May 23, 2009
David Brooks left his comfort zone this week for a column on CEOs he titled, “In Praise of Dullness.” At one point he offered a defense of his thinly-veiled distaste for the subject–
…people in the literary, academic and media worlds rarely understand business…the virtues that writers tend to admire — those involving self-expression and self-exploration — are not the ones that lead to corporate excellence.
He’s right about corporate excellence. Healthy organizations aren’t designed for self-expression and self-exploration, or for people who are primarily motivated by those pursuits. They’re designed for self-suppression and other-exploration. Done right, they’re designed to get you out of your own head and into the heads of your colleagues and customers. It rarely translates into sexy copy, which may explain Portfolio’s spectacular descent.
Brooks uses most of his energy to summarize the recent literature on patterns among successful corporate leaders, observing an emphasis on persistence, focus and analytic ability. These aren’t traits he particularly values, and he doesn’t hesitate to make the jump to caricature. The corporate drones he imagines at the top of competitive companies are “anal-retentive and slightly boring.” They lack empathy and warmth. And since their underdeveloped people skills keep them from living a more fantastic life of the mind, they tend to congregate in “such unlikely places as Bentonville, Omaha and Redmond.”
Dull is in the eye of the beholder, of course. The most interesting people I know are moved deeply by trying to make organizations work, by the creativity and human potential they find lingering around the water cooler. But here’s another frame on Brooks’s anal-retentive types: unlike the rest of us, they don’t need to make the story about them. They don’t need to be adored to sleep comfortably at night. They don’t need our affirmation or approval, which frees them up to focus on the thing that matters most in organizations: creating an environment where other people thrive.
March 26, 2009
In a recent WSJ article, an airline analyst was quoted as saying that when everyone else is charging for formerly-free services such as pillows, it didn’t make sense that Southwest wasn’t. I couldn’t help but think that these analysts might be part of the reason the industry is in such dire straits.
Southwest’s CEO responded that “adding fees is no way to grow an airline — customers hate that stuff.” He’s right. Despite the brave, new economy in which we find ourselves, a few things are still true. One is that it’s hard to sell things to customers who hate you. To state the obvious, this is particularly true when when they have real alternatives to whatever you’re selling. Less obvious, it seems, to companies that think their customers have no choice but to suck up the pain, is that if your customers hate you enough, those very alternatives will show up eventually.
When an industry racks up serious customer pain points — think lock-in periods for cell phones — it’s an invitation for competitors to enter and win by championing the customer. Usually, this changes the game for everyone. Southwest is rare in that most of its incumbent competitors (and the analysts who egg them on) have yet to internalize the full source of the company’s advantage.
Southwest gets a lot of things right. One of those things is its aggressive commitment to meet its customers’ core needs, including low fares, direct flights, and flight schedules that optimize on frequency and flexibility. Another is its ability to meet those needs with enthusiasm and dignity. The fact that it’s pulled it off for the last 30 years while its competitors descended into toxic relationships with employees, unions, shareholders and customers helps explain why Southwest consistently delivers superior financial performance.
These are tough times. My best advice is to ignore the equivalent of the airline analyst in your own life and resist the temptation to try to survive at your customers expense. Let Southwest’s resilience in one of the world’s toughest industries be your inspiration. If your goal is to be around to serve your customers when the economy recovers, a good place to start is to stop provoking them.
March 23, 2009
The Times recently did a great interview with Anne Mulcahy, chairwoman and chief executive of Xerox. Mulcahy started her career in sales, but then took an unconventional path to the corner office through the HR department, eventually running human resources for Xerox worldwide. She led the company from losing $300 million in 2002 to making over $1 billion by 2006.
The interview is worth reading in full, and a few comments stood out as particularly useful insights.
Mulcahy speaks to the idea of overvaluing “fairness” in organizations – and the price it can exact from culture and performance. Fairness has earned the right to be a cherished value, but it is often misinterpreted. When it shows up as similar treatment for all people, regardless of their contribution, it undermines your ability to unleash a true meritocracy:
Not everybody is created equal, and it’s important for companies to identify those high potentials and treat them differently, accelerate their development and pay them more. That process is so incredibly important to developing first-class leadership in a company…
Companies get confused with egalitarian processes that they think are the fairest, and that is not what companies need. Companies need to be very selective about identifying talent and investing in those leaders of the future.
And yet most organizations don’t have good systems for telling people where they truly stand. From Mulcahy’s perspective, this is the real definition of institutional fairness – giving people clear signals about their value. It may also be at the root of Xerox’s exceptional performance:
You discover quickly how little honest feedback people get in companies, and how important it is for people to have a sense of candid assessment. It became very much a mantra for me, to kind of influence a culture that assessed people accurately and really dealt with people fairly.
This type of system sends a more powerful signal, as well. By paying close attention to the performance of individuals — by showing your people that you care enough to judge them accurately — you’re making it crystal clear that what they do matters in a very serious way. You’re affirming the power of individuals to shape the company’s future, which increases the chance that they will. As Mulcahy notes:
There’s nothing quite as powerful as people feeling they can have impact and make a difference.
March 20, 2009
In an interview for a recent Business Week article, Zappos CEO Tony Hsieh described the source of the company’s exceptional performance and increasingly legendary customer service:
Ask Hsieh to describe his secret sauce, and he’ll tell you that much of Zappos’ success comes down to the company’s culture and the unusual amount of openness he encourages among employees, vendors, and other businesses…
If we get the culture right, most of the other stuff, like the brand and the customer service, will just happen. With most companies, as they grow the culture goes downhill. We want the culture to grow stronger and stronger as we grow.
Hsieh understands that another name for CEO is Chief Culture Officer. When culture is built and protected deliberately by the CEO — as it is by Hsieh, who embodies the values he wants Zappos to compete on, including transparency and excellence — culture sets the stage for a company to thrive. As Steve Kaufman, a dear friend and colleague who used to run Arrow Electronics, likes to say, “culture eats strategy for lunch.”
Culture drives the millions of invisible choices that aren’t covered in the strategic plan or employee handbook and would be silly if they were, norms and attitudes like unfailing respect for customers and pride that’s linked to group performance. Culture manifests visibly too, of course, often by leaders who do whatever it takes to defend it. In Zappo’s case, this means that all new hires who complete the introductory training are offered $2,000 to walk away. People who are the strongest fit with Zappo’s culture don’t take the money.
But culture is the strong, sensitive type. For all its power, it reacts strongly to neglect. When culture is not a high priority for CEOs — which is often the case — culture can lose its swagger, show up unevenly across business units, and quickly stop being a source of competitive advantage. In today’s economic climate where customer retention and customer value are increasingly vital, excellent service will be a differentiator. Tony Hsieh is a powerful reminder of the role that culture and its stewards will play in that journey.
March 18, 2009
I’m often asked for my feedback on business plans, and there’s a strong pattern in the advice I end up giving people. In general, entrepreneurs tend to gravitate towards two kinds of strategic opportunities — either they’re trying to improve on something that someone else is already doing, or they’re chasing a new idea. If it’s the former, the path forward is relatively clear. It’s not easy, but it’s clear. For the most part, the challenge is to make sure you really can reliably deliver lower cost or better quality.
If it’s the latter, it’s a bit more complicated. Pursuing an open space in the competitive landscape requires close examination of the cause of the opening. Is it that no one’s been as clever as you? Has no one else been able to see the opportunity and devise a good strategy to fill it? The answer may very well be yes, as Steve Jobs reminds those of us living an iLifestyle.
The alternative, however, is that the space is open because it’s not sustainable to close it. This is not an uncommon phenomenon. The classic example is premium daycare. Many people see a gap in the market for exquisitely high-end daycare services. These are often entrepreneurial parents who have just finished surveying the options for their own children and are frustrated with the quality of their choices. But after careful analysis, it becomes clear that high-end daycare costs about as much as a nanny. There still might be a market for that type of offering — until the second child comes along. For a nanny, the incremental cost of a second child is much lower than for a childcare facility, where an additional child essentially doubles the cost.
I don’t subscribe to the belief that there are no new ideas. But I do believe that many ideas that feel new have already been abandoned by other people for very good reasons. Many open spaces in the competitive landscape have earned the right to stay open. A shortcut in the business planning process is to challenge its logic early on and ask yourself why other people haven’t taken advantage of the opportunity. Yes, they may not know as much as you do — and they may know even more.
February 16, 2009
Americans are shaken, some of us to the core. We thought we were rich, and now we’re poor. We thought the future was ours, and now we wonder, for the first time in decades. We thought our lives were capable and in control, the operational equivalent of a competent system, and now the foundation of our identity is under attack.
We are changed people in the marketplace for goods and services, and not just because we have less discretionary income and less “consumer confidence” to upgrade the washing machine. We define value differently now, and the companies that understand that difference will prevail in this environment.
We’re still getting over the shocks to our individual economics, but I believe we’re ready for the reaction to the action, ready to be coaxed out of the fetal position with news of our autonomy. We’re ready to be reminded that we are in charge of what happens now.
The shift is a clear opportunity for firms that are already in the business of control. Financial control is the natural starting place – financial services are well positioned to compete on consumer empowerment – but it doesn’t end there. Any product or service that helps us design our own destiny can have a new conversation with customers. That includes healthcare and fitness (control over body), education and training (control over mind), travel and entertainment (control over spirit). The more interesting opportunities will appear in the less obvious industries.
I spent a bit of time with Walt Whitman over the weekend. His defiance fed my own hunger to shed the anxiety – and reminded me of the genius and passion that built this country. I’m convinced that Americans are ready to be large again, to sing songs of ourselves for the next chapter of our experiment in self-determination. We will come together where we have always come together, in the marketplace, and we will disproportionately reward anyone who helps us compose that song together.
February 12, 2009
Managers today are fighting for a smaller share of smaller wallets. Many are in a defensive crouch, focused on retention and looking for ways to deliver greater value to their customers. Some companies see possibility in the inevitable churn this economy will create, but everyone is getting stuck on the same challenge: to improve customers’ experience, they have to spend more money they don’t have. Better service means higher costs.
While this sounds like a given, it is not necessarily true. It is a particularly good time for managers to go through the following exercise. First, identify your largest, most persistent buckets of cost. Then explore ways to simultaneously reduce these costs while adding services your customers will value.
Sound crazy? Consider Progressive Insurance. Progressive offers customers an optional concierge level of claims service in which it will arrange for the customers’ cars to be repaired after an accident. This removes a great deal of hassle for the customers who choose to use the service, who would typically have to find a repair shop, navigate the reimbursement policy, and hope they get good service. Progressive handles all these steps for the customer, saving them time, hassle and anxiety. And it does it all without charging extra.
How is it possible? Progressive addressed one of its largest and most unwieldy cost categories, reimbursements to independent auto repair shops. These shops delivered uneven quality for a wide range of prices, and insurers felt helpless in maintaining control over them. Progressive designed a mechanism to reduce these costs — by coordinating the activities among a much smaller group of repair shops where experience and scale could be leveraged – and improved the customer experience along the way.
Can it work for your business? I have yet to find an organization that has tried and failed with this approach, but execution matters. Changes in your value proposition must be truly valued by your customers. As obvious as that sounds, it trips up a lot of managers. The exercise also works best if you start with costs and then work your way over to delivering additional customer value. Starting with improvements to the customer experience and then trying to reverse engineer cost savings, while possible, turns out to be much less reliable.