Who Says Elephants Can't Dance?: Leading a Great Enterprise through Dramatic Change (28 page)

Often a root cause of inadequate competitive analysis is asking the innkeeper how good the inn is. It’s fairly axiomatic that most managers are not going to strategize themselves out of business.

Most managers are not going to present to corporate officers an un-varnished, bleak picture of their stewardship. (Perhaps the only time WHO SAYS ELEPHANTS CAN’T DANCE? / 225

you really get a totally objective analysis of a business from a division president is when he or she first arrives on the scene. Then there’s no accountability for prior mistakes—it’s the prior incumbent’s problem!)

Good Strategy: Long on Detail

The most important value-added function of a corporate management team is to ensure that the strategies developed by the operating units are steeped in tough-minded analysis, and that they are insightful and actionable. All of the critical assumptions—things such as pricing and industry growth rates—need rigorous and tough-minded review.

Why is this all so important to the subject of focus? Because truly great companies lay out strategies that are believable and executable.

Companies that leap into new businesses and chase acquisitions willy-nilly are those that really don’t have a conviction about their existing strategy. They don’t have a clear understanding of the five or six critical things they need to do in their base business to be successful. Those five or six things are the prime elements that the organization should be preoccupied with every day, then measuring, adjusting, and reallocating resources as necessary.

Again, good strategies are long on detail and short on vision. They lay out multi-year plans in great quantitative detail: the market segments the company will pursue, market share numbers that must be achieved, expense levels that must be managed, and resources that must be applied. These plans are then reviewed regularly and become, in a sense, the driving force behind everything the company does.

Consequently, when an acquisition opportunity shows up from your friendly investment banker, it isn’t his or her analysis that is 226 / LOUIS V. GERSTNER, JR.

examined. Rather, you do a detailed analysis of how the acquisition fits into the strategy. In fact, if a company hears about an attractive acquisition candidate first from an investment banker, it almost always means the company hasn’t done a good job on its strategy. A good strategy will always identify critical holes, competitive weaknesses, and the potential to fill them with tactical acquisitions. I have bought many companies during my business career; I can’t remember one of them that was a new idea unearthed by an investment banker.

The Hard Part: Allocating Resources

Finally, making sure that resources are applied to the most important elements of the strategy is perhaps the hardest thing for companies to do. Too many companies view strategy and operations as two separate activities. Strategies are completed once a year, reviewed during long meetings, and approved by some higher authority; then everybody goes off and continues to run the business in much the same way that they did before. If, in fact, a strategy does call for a different set of actions, the very difficult task of taking resources away from some other activity in the company and reassigning them to the higher priority is not done well in many businesses.

Let’s return to customer satisfaction at IBM. After we developed truly effective, independent measurements to ascertain how our customers viewed us and our competitors, it was clear that one of our biggest problems was with how easy—or not—it was to do business with us. Our customers liked our products, liked our breadth of experience, liked our ability to help them solve problems, but they often found us to be maddeningly difficult to deal with and/or to get answers from quickly.

Addressing this issue was not easy. There was not a single silver bullet we could fire to solve the problem. There was not a single project we could heap a bundle of money on to make sure the mission got

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done. It involved hundreds of projects, cutting across the entire company from salespeople to lawyers to telephone clerks.

In some companies such a project, mundane in its day-to-day activities but essential in its strategic context, would die of its own weight and its lack of connectiveness to the daily grind in a relatively short period of time. We had to work hard to maintain its vitality, funding, and focus. It worked, but it was a reminder to me of how difficult it is to get large organizations to give meaningful resources and attention to matters that offer little or no benefit to quarterly results, but which are critical to long-term success.

Survival of the Fattest

Here’s my last observation on focus: The Darwinian concept of survival of the fittest unfortunately doesn’t work in a lot of companies. Instead, too often the rule is “survival of the fattest.” Divisions or product lines that are successful today always want to redeploy their cash and other resources into existing products and existing markets. Finding ample resources to fund new growth and new businesses is one of the hardest tasks of a corporate leader.

While we never reached the level of performance I would have liked at IBM, we worked very hard at the process of starving the losers and investing in new big bets. It required a very different process than the one necessary for developing strategy. It required a rigorous portfolio review in which we said to the entire company: Investment dollars belong to Corporate, all of them, not just the discretionary new capital. We try to start with all of our businesses—successful and not so successful—as a zero-sum planning process every few years. This allowed us to kill thousands of research projects, eliminate hundreds of products, sell large businesses, and redeploy resources into promising new ventures. Even then we could not be sure we had effectively redeployed our assets. Those new ventures had to be protected from

228 / LOUIS V. GERSTNER, JR.

the normal budgetary cycle because if things get tight, more often than not, profit-center managers would be tempted to starve the future-oriented projects.

This is not the place to explain the many things we did to avoid the problems and to support new businesses, but it is a very important aspect of my overall conviction that focus is a critical element of institutional success. If a management team doesn’t believe that it has identified and is seriously funding new growth opportunities, then it is likely to wander off and drink the heady brew of acquisitions and diversification—and ultimately fail.

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Execution-Strategy

Goes Only So Far

E
xecution—getting the task done, making it happen—is the most unappreciated skill of an effective business leader. In my years as a consultant, I participated in the development of many strategies for many companies. I will let you in on a dirty little secret of consulting: It is extremely difficult to develop a unique strategy for a company; and if the strategy is truly different from what others in the industry are doing, it is probably highly risky.

The reason for this is that industries are defined and bounded by economic models, explicit customer expectations, and competitive structures that are known to all and impossible to change in a short period of time.

Thus, it is very hard to develop a unique strategy, and even harder, should you develop one, to keep it proprietary. Sometimes a company does have a unique cost advantage or a unique patented position. Brand position can also be a powerful competitive position—a special advantage that competitors strive to match. However, these advantages are rarely permanent barriers to others.

At the end of the day, more often than not, every competitor 230 / LOUIS V. GERSTNER, JR.

basically fights with the same weapons. In most industries five or six success factors that drive performance can be identified. For example, everyone knows that product selection, brand image, and real estate costs are critical in the retailing industry. It is difficult, if not impossible, to redefine what it takes to be successful in that industry. Dot-com retailers were a good example of a spectacular failure to understand that you cannot suspend the fundamentals of an industry.

So, execution is really the critical part of a successful strategy.

Getting it done, getting it done right, getting it done better than the next person is far more important than dreaming up new visions of the future.

All of the great companies in the world out-execute their competitors day in and day out in the marketplace, in their manufacturing plants, in their logistics, in their inventory turns—in just about everything they do. Rarely do great companies have a proprietary position that insulates them from the constant hand-to-hand combat of competition.

People Respect What You Inspect

At McKinsey my colleagues and I were continually frustrated to see one company after another invest thousands of hours and millions of dollars to develop solid, effective statements of strategic direction and then waste all the time and money because the CEO

was unwilling to drive change through the organization. At other times, the CEO
thought
change was taking place in the organization but failed to inspect what, in fact, was going on.

Perhaps the greatest mistake I’ve seen executives make is to confuse expectations with inspection. I have sat through hundreds of meetings in which strategies—good, solid strategies—have been presented and the business leader has agreed: “Yes, this is what we’re

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going to do.” I’ve seen well-written, sometimes brilliant strategy documents promulgated to the organization. I’ve seen great video, intranet, and face-to-face messages describing with excitement and passion a new and daring direction for an enterprise. But, alas, too often the executive does not understand that people do what you
inspect
, not what you
expect
.

Execution is all about translating strategies into action programs and measuring their results. It’s detailed, it’s complicated, and it requires a deep understanding of where the institution is today and how far away it is from where it needs to go. Proper execution involves building measurable targets and holding people accountable for them.

But, most of all, it usually requires that the organization do something different, value something more than it has in the past, acquire skills it doesn’t have, and move more quickly and effectively in day-to-day relationships with customers, suppliers, and distributors. All of this spells change, and companies don’t like to change because individuals don’t like to change.

As I’ve mentioned earlier, IBM knew what was going on in the computer industry in the late 1980s and early 1990s. It had documented numerous strategies to deal with a changing world. One document described the environment as “a sea of speedboats surrounding a floundering super tanker [IBM].” Newspaper accounts in the early 1990s suggested that my predecessor was exhorting and pressing the company to pursue new strategies. So what happened?

The strategic requirements were clear, the CEO was demanding their implementation, but the company stood still in the water.

Execution is the tough, difficult, daily grind of making sure the machine moves forward meter by meter, kilometer by kilometer, milestone by milestone. Accountability must be demanded, and when it is not met, changes must be made quickly. Managers must be asked to report on their performance and explain their successes and failures. Most important, no credit can be given for predicting rain—only for building arks.

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I believe effective execution is built on three attributes of an institution: world-class processes, strategic clarity, and a high-performance culture. Let me touch briefly on each.

World-Class Processes

Earlier in this section I mentioned that in every industry it is possible to identify the five or six key success factors that drive leadership performance. The best companies in an industry build processes that allow them to outperform their competitors vis-à-vis these success factors. Think about great companies: Wal-Mart has superb processes in store management, inventory, selection, and pricing.

GE is world-class in cost management and quality. Toyota is best-in-class in product lifecycle management.

At IBM we know that the product design function—the process by which we decide what products to build, with what attributes and features, at what cost, and at what time to be delivered to the marketplace—is critical in our industry. (This function is also critical, for example, to the automobile industry but not, say, to the petroleum industry.)

Consequently we worked very hard for five years to build a world-class process for product design. It involved millions of dollars of investments, thousands of hours of work, and, eventually, changed the way tens of thousands of IBMers worked. (We have done the same thing with six other processes that we consider crucial to competitive success.)

Great companies cannot be built on processes alone. But believe me, if your company has antiquated, disconnected, slow-moving processes—particularly those that drive success in your industry—you will end up a loser.

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Strategic Clarity

Remember the old saying: “If you don’t know where you are going, any road will get you there.”

No sports team can score if the players don’t know what play is called. If everyone has to think about what to do before acting, then confusion and ineptitude are inevitable.

Companies that out-execute their competitors have communicated crystal-clear messages to all their employees: “This is our mission.”

“This is our strategy.” “This is how you carry out your job.” But high-caliber execution cannot simply be a matter of exhortation and message. Execution flows naturally and instinctively at great companies, not from procedures and rule books. Manuals may play a role in early training activities, but they have limited value in the heat of battle.