, slower employment growth, housing market weakness and deteriorating credit quality also contributed to the weakness.
    • Jobless Claims
    • U.S. jobless claims dropped by 10,000, slightly more than anticipated, to 328,000.
    • Monster Employment Index
    • The Monster Employment Index jumped nine points in February, with a reading of 177 compared to 168 in January. The details of the report were equally upbeat with most industries and occupations and all U.S. Census regions seeing an increase during the month. This is a significant improvement in the index over last month’s weak results.
    • Oil and Gas Inventories
    • Another strongly bullish report on oil inventories: Crude oil inventories fell by 4.8 million barrels for the week ending March 2, according to the Energy Information Administration, far below the 2 million barrel build expected. Gasoline stocks plummeted by 3.8 million barrels, well above the 1.4 million barrel drop expected. Refinery activity improved marginally. Distillate inventories fell 1.3 million barrels, less than the 2.5 million barrel draw expected. Refinery utilization inched lower, and a disruption in the Houston Ship Channel disrupted oil imports.

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