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'My own world has changed. I just don't think we will be able to put the genie back in the bottle. There will be a new business order coming out of all of this.' Henry Fernandez, president and CEO of MSCI Barra
The universal truth of change
Fast, turbulent, mind blowing, exciting, scary. It has never been more difficult to make sense of the world.
Change rules. 'Our sales are half what they were this time last year, which is a challenge. But I think we're in the same place that a hell of a lot of other people are in right now', one CEO told us. 'The focus on performance is finer. When you are growing at 35 per cent everybody benefits; when your growth goes down to 11 per cent or 12 per cent, the separation between the poor and the best performers increases. And then you need to figure out how to handle it, because in this environment you cannot let that rise. We have had to let some of those poor performers go.'
Over the past three recessions in 1981, 1991, and 2001, the car rental company Hertz never experienced its annual sales contract more than 3.5 per cent in any given recession. In November and December 2008, it saw a 20 per cent fall. In January 2009, Hertz announced a reduction in its global workforce by 4000 employees in a bid to decrease costs due to reduced rental demand. Hertz had already reduced its workforce by 22 per cent in the past two years.
Change rules. It took the Indian company Infosys 23 years to reach revenues of $1bn and just another 23 months to hit $2bn. Amazing, but even more so when you consider the company's birthplace and the changes it, too, has witnessed. Ask any Indian leader and they will tell you that running a business in India before the economic reforms of the early 1990s was an impossible obstacle course – companies often had to wait a year to get a telephone line and individuals needed to give two weeks' notice of plans to fly overseas.
Change rules. 'When I got into this business in 1996 as a CEO, mainframes ruled, the Internet was just happening and nobody believed distributed processing would be as powerful as mainframe processing in years to come', says K. V. Kamath, CEO of ICICI Bank in India. 'Unless you keep yourself updated you will be obsolete. One good thing that comes out of me trying to reinvent myself is that it is easier to tell my colleagues that unless they also reinvent themselves they will be obsolete.'
Change rules. And rules change.
Another CEO told us a few years ago he used to get his sales figures every month. Then it went to every week. Now it can be every hour.
In the next year, General Electric will launch more new products than in any previous year in its century-plus history.
'The environment has changed so much, especially in the financial sector, that some of the old rules do not apply', Bijan Khosrowshahi, former CEO of Fuji Fire and Marine in Japan observed, echoing the opinions of many in the business world and beyond. 'The old orthodoxies will not serve us well in the future', British Prime Minister Gordon Brown told the G20 Summit in spring 2009.
'For business leaders and people who are on the track to leadership, this will have a permanent impact on the way they do business. The level of trust has been diminished and I think it will take years and decades to build that back. In terms of how people are going to do business, I think there's going to be a lot more scepticism', anticipates former Leo Burnett CEO, Linda Wolf.
Change rules. Change is a fixture. There is no escaping this essential fact. Change rules. Charles Darwin said: 'It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.'
So, the first message of this book is that change is a universal fact of organisational life. No business is immune. Any leader who refuses to accept that change is inevitable in our turbulent times is in denial. Becoming an agile leader – in terms of thinking and behaviour – is critical for success in turbulent times. Rigid and inflexible thinking runs the risk of making today's leader irrelevant.
Going, going ...
How leaders manage, direct and communicate change has fascinated us for many years. We spoke to a CEO in Germany, and he observed that whenever a leader talks about change, employees always expect the worst. But, as a leader, how do you direct change for the good of the organisation and the people? How do you change things when your very survival as an organisation depends on it?
The best leaders we have encountered take change as their constant mantra. They live and breathe change because they know that the reverse of change is stagnation and then inevitable decay. If you sit still, pretty soon you are steamrollered.
There are no exceptions. Even a bellwether brand like Coca-Cola has had to wrestle with the highest percentage increases for oil, plastic, aluminium and sweetener of the last 50 years.
Take Christie's. It is the world's leading art auction business. Its New York building features a soaring triple-height entrance with a spectacular specially commissioned mural by the artist Sol LeWitt. The firm's global auction and private sales were more than $5.1 billion in 2008. One would have thought it is somehow insulated from the process of change. Art, after all, endures. Nothing could be further from the truth. The auction house is venerable, but its market has changed hugely over the last decade. It used to be that you could send a valuer round to somebody's estate to look at their pieces of art. The process was leisurely and local. Now it is truly global. Add in the effect of the Internet and the emergence of new wealth, and Christie's is in a fast-moving, turbulent marketplace.
Edward (Ed) Dolman, CEO of Christie's International, started out as a porter in the furniture department, rose to become an auctioneer and then decided he wanted to become a manager. He was appointed CEO in December 1999. 'The auction business is unique. We are dealing with high-value, totally subjective assessments, in markets that fluctuate widely. It is difficult to think of true parallels in other sectors', he told us. 'I don't think the governmental and political climate matches commercial reality. With the G20 and things like that, you can see attempts being made to come to terms with the fact that every economy in the world is now linked to such a degree that individual decisions taken by individual governments are fairly meaningless on their own and have to be coordinated globally. As a business, that reality is mirrored in our experience.' Change is constant and global.
Another business in the frontline of change is advertising. Often regarded as a barometer of the economy, advertising budgets are famously fickle. Today, too, the industry is undergoing a major paradigm change as it wrestles with the move to online advertising and issues of privacy. One of the most informed voices on the forces of change is Linda Wolf. She is now a director of Wal-Mart, and was formerly chairman and CEO of the ad agency Leo Burnett Worldwide. When she was promoted to become CEO of Leo Burnett in 2001, she became the first woman to run the iconic Chicago advertising agency – and one of the few to run an international agency anywhere. Wolf gained a reputation as a client-pleaser and a rainmaker. When she ran business development at Leo Burnett in the 1990s, she helped bring in clients such as Disney and Coca-Cola. She's known for going the extra mile to understand clients: in 2000, when she ran Burnett's US business, she went on a parachute jump with her new client, the US Army.
The metaphor of a parachute jump is worth adding to the metaphorical mix of these troubled times. But if it gets you a client, who can argue? (Though this comes with a leadership health warning: if you attempt a high stakes jump while trying to remain too rigid, you will break your leg or worse.)
At Leo Burnett and as a member of the board of trustees of Janus Mutual Funds and Wal-Mart, Linda Wolf has had a front row seat on the true nature of change. In conversation, she points out that the ongoing period of turbulence should be viewed as an accelerator of change rather than a sudden and discrete period of change.
In advertising and media, for example, turbulent change has been going on for the last decade as the market recalibrates online and printed content, and as traditional advertising and content companies vie with new media companies. (As we were writing, the Boston Globe reported operating losses of $50 million for 2008, forcing the newspaper to contemplate what its future looked like.)
Says Linda Wolf: 'Everyone's trying to establish how you can make it through this process and still generate the kind of revenue you're used to. I was at a lunch recently and a big advertiser was saying, of course, we're using all this new media and that's where the opportunities are. Another said the bulk of what they did was on television; it still had the biggest impact for them and was where the bulk of their revenue went. I don't think anyone has cracked the code, and it's going to continue to evolve over a long period. It's a really tough dilemma for whatever media company you're talking about.'
If the times are challenging for the advertising industry, they are even more so for the traditional media companies. If you are a newspaper or terrestrial television company, for example, imagine how you feel about Google and YouTube. In the media world companies are trying to experiment with every possible new way of communication, and hoping that they're going to be able to own something in that area. Some of the experimentation is interesting and has huge potential – for example, Hulu (the free online video service) was a very smart thing for NBC to become involved in. As the experiments go on, traditional media – such as newspapers – continue to struggle with the forces of change.
One of those caught in this maelstrom of uncertainty is Tom Glocer, CEO of Thomson Reuters. 'When there's a disruptive change to your industry, you can't smooth your way quarter by quarter to get there. It takes a human and capital dynamo like Rupert Murdoch to take the Wall Street Journal. You can't smooth your way and that's the core issue in the media and places like the New York Times and the Wall Street Journal as they struggle to replace analogue dollars with digital pennies.'
Right now, business leaders in all industries are being buffeted on all sides by the forces of change. The headwinds of change we have seen, and will continue to see, can be loosely grouped under four categories: technological; organisational; macro-economic and political; and global.
Technological change: cognitive agility
One of the new breed of leaders we talked to was Alexey Mordashov, CEO of the Russian steel-giant Severstal. In the week that we talked with Mordashov he had started in Moscow and then visited Detroit, Pittsburgh, Frankfurt and Berlin, before returning home. A young, energetic leader such as Mordashov embodies the changes which we have seen over the last decade. Ten years ago the emergence of powerful and immensely rich Russian leaders wasn't on the agenda. Now, Russian entrepreneurs and multinationals rub shoulders with the most powerful Western business leaders and their organisations. Ten years ago some businesses were global; now it is difficult to imagine a large company that doesn't have global operations. And a decade is a long time in the life of technology. Alexey Mordashov travels the world, but is constantly in touch with his colleagues and offices via his ubiquitous pocket PC, laptop and mobile phone.
Technology has changed the job of leadership. It opens up previously unimagined channels of communication and new marketplaces. And technology has played a pivotal role in the creation of a galaxy of now global markets. Try thinking of a market untouched by technology or a leader whose work has not been touched by technology. We bet you're struggling to think of one!
For leaders to make good technological decisions they need to remain continuously informed about innovation and also to be well advised on the significance of technological advances for their business. Quick and serious cognitive processing is required.
Organisational change: interpersonal effectiveness
The second headwind that leaders have to cope with is organisational change. 'We need to be much more flat, creating a collegial team-based leadership style so that you can leverage a lot more of people's intellects and capabilities and make them participate in decision making', says Kris Gopalakrishnan the CEO and one of the seven founders of the global consulting and IT services company Infosys.
Both excellent social skills and keen emotional intelligence are required to build and exercise influence in a collegial high-performance organisational culture.
Organisations have changed hugely over the last decade. They have had to. Today's employees are less malleable. They refuse to be easily corralled by hierarchy or organisational boxes. They ask questions. They push the boundaries all the time.
Henry Fernandez, CEO of the financial services company, MSCI Barra, told us that though his organisation wasn't numerically large it was filled with highly-educated, smart and questioning people. About 10 per cent of his people have PhDs, another 30 to 40 per cent have masters degrees of one sort or another. 'They figure things out very quickly. They tend to be more open to change but, on the other hand, they're smart and can become cynical and harder to change. You only have a few windows in a tenure as a CEO so you've got to really use them', says Fernandez.
Try leading a smart workforce such as at MSCI Barra and many other organisations in this knowledge economy by traditional command-and-control methods and you'd pretty soon hit a dead-end. Equally, try organising them into neat hierarchies and boxes on a chart and you'll encounter problems. As a result, new organisational models are continually emerging. Some have been made easy thanks to technology. Others are simply fuelled by human curiosity.
The Management Innovation Lab at London Business School, the brainchild of Professors Gary Hamel and Julian Birkinshaw, has chronicled some of the most innovative organisational experiments. Consider the following examples.
Happy Computers is a $6 million IT training company in London founded by Henry Stewart. The charismatic and unique Stewart has a track record as a campaigner and entrepreneur. Inspired by Ricardo Semler's book Maverick, he set out to create a truly different organisation built on maximising people, having fun and making money (not necessarily always in that order). At Happy, managers are chosen according to how good they are at managing (which Stewart rates as 'our most radical idea') and they are openly appraised by their own employees; new recruits are never asked for qualifications, and are chosen according to how well they respond to feedback on their training style; mistakes are celebrated; client satisfaction, currently at an industry-leading 98.7 per cent, is the single most important performance indicator. While the industry has contracted by 30 per cent over the last six years, Happy's revenues have doubled. Happy days!
Or consider another organisational pioneer: Topcoder is a $20 million Boston-based software company founded by Jack Hughes in 2000. Software projects from clients are broken down into modules, and each module is opened up to Topcoder's community of 120,000 programmers as a competition. Open source meets open organisational design. Programmers are invited to complete the project within a set period of time. The developers of the best solution win a financial prize – typically in the tens of thousands of dollars – and the losers get nothing. For many top programmers the chance of winning a prize is far more motivating than being paid a steady salary. So by creating a tournament-based model for structuring work and rewarding effort, Topcoder is able to tap into their intrinsic desire for peer recognition.
Offbeat, you might think. But consider an experiment at Microsoft where Ross Smith, an 18-year company veteran has reinvigorated an 85-person test team in the company's Windows division. The testing team is young; its members live online, love competition, devour technology in any form and are avid readers of books like Blink and The Wisdom of Crowds. Ross Smith championed a number of initiatives to engage with his team – competitions, pizza meetings, book groups and more. His approach is driven by recognition and respect and has been described as when Theory Y (the notion developed by Douglas McGregor that people perform best when their work is fulfilling) meets Generation Y.
Travel the corporate world and you will encounter many other such examples of leaders pushing at the organisational boundaries, subtly and powerfully changing the shape of organisations.
Excerpted from Leading in Turbulent Times by Kevin Kelly Gary E. Hayes Copyright © 2010 by Kevin Kelly and Gary E. Hayes . Excerpted by permission of Berrett-Koehler Publishers, Inc.. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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CHAPTER 1: All Change
CHAPTER 2: Knowing When the Winds are Coming
CHAPTER 3: All Hands on Deck
CHAPTER 4: Navigating a New Route
CHAPTER 5: Mastering Mutinies
CHAPTER 6: Learning to Tack
CHAPTER 7: Living with Turbulence
CHAPTER 8: Your Turbulent Checklist