Monday, June 10, 2013

There is a Hole in the Ship! - Missteps in Strategic Directions

We had flight to catch at Delhi. And we were running late. We took solace in the fact that we had a real fast MUV and could rush to the airport in double quick time. But that was before we had factored a difficult clutch. While our initial thinking was correct we were slowed down by a faulty clutch which made the distance seem longer than usual.



There is an interesting anecdote about Dr. Gil Amelio (that’s how he liked to be called), the erstwhile CEO of Apple. In the late ‘90s, in a conversation with a journalist he said that Apple was a ship loaded with treasures, but it had a hole at the bottom, leaking water. And ‘my job is to get everyone to row in the same direction’. It gives a good laugh and Steve Jobs used it as a joke with many people including Larry Ellison, who needless to say could not control himself.

Many companies draw up grand plans giving it euphemisms like XXX 3.0 and so on. Strategy is a sexy word in the business world. How many CEOs would like to known as a good strategist or a good executor? My guess is that 10 out of 10 will go for the first one. Most leaders have been focused on picking a direction and then trying to get everyone to steer in that direction.

The two examples, whilst funny are representative of the way many companies and their leaders function. It also exemplifies how leaders approach strategy. The strategy may be very good, and on the face of it the boat you have taken can take you there but there is a big hole and you have to fix it first! Instead of trying to fix what is wrong, strategists are looking to steer in a designated direction.

Choosing the direction is just one aspect of the strategy. The strategy should come from a proper analysis of the organization – strengths/ capabilities, weaknesses, competition, threats etc. – a comprehensive understanding of the organization. Strategy should emanate from an understanding of the internal issues and external conditions.

More often than not, strategic direction is provided by leaders who think that the best way to solve the weaknesses of a particular organization to drive it in a new way. The hope is that the organization will have a self-healing mechanism which will resolve and cure the weaknesses. However these problems will not only prevent the organization from following the direction given but also prevent it from reaching its potential.

Consider Infosys, which till a few years back was the poster boy of the Indian IT industry. With a lot of fanfare, in the recent past, Infosys decided to change or ‘transform’ itself. Calling initiative Infosys 3.0, it was to move into three areas –
a) Transformation, which includes 'Change-the-business' initiatives like package implementation and consulting.
b) Business operations, which includes 'run-the-business' initiatives like application development & maintenance, testing and BPO.
c) Innovation, including products and platforms.

All this is fine but to put this in place, you need people to do it. Happy and satisfied employees! And that is the biggest hole in Infosys....along with other smaller ones!

1) Unsatisfied employees - The controversial iRace was introduced in Infosys a few years back and many employees were terminated. The perception of Infosys as an employer of choice has deteriorated. While employees with poor performance is like dead wood in any organization and have to removed, the way it was done had many employees seething. This initiative scorched the very fabric of Infosys and affected its culture. There is no dearth of intelligent Infoscions whose level of intelligence is same or better than competition like Cognizant, TCS etc. However competition grew far better in the same market that Infosys was also in. With a set of disgruntled or unsatisfied employees, no company can succeed.

Earlier, in India, if an eligible boy or girl worked at Infosys, it was considered a big plus for matrimonial alliances. Agreed that the earlier Infosys had a socialistic touch, however it worked in India. And it was not surprising that Infosys earlier was the bell weather for the Indian IT industry.

2) Improper communication - The leadership team could have undertaken an extensive internal communication effort, but they should have focused more on what the initiative would be. The idea was good but the execution poor. iRace fueled a sense of fear in the employees especially the junior ones and not surprisingly they worried about their future with the company. These anxieties further fueled rumors as people tried to make sense of what was happening, which further complicated matters. By taking the time to help employees better understand what was happening and why, the team could have avoided this.

3) Top down vs. bottom up - From what I read from the media the approach is top-down. A more effective way would have been to engage the organization at various levels starting from the bottom upwards. When this is done, there is a sense of understanding and employees feel they have been taken into confidence. In such a scenario the pain of separation will be minimized.

4) Improper mind-set - Organizationally Infosys is still in a services driven mind-set. While Infosys 3.0 does highlight that the requirements are different for an innovation and product driven organisation over a services oriented one, little has been done to make it work. I have personally met some brilliant Infoscions in the innovation team who would have perhaps got more attention, support and funds elsewhere.

5) Strategy driving culture - Culture comprises of norms, attitudes, beliefs etc. which will drive how the company will work. It focuses on the human side of the organization and controls the way employees interact with each other and externally.  Many leaders think that strategy will drive culture. That is very untrue. Culture and the resultant behavior will drive strategy. In such a scenario Infosys should pay careful attention to its culture. One of the strengths of Infosys was the culture it possessed. However presently, there was a huge disconnect between the leaders and their employees.


6) Fear of change - Change changes the status quo. And many individuals resist change. It can be due to many reasons – fear of failure, less involvement in the planning, not sure about the impact, lack of confidence amongst others. Managing change requires a lot of leadership involvement. And it gets tougher when the organization gets larger. A lot of hand holding is required so that the employees are made to understand and are able to cope with this change.

Fix the holes first and leaks will stop. Once the leaks stop then the boat is steady. Once the boat is steady you can set sail and reach the destination.

(Infosys is merely a frame of reference; there are other companies who have gone through this - Apple, HP, Yahoo etc.)

Sunday, June 02, 2013

Back to the Future - The Comeback of the Old Boss

Steve Jobs, Howard Schultz, Charles Schwab, A.G. Lafley, Narayana Murthy, Micheal Dell, Kenneth Lay, Jerry Yang & Paul Allaire - The Comeback Bosses
And to spice it up - Jose Mourinho, Nawaz Sharif & Indira Gandhi

Back to the Future it is, in the corporate world. In the recent days both Procter & Gamble & J.C. Penney replaced their sitting CEOs with his predecessor. It is strange that this back-to-the-future approach had to happen. Whilst the boards may speak of it as a step in the right direction and make nothing out of this brouhaha, this kind of succession isn't common. Closer home, Narayana Murthy is back at the helm at Infosys albeit in an exalted manner as Executive Chairman.

No matter what the board opines it suggests a few issues –
a) Poor evaluation of the present CEO
b) Poor succession planning
c) Desperation
d) Lack of time to look for a new CEO

 On the flip side what the board gets is
a) A known person with successes to boot
b) Understanding of his skills, strengths & weaknesses
c) Time - time to look for another CEO either to groom internally or an outside hire

It is not to say that it is entirely wrong to get the earlier boss back. Howard Schultz replaced his chosen successor Jim Donald at Starbucks and it worked. It was not the same set of circumstances though which brought Steve Jobs back to Apple but that worked too and how! However both were founders of the companies and in a sense it was easier. The same thing can be said about Narayana Murthy but A.G Lafley and Myron Ullman at P&G and JCP respectively are not.

What it does show is that generally boards prefer an insider.  A majority of the organizations prefer people already 'in'.  In the 2012 Chief Executive Study, called "Time for New CEOs," conducted by Booz & Company to study trends in successions in large public companies,  it was  found that 71% of incoming CEOs that year were insiders, and 25% had worked at the same company for their whole career.

Insiders know -
a) The culture of the organisation
b) Its people
c) The capabilities
d) Existing & potential weaknesses
e) Markets
f) Challenges
g) Competition and competitive pressures.

This would give them a leg up and can actually hit the road faster.  Insiders are said to have generated higher total shareholder returns over their tenures.

The same applies for returning bosses. They practically know most aspects and have a larger understanding of both the innards and external conditions of the organization well enough to act swiftly. What also separates them from the promoted CEO is that the challenges of being the CEO are different from being the second in command. There is someone else to take the rap or take the call when you are the second in command.  As and actual CEO, the scope is very different & it is far more taxing. This explains why Bob Mcdonald and Ron Johnson who never had CEO experience had to quit. What is more important however is the fact that comeback CEOs have a decent track record of having run their companies earlier (Ullman can be excused as he had managed to show some profits earlier at least better than Ron Johnson). It is expected that they have not missed much in their absence from the playing field. Infact their absence from the day to operations can be viewed as an advantage - they would not be responsible for the current mess!

Crudely put, calling back a boss is like calling back a contractor who was anyway supposed to do the job correctly in the first instance. Only when you are pushed to the wall will you do something like this. Hence, there are causes for concern -
a) It is obvious these comeback bosses would not come back if the company was in a mess or there was an impending mess
b) There is a possibility that the mess was created by the comeback CEOs and at least they are partly responsible because they got in the wrong CEO to replace them
c)  It is likely that that the strategies that the comeback CEOs had thought off was not workable in the long term and the existing CEO was basically following the strategy set by his predecessor (and taking the rap for it as well)
 d) All comeback bosses left for a reason, whatever it is.  Can be retirement, can be another job. There is no guarantee that they will have the same enthusiasm/ energy in the sequel

RĂ¼diger Fahlenbrach in his study “The Market for Comeback CEOs” studied 275 publicly traded American firms whose CEOs had stayed on the board after retirement and were still around when the company again needed a new CEO. About a quarter rehired the old one instead. This is surprisingly a high percentage!
It was also inferred that 'the decision to rehire former CEOs is related to the past performance of both the former and current CEO. Former CEOs are more likely to be rehired if they had a high stock market performance during their first tenure and if their replacement did particularly poorly. Organizations also are more likely to rehire their former CEOs the larger is the percentage of total  institutional ownership and the more intangible are the firm’s assets. The probability of a firm rehiring a former CEO is positively related to the founder and chairman status of the CEO and to his share ownership.'

Perhaps the most important category of comeback bosses consists of founder-CEOs who return to try to fix the companies they created - Steve Jobs at Apple, Howard Schultz at Starbucks, Michael Dell at Dell & Charles Schwab at the broking firm named after him. In all these cases their successors have failed and they had to step right in again. Narayana Murthy perhaps is following a slightly more circuitous route by letting the CEO stay but becoming the Super CEO (Executive Chairman)

Many of the comeback CEOs have done exceedingly well -
a) Steve Jobs changed the way Apple was looked at
b) Charles Schwab reoriented the business and transformed Charles Schwab into a full-service money manager
c) Howard Schultz brought back the romance of coffee houses and the glory days of Starbucks.

But on the flip side there are many failures too
a) Jerry Yang at Yahoo was a disaster
b) Micheal Dell has managed to keep Dell afloat but it has not been viewed by many as a success
c) Kenneth Lay's return ended in the Enron bankruptcy
d) Paul Allaire at Xerox was a flop
The burden of great expectations will be on Lafley, Ullman and Murthy. I am sure they are aware that they are expected to succeed and succeed exceedingly well. The same people (shareholders & board) who brought them will be baying for their blood if they do not meet the expectations. If they fail they be accused of hubris. However we need to admire these gentlemen, they could have sat back, and said "when I was in.......things were better". It takes a lot of courage and fortitude to take up such a demanding assignment.

Jose Mourinho and Nawaz Sharif – The future awaits you too


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