Winning (14 page)

The team met weekly for a month and spoke on the phone every day to review new data and sort through options. Within three months, it was clear that the only course of action was a national recall. We had to take a $500 million write-off, and we received some unpleasant coverage about our technical capabilities in the
Wall Street Journal.
But grasping the scope of the problem early and taking ownership of its solution ultimately resulted in a lot of goodwill from consumers.

The point is, at the first glimmer of a crisis, don’t flinch. Get into a worst-case scenario mind-set and start digging.

Assume you have a major problem on your hands that’s yours to fix.

Assumption 2: There are no secrets in the world, and everyone will eventually find out everything.
In the chapter on people management, discussing the corrosive effect of layers, I mentioned the children’s game of telephone. In it, the first person in a circle whispers a secret to the second, who passes to a third, and round it goes until the last person announces what message has reached him. Not surprisingly, the final version has no resemblance to the original.
*

Telephone gets played during crises too.

Information you try to shut down will eventually get out, and as it travels, it will certainly morph, twist, and darken.

The only way to prevent that is to expose the problem yourself. If you don’t, you can be sure someone will do it for you, and you will look the worse for it.

Now, I know what you’re thinking; “Legal won’t let us.” And you’re right. During a crisis, your lawyers will tell you to say less, not more. They will warn you not to implicate Joe or Joyce because their involvement is not yet clear.

That advice is not all wrong. But don’t take it as gospel. Push lawyers to let you say as much as you can. Just make sure that what you do say is the total truth, with no shades of gray.

Cases of full disclosure in business abound, but Johnson & Johnson probably set the gold standard with its handling of the Tylenol crisis in the 1980s. It held press conferences every day, and sometimes more than once, to describe the situation and its scope. It opened its packaging factories up for scrutiny, and kept the public posted on a frequent basis on its investigation of the problem and its recall efforts.

But perhaps some of the best examples of full disclosure come from the newspaper industry. In 1980, the
Washington Post
ran a detailed series describing how one of its reporters, Janet Cooke, managed to fool her editors, the public, and the Pulitzer Prize jury into believing a horrific tale of an eight-year-old heroin addict.

Or take the
New York Times
and its coverage of Jayson Blair, its reporter who fabricated numerous articles. The paper put its best investigative reporters on the case, and their articles left no part of the story untouched. The paper’s own practices and leaders were challenged so thoroughly and personally that at times the coverage felt like an unedited family movie.

And yet, in the end, it was the
Times
’ transparency during the crisis that saved its credibility. The more it said about Jayson Blair’s falsifications, the more people trusted it—not less. The more it revealed the internal dynamics that let Blair’s lying slip by, the more people knew the paper was invested in finding a solution to the underlying problems that caused the breach.

The same is true during any crisis. The more openly you speak about the problem, its causes, and its solutions, the more trust you earn from everyone watching, inside the organization and out.

And during a crisis, trust is what you need at every turn.

Assumption 3: You and your organization’s handling of the crisis will be portrayed in the worst possible light.
In some industries, insiders keep score by market share. In others, they keep score by revenue growth, or number of new franchises opened in a year, or customer satisfaction figures.

In journalism, they keep score by toppled empires and naked emperors. The profession’s calling, as it were, is to question authority in its every form.

I speak, of course, from experience! During my very public divorce in 2002, a controversy erupted around the perks that made up my retention contract, and the media had a field day. But that was hardly the first time I’d gotten my clock cleaned by the press. Not long after I was made CEO, during a period of wide-scale layoffs, I got labeled Neutron Jack, after the bomb that leaves buildings standing but kills people. A year later, I was named one of the toughest bosses in America, and believe me, the implication was not positive. During the Kidder Peabody crisis in 1994, I appeared on the cover of
Fortune
magazine under the headline “Jack’s Nightmare on Wall Street.” The article included a thesis about the cultural breakdown at Kidder Peabody brought on by earnings pressure from GE.
*

Public skewerings are awful—you’re indignant and enraged. But no matter how innocent you think you are, or how superbly you think your organization is handling its troubles, it doesn’t matter. Reporters are not in the business of telling your side of the story. They are in the business of telling the story as they see it.

That’s the way the business works, and during normal times, you’re usually happy for the good read that journalists provide. And in my case, over the course of my career, I got more than my fair share of positive media coverage.

But during a crisis, all bets are off. You and your organization will be portrayed in a light so negative you won’t recognize yourselves.

Don’t hunker down.

You may want to, but you can’t.

Along with disclosing the full extent of your problem as we discussed in the previous assumption, you’ve got to stand up and define your position before someone else does. If you don’t, your lack of visibility will be taken as an admission of guilt, the same way it looks to lay people (albeit not lawyers!) when someone does not take the stand in his own defense.
*

Now, not all organizational crises have a public face. A middle manager leaves and takes his team with him. The reorganization of a business or unit causes enormous upset and turmoil. A big customer defects with complaints about your service. A fired employee makes angry charges of discrimination by senior management.

Even if the media has no interest in these events, your people will.

The same principles still apply.

Openly discuss the situation. Define your position. Explain why the problem happened and how you are handling it.

And just as with big, public crises, don’t ever forget you have a business to run. Make sure you are running it.

Assumption 4: There will be changes in processes and people. Almost no crisis ends without blood on the floor.
Most crises officially end with a settlement of some kind—financial, legal, or otherwise.

Then comes the cleanup, and cleanups mean change.

Processes usually get overhauled first.

With the time card situation, for instance, we instituted Policy 20.11, which formalized all dealings with the government. The policy was excruciatingly detailed, requiring us to cross every t and dot every i. I am no fan of bureaucracy, but the time card situation demanded just such a process fix.

Sometimes, however, process fixes are not enough. We had had a policy about improper payments on our books for more than thirty years—Policy 20.4 to be exact—that was supposed to prevent bribery. But it didn’t help us back in 1990, when a regional sales manager for Aircraft Engines conspired with a general in the Israeli Air Force to divert money from major contracts for GE to supply engines for Israeli F-16 warplanes.

This was no small-potatoes operation. The two men had set up a joint Swiss bank account and a fake contractor in New Jersey to cover their tracks. The media coverage around the world lasted nineteen months, through congressional hearings and a criminal trial against the GE employee, Herbert Steindler. At the end, he went to jail, and we paid the government a $69 million fine.

In this case, the problem was not process, but people not enforcing an existing policy. No one in the business actually knew what Steindler was up to, and none of them gained a penny from the scheme, but some ignored warning signs that something was amiss. Eleven people had to resign, six were demoted, and four were reprimanded.

Crises require change. Sometimes a process fix is enough. Usually not. That’s because the people affected by the crisis, or sometimes those just watching it, demand that
someone
be held responsible.

It sounds awful, but a crisis rarely ends without blood on the floor. That’s not easy or pleasant. But sadly, it is often necessary so the company can move forward again.

Assumption 5: The organization will survive, ultimately stronger for what happened.
There is not a crisis you cannot learn from, even though you hate every one of them.

From the time card crisis, we learned that when you deal with the government, there can be no looseness with regulations, even if it means installing lots of detailed bureaucratic procedures. That’s the price you pay for doing business with public agencies.

From the compressors situation, we learned to bite the bullet early on product recalls. Doing that cuts your losses and pays off in consumer goodwill.

From Kidder Peabody, we learned to never buy a company with a culture that didn’t match ours.

From the bribery case, we learned that policies age and even die unless managers work constantly to keep them alive.

After a crisis is over, there is always the tendency to want to put it away in a drawer.

Don’t. Use a crisis for all it’s worth. Teach its lessons every chance you get.

In doing so, you’ll spread the immunity.

There will always be crises.

And when they erupt, it’s awful! It really does feel like your house is on fire and you can’t get out.

As hard as it sounds, try to remember in the heat of it all that eventually the flames will die down. And they will die down because of what you do. You will face the enormity of the problem and own its solution, while at the same time running the business as if there is a tomorrow.

Then one day, you will realize tomorrow has arrived. The smoke will have cleared, and the damaged parts of the structure will have been replaced or repaired.

You will never be happy for what happened, but stepping back, you’ll see something that might surprise you—the whole place looks better than ever.

11. STRATEGY

It’s All in the Sauce

12. BUDGETING

Reinventing the Ritual

13. ORGANIC GROWTH

So You Want to Start Something New

14. MERGERS AND ACQUISITIONS

Deal Heat and Other Deadly Sins

15. SIX SIGMA

So You Want to Start Something New

M
ORE THAN A FEW TIMES
over the past three years, I have been on a speaking program or at a business conference with one big strategy guru or another. And more than a few times, I have listened to their presentations in disbelief.

It’s not that I don’t understand their theories about competitive advantage, core competencies, virtual commerce, supply chain economics, disruptive innovation, and so on, it’s just that the way these experts tend to talk about strategy—as if it is some kind of high-brain scientific methodology—feels really off to me.

I know that strategy is a living, breathing, totally dynamic
game.

It’s fun—and fast. And it’s alive.

Forget the arduous, intellectualized number crunching and data grinding that gurus say you have to go through to get strategy right. Forget the scenario planning, yearlong studies, and hundred-plus-page reports. They’re time-consuming and expensive, and you just don’t need them.

In real life, strategy is actually very straightforward. You pick a general direction and implement like hell.

Yes, theories can be interesting, charts and graphs can be beautiful, and big, fat stacks of PowerPoint slides can make you feel like you’ve done your job. But you just should not make strategy too complex. The more you think about it, and the more you grind down into the data and details, the more you tie yourself in knots about what to do.
*

That’s not strategy, that’s suffering.

Now, I don’t want to write off strategy gurus. Some of their concepts have merit.

But I do want to disagree with the scientific approach to strategy that they propagate. It is taught in many business schools, peddled by countless consulting firms, and practiced in far too many corporate headquarters.

It’s just so unproductive! If you want to win, when it comes to strategy, ponder less and do more.

I’m certainly not alone in this view. In speaking with many thousands of businesspeople around the world, I can count the number of strategy questions on one hand. Virtually every other topic—from managing a temperamental employee to the dollar’s effect on trade—gets more interest by orders of magnitude.

Obviously, everyone
cares
about strategy. You have to. But most managers I know see strategy as I do—an approximate course of action that you frequently revisit and redefine, according to shifting market conditions. It is an iterative process and not nearly as theoretical or life-and-death as some would have you believe.

Given this view, you may be wondering what I’m going to say in this chapter.

The answer is, nothing that’s going to get me tenure!

Instead, I’m going to describe how to do strategy in three steps. Over my career, this approach worked incredibly well across varied businesses and industries, in upturns and downturns, and in competitive situations from Mexico to Japan. Who knows—maybe its simplicity was part of its success.

The steps are:

First, come up with a big aha for your business—a smart, realistic, relatively fast way to gain sustainable competitive advantage.
I don’t know any better way to come up with this big aha than by answering a set of questions I have long called the Five Slides, because each set fits roughly onto one page. This assessment process should take a group of informed people somewhere between a couple of days and a month.

Second, put the right people in the right jobs to drive the big aha forward.
This may sound generic; it’s not. To drive your big aha forward, you need to match certain kinds of people with commodity businesses and a different type entirely with high-value-added businesses. I don’t like to pigeonhole, but the fact is, you get a lot more bang for your buck when strategy and skills fit.

Third, relentlessly seek out the best practices to achieve your big aha, whether inside or out, adapt them, and continually improve them.
Strategy is unleashed when you have a learning organization where people thirst to do everything better every day. They draw on best practices from anywhere, and push them to ever-higher levels of effectiveness. You can have the best big aha in the world, but without this learning culture in place, any sustainable competitive advantage will not last.

Strategy, then, is simply finding the big aha and setting a broad direction, putting the right people behind it, and then executing with an unyielding emphasis on continual improvement.

I couldn’t make it more complicated than that if I tried.

SO WHAT IS STRATEGY?

Before we look at each of the three steps in some detail, a few thoughts about strategy in general.

At the time I retired from GE, the company employed more than three hundred thousand people in about fifteen major businesses, from gas turbines to credit cards. It was a complex, wide-ranging company, but I always said I wanted it to operate with the speed, informality, and open communication of a corner store.

Corner stores often have strategy right too. With their limited resources, they have to rely on a laserlike focus on doing one thing very well.

In our Boston neighborhood, for instance, within a block of each other on Charles Street, two little shops have constantly ringing cash registers and a nonstop flow of satisfied customers. One is Upper Crust Pizza. Its space is cramped, completely unadorned, and noisy, with self-service paper plates and a limited selection of soft drinks. Customers can eat either standing up or sitting at one large, benchlike table. The staff isn’t exactly rude, but they’re noncommittal. It is not unusual for your order—given at the cash register—to be greeted with a bland “Whatever.”

But the pizza is to die for; you could faint just describing the flavor of the sauce, and the crust puts you over the edge. Investment bankers, artists, and cops start lining up at eleven in the morning to see the “Slice of the Day” posted on the door, and around lunch and dinner, the line can run twenty deep. A fleet of delivery people work nonstop until closing.

At Upper Crust, strategy is all about product.

Then there’s Gary Drug, about half the size of a New York subway car. A large, newly renovated, twenty-four–hour CVS pharmacy is a short walk away. No matter. Gary Drug, with its single, narrow aisle and shelves packed to the ceiling, is always busy. Its selection ranges from cold remedies to alarm clocks, with tweezers and pencil sharpeners mixed in. There is a personable pharmacist tucked in back, and a wide selection of European fashion magazines in a corner up front. Everything the store sells matches the mix of the neighborhood’s quirky residents. Salespeople greet customers by name when they walk in and happily give advice on everything from vitamins to foot massagers. The store offers instant home delivery and a house charge account that bills you once a month.
*

At Gary Drug, strategy is all about service.

Look, what is strategy but resource allocation? When you strip away all the noise, that’s what it comes down to. Strategy means making clear-cut choices about how to compete. You cannot be everything to everybody, no matter what the size of your business or how deep its pockets.

Corner stores have learned that survival depends on finding a strategic position where no one can beat them. Big companies have the same challenge.

When I became CEO in 1981, we launched a highly publicized initiative: “Be No. 1 or No. 2 in every market, and fix, sell, or close to get there.” This was not our
strategy,
although I’ve heard it described that way. It was a galvanizing mantra to describe how we were going to do business going forward. There would be no more hanging on to uncompetitive businesses for old times’ sake. More than anything else, the No. 1 or No. 2 initiative was a communication tool to clean up our portfolio, and it really worked.

Our strategy was much more directional. GE was going to move away from businesses that were being commoditized toward businesses that manufactured high-value technology products or sold services instead of things. As part of that move, we were going to massively upgrade our human resources—our people—with a relentless focus on training and development.

We chose that strategy after getting hammered by the Japanese in the 1970s. They had rapidly commoditized businesses where we had had reasonable margins, like TV sets and room air conditioners. We ended up playing defense in a losing game. Our quality, cost, and service—the weapons of a commodity business—weren’t good enough in the face of their innovation and declining prices. Every day at work was a kind of protracted agony. Despite our productivity improvements and increasing innovation, margins were eroding, as competitors like Toshiba, Hitachi, and Matsushita were relentless.

Meanwhile, overseeing GE Capital in the late ’70s, I was shocked (and delighted) to see how easy it was to make money in financial services, particularly with GE’s balance sheet. There were no union factories, no foreign competition, and plenty of interesting, creative ways to offer customers differentiated products and services. I remember the excitement in that period, seeing our people develop new private-label credit card programs and find niche after niche in middle-market industrial financing. Fat margins weren’t exactly low-hanging fruit, but close.

By the time I was made CEO, I knew that GE had to get as far away as it could from any business that smelled like a commodity and get as close as possible to the other end of the spectrum. That’s why we divested businesses like TV sets, small appliances, air conditioners, and a huge coal company, Utah International. It is also why we invested so heavily in GE Capital; bought RCA, which included NBC; and poured resources into developing high-technology products in our power, medical, aircraft engine, and locomotive businesses.

Now, in such changing times, how and why did GE stick with one strategy over twenty years? The answer is that strategies, if they’re headed in the right direction and are broad enough, don’t really need to change all that often, especially if they are supplemented with fresh initiatives. To that end, over the years, we launched four programs to bolster our strategy—globalization, service add-ons, Six Sigma, and e-business.
*

More than anything, though, our strategy lasted because it was based on two powerful underlying principles: commoditization is evil and people are everything.

Virtually every resource allocation decision we made was based on those beliefs.

Yes, some companies can win in commodity situations—Dell and Wal-Mart are great examples of companies that have pulled the levers of cost, quality, and service to succeed in extremely competitive games. But that is really tough. You just can’t make any mistakes.

My advice, then, is when you think strategy, think about decommoditizing. Try desperately to make products and services distinctive and customers stick to you like glue. Think about innovation, technology, internal processes, service add-ons—whatever works to be unique. Doing that right means you can even make a few mistakes and still succeed.

That’s enough theory!

MAKING STRATEGY REAL

The first step of making strategy real is figuring out the big aha to gain sustainable competitive advantage—in other words, a significant, meaningful insight about how to win. To do that, you need to debate, grapple with, wallow in, and finally answer five sets of questions.

Going into this exercise, I’ll assume that you have a strategy to begin with, either written somewhere or in your head.

That said, having a strategy doesn’t mean it’s working.

The five slides we’re going to look at here are a way to test your strategy, to see if it’s getting you where you want to go, and figure out how to fix it if it’s not, even to the point of changing it entirely.

I strongly believe this questioning process should not be a wide-scale, bottom-up event. While others may disagree, I know that strategy is the job of the CEO or the unit leader, along with his or her direct reports. If the culture is healthy, they can see the organization in all its various, interdependent parts. They know its people, as well as its sources of ideas and innovation, and can best determine where the most exciting opportunities lie. Moreover, they are the ones who will ultimately commit the resources the strategy requires. They get the plaudits if the strategy succeeds and hold the bag if it fails.

If you have a good team—candid, insightful, passionate about the business, and willing to disagree—completing this exercise should be fun and energizing. With intensity, it should take somewhere between a couple of days and a month. After that, it’s time to act.

SLIDE ONE

What the Playing Field Looks Like Now

 

• Who are the competitors in this business, large and small, new and old?
  
 

• Who has what share, globally and in each market? Where do we fit in?
  
 

• What are the characteristics of this business? Is it commodity or high value or somewhere in between? Is it long cycle or short? Where is it on the growth curve? What are the drivers of profitability?
  
 

• What are the strengths and weaknesses of each competitor? How good are their products? How much does each one spend on R & D? How big is each sales force? How performance-driven is each culture?
  
 

• Who are this business’s main customers, and how do they buy?
  
 

 

Over the years, I have been amazed at how much debate this simple grounding exercise can spawn. In fact, it’s not unusual for people who share the same office space to have widely different views of the same competitive environment.