Ask any CEO or senior level executive what his or her biggest challenge is, and the answer is almost always finding and keeping good people. Yet most executives fail to manage their company's needs in a way that recognizes the unpredictability of the global marketplace.
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Pawandeep sahni
Tuesday, April 29, 2008
Inside GE's success
Since Jack Welch's days, GE has steadily produced stellar leaders sending it to the top of Fortune's list of Top Companies for Leaders.
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What Catherine the Great can teach CEOs
The end of the 18th century was one of the most turbulent in history. Bestselling author Jay Winik tells Fortune's Nina Easton what today's corporate chiefs can learn from great leaders of the past.
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Monday, April 28, 2008
How top companies breed stars
The world's best companies realize that no matter what business they're in, their real business is building leaders. Here's how the champs do it.
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The Pepsi challenge
Can this snack and soda giant go healthy? CEO Indra Nooyi says yes, but cola wars and corn prices will test her leadership.
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Sunday, April 13, 2008
Thursday, April 10, 2008
Playing Fair Can Actually Lead to Greater Profits
According to John Zhang and Jagmohan Raju, both Wharton marketing professors, and Tony Haitao Cui, a University of Minnesota marketing and logistics professor, many people aren't purely mercenary in their business dealings. They care about fairness -- and they should, the researchers say, because doing so can maximize their profits.
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Is the era of cheap Chinese products over?
Excerpts:The era of cheap Chinese consumer goods may finally be ending, thanks to irrepressible inflation. Now when the Chinese present their lists, some American importers are conceding higher prices, meaning that American shoppers, for the first time in years, are starting to pick up the tab for rising costs in China. Some Chinese factories are now asking their American customers for price increases of as much as 20 percent to 30 percent.
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Wednesday, April 9, 2008
Tuesday, April 8, 2008
Monday, April 7, 2008
Excellent Interview of Jeff Immelt by Kumara Manglam Birla
KMB: Hello!
JI: Hello! This is Jeff Immelt.
KMB: Hi Jeff, I am Kumar Birla from India. I am the chairman of the Aditya Birla Group.
JI: How are you?
KMB: Very well. It’s great to speak with you. Thanks so much for taking the time out.
JI: Well, congratulations for being the editor for the day.
KMB: Well I agreed to do this only because I got to interview you.
JI: I hope there is a little bit more reward for you than just having the opportunity to interview me.
KMB: No. I think this is much more than I can expect. It’s really a pleasure to be speaking with you and thanks for taking the time out.
JI: Happy to do it.
KMB: Ok. Let me ask you — to start with, did you expect the top job? What do you think made Jack select you for the role of the chairman?
JI: No, I have to say I never really expected it. It was one of those things where there is so much luck involved. I’ve always been asked this question and I’ve always told people that it’s hard for me to know exactly what was behind the decision making process.
KMB: Right! JI: You know...I always think people get a chance like this not because of what they know but more because of how fast people think they can learn. I’d have to think that may be Jack and the board thought that I was a good learner and that I could adjust to the world and drive the right changes at GE.
KMB: Right! That’s interesting, let me just go on to ask you, how the last seven years at the helm have been and what changes you’ve been able to make at GE. Are you happy with the way the last seven years have gone by?
JI: Its gone by so quickly...I think the world has definitely gone through a couple of changes during that period and that impacts certainly big companies like GE. You know when I took the job, I always said that I wanted the company to be more innovative, more global and more focused on the customer and I do believe that in the last six years we’ve been able to do that, so I see that progress…a lot of large cap companies in the US, and GE is no exception, have seen our PE ratios depress. So, clearly I’d like to see a better appreciation in the stock prices. But our earning is strong, our global position is strong and by & large I am pretty satisfied that the company is strategically very well positioned.
KMB: You’ve done a great job and I think you are being very modest when you say that the company is well positioned, I think it’s a lot to do with the strategic direction and some very dynamic leadership provided by you.
JI: Thank you!
KMB: Just to go back to the three goals that you set out for GE when you took over which you just talked about, give just one example of each.
JI: In the area of innovation, I would just pick that we were the early mover in the area of environmental solutions, what we call Ecoimagination. You know we started this before it was very popular, in 2004, and in a relatively short period of time our environmental technologies are above $15 billion of revenue, $16 billion this year. So, I think that was an innovation we drove across our platform, that really drives to ensure growth, some of it technical and some of it from the stand point of how we did our sales and marketing.
KMB: Right!
JI: In the case of globalisation, more than 50% of our revenues come from outside the US today. When I became the CEO, it was roughly 42% so that’s a fairly big shift for a company of our size. I see us moving on all fronts from a global stand point. In the case of customers, we’ve embraced what we call Net Promoters’ Score in terms of how our customers view us and judge us and we believe that this very strong focus on the customer has helped us really differentiate ourselves versus the competition. It’s something that we plan to continue to drive forward with.
KMB: Just for my learning, Jeff, can you share one example of how customer centricity and customer service has improved in the last couple of years. To start off with GE, it was already a very customer focused company. I’ve read about remote maintenance of aircraft engines, for example.
JI: You know, I would say, I would take a perspective of, lets say, the locomotive business, where the cycle time to deliver a locomotive we’ve taken down from about 100 days to about 10 days.
KMB: Wow, that’s a huge difference.
JI: Net Promoters’ Score for the people in the business review...it becomes a rallying cry of how we can get an entire organisation rallied around one customer.
KMB: That’s fascinating Jeff, you’re saying delivery time has gone down from 100 days to 10 days.
JI: Yes, its about 90% reduction.
KMB: That’s truly outstanding, so six sigma remains a very important initiative across the company.
JI: I say...six sigma remains important and we’ve kind of evolved it to embrace Toyota’s lean manufacturing at the same time and so what we’ve really tried to do is embrace really the process of change inside the company and try continuous improvement each and every day.
KMB: So, would you say that GE is looking to provide solutions to its customers rather that products and services?
JI: I’ve always talked that way, let us say it’s a continuous journey in terms of how we look at it. I think we really want to be embedded with our customers so that we become their partners. I think that a lot of people talk about that but to me unless you can find ways to make your customer more profitable, you cant live that promise and I’ve always thought that’s something GE is good at.
KMB: How do you actually get a sense of how customer focused a business is, or how they’ve moved in terms of servicing the customer better, is that something that is measured in quantitative terms or is that more of a qualitative feel?
JI: The Net Promoters’ Score from customers gives me at a high level a feel of what a customer is saying about GE. Then I spend about three or four days a month both in the US and around the world really for grassroots customer level exposure… the last two days of this week, I was in Atlanta on Tuesday, Miami on Wednesday and I spent the entire days both visiting customers individually. Then I have a round table with 20 or 30 of our sales people. I also have a town hall meeting with 300 customers and so I get a very fresh perspective during these days in a very filtered way with none of the managers or bosses around, about how the company is doing and what kind of perspectives they have on the company.
KMB: So that’s a meeting that’s held without the executives?
JI: Without the executives around, it’s just one on one.
KMB: So any sort of breakthrough ideas that have come from there Jeff, that you can talk about?
JI: I would say from very mundane ideas to bigger ideas, for example, and how best to position technology. So it just gives me a kind of fresh perspective on what’s going on in the market place. KMB: How do you allocate your time across all the priority areas on your agenda?
JI: I probably spend my time 30% on people, 30% on growth, 30% on operations and 10% on public things you know… investor meetings, stakeholder meetings, things like that and I try to structure my calendar accordingly.
KMB: Let me ask about M&As. What is it that you are really looking for in terms of numbers, in terms of qualitative factors around an acquisition?
JI: In our case we have a fairly deepfilled strategy for each business that we are in. So we actually have a kind of war room when we track 50 or 100 companies...or couple of 100 companies at all times that would just be relevant to us…. Infrequently they are not big companies, may be small companies that we see a strategic fit with. We always know what our strategy is, I’d say we are 100% strategy driven.. you know we would never do something to just do, it has to fit strategy. Financially typically we look for a 15% cash on cash return by the fifth year.
KMB: A 15% cash return?
JI: Fifteen per cent kind of cash on cash return, so by the fifth year we’d like to have the sense that the ongoing cash flow rate of return has reached 15%. If we did a billion-dollar deal, by the fifth year you are actually generating between $150 and $200 million free cash flow from that deal. That’s just a number we use. We’d like to target deals between $200 million to $2 billion. So we try to match those financial criteria with our strategic criteria when we go for the deal. KMB: Typically, what stage or what size of acquisition do you review?
JI: Very small…like I would review every deal, every industrial deal in excess of $10 million and I would review financial deals lets say where the portfolio is in excess of $50 million. K
MB: You know Jeff, a lot of Indian companies like ours are going global, making lot of acquisitions globally, there’s a new found confidence in India. What are some of the post-merger integration issues that you focus on to make sure that the merger or acquisition doesn’t fail?
JI: Every year we go back and review what we learnt about integration, what we could have done better. I would say typically what makes mergers not succeed are more soft issues, the social issues rather than the hard issues. We are very adaptive. We have a system for consolidating Manufacturing system, Financial systems, Information systems. We are good at all that stuff.
KMB: And what would be the first year targets in terms of integration normally Jeff. Are there any sort of guidelines you have for integration as in that the integration must happen in the following way, in the first year of acquisition?
JI: We have milestones. So we got a kind of 90-day plan, 100-day plan and so what I would say is that we try to have most of our cost synergies probably take place in three years, the first year being 50% of them. The growth synergies might again be over three years. We find growth synergies are much more difficult to track, to anticipate, than cost synergies.
KMB: So when you budget it for, the returns that you are looking at, bulk of the synergies are on account of cost reduction? On the flip side Jeff what about divesture. What has led you to divest some of the businesses that you had. What were some of the criteria that you’ve used to come to a decision about divesting a particular business?
JI: We have a tough-minded strategic review of our businesses, when we come to the conclusion that if its going to be some kind of secular change or that someone could run a business better than we could, its time for us to divest a business. You know usually when a business goes through a secular change and it can no longer meet our financial goals. Sometimes there are businesses that can meet our financial goals but where we think somebody would be a better steward than us. Last year, we sold our plastic business and it was clear to us that unless you’re backward integrated in chemicals business, you can’t be a good owner of it, even though we were financially doing ok. We felt we were just not the best owner of the business and we decided to divest it off.
KMB: You know there is a constant debate about this, especially with analysts, about focused companies versus conglomerates and GE has very deliberately chosen for a very long time to be and to stay as a conglomerate and I assume you have a lot of questions coming at you from analysts about whether that is going to be the case forward, so what is the case that you put forward for remaining a conglomerate?
JI: The first thing I would say for decades the company basically has always been a conglomerate. We run it that way, we have central research, central training, we’ve got our own management education centre, we run a common capital allocation process, we drive a common culture. We spend a lot of time and effort on the oneness of the company, to bring things together. One of the things that differentiates GE from a lot of other mega companies is from the day you walk into the door to the day you retire we want it to feel as really one company. I think that’s been a quarter of our strength. Second thing I would say for investors. Conglomerates and big companies go in and out of style but the ability to have diversified earnings power through the cycles, makes us grow earnings in a steady fashion equal to or greater than SNP 500. So automatically it comes down to a financial case, for why the company exists and that can only be through our performance. If you look back over 10 years, 15 years, 20 years, 30 years we financially outperformed over a long period of time... automatically that gotta be the case you make. And the last one I would make is, particularly when I look at my friends like you, these new successful companies coming out of India, they are all going to be conglomerates of some way, because you want to be around for a long time and if you want to grow, it’s very difficult to grow just in one industry. Successful industrialists almost always grab a take to adjust in different business where they can apply their expertise and there is nothing wrong in that..I would say it’s quite natural.
KMB: I couldn’t agree with you more. JI: So we gotta stick in this together.
KMB: Absolutely!
JI: I think some of the great business stories right now are coming out of India, especially some of the new business models. One of the things investors write here is that if you went to India you saw some of the most exciting companies being formed today. They are all conglomerates fundamentally and they are creating tremendous shareholder value. I find that is very persuasive with our investors to say that there is nothing wrong with this business model. I’d clearly say where we are today, in the 6 core businesses that we are in, we feel we’ve got a real competitive advantage.
KMB: Do you see the portfolio of GE changing drastically in next five years Jeff?
JI: I like where we are right now. I would say the answer is no. Mainly because, when I look at energy, health care, transportation, some of our infrastructure businesses, the entertainment business, the financial services business, we have got good position in huge industries that have a lots of room for growth. So I just don’t think we need to do substantial portfolio restructuring in the next five years. We’d do small things but nothing huge to be successful.
KMB: I completely understand and relate to that Jeff. Are you concerned about the overdependence of GE on GE Financial, the finance part of the business.
JI: No, I think we are great at risk management, investors have told me that they really don’t want it to be greater than 50% of our earnings. I would say that our investors are comfortable at 50 % of our earnings. They probably won’t be comfortable if it became more. Even in a very difficult year for our financial business, our write offs have been small…
KMB: And one more thing on investors. You’ve spoken consistently about building businesses for the long run, you’ve talked to people that they must look at their careers from a longer perspective. So you’re clearly someone who looks at businesses from a long term point of view. But you also have to live quarter by quarter. So how do you actually reconcile the two? It must be a very difficult thing to do.
JI: You know, what do I say ... you live in the same world. I think what we want to have is a highly disciplined, well executing company. Strong executing companies know how to predict quarter in and quarter out what they are going to do. Vast majority of our businesses are very long cycle and therefore we have to be making investments that may not pack back for 10 or 15 years and I think that you have to have the whole constancy of the purpose, understand the responsibility both in the short and the long term. That’s why I think business leadership is both fun and challenging as we have to balance the short term and long term pressures and somehow be good at both.
KMB: Do investors really understand the need for investing in a business that has returns over 10 to 15 years, although it’s strategically very important, how do you actually handle that?
JI: Some do and some don’t. I try to go and explain to them. Look when we do a new commercial that’s going to have a 50-year life, if we do it well over those 50 years, it’s going to make $25 or $30 billion of earnings, but you gotta invest a billion and a half dollars. I think if you are really transparent, really transpire with your investors, tell them your philosophy and how your business works. At the end of the day I don’t want anybody invested in GE who really doesn’t understand what we have to do to be successful. Then I better have them invested in another company. So what I want to do is to attract all the investors who can understand our business model and what we do.
KMB: So you’re saying that transparency is the key to communication with any investor?
JI: Totally, totally. I want them to understand our cycles, our technical strategies, how we make money, what investments are long term, what investments are short term, I think if they totally understand the company then they are going to be happy to know that we gotta do some of the things for long term, they are going to embrace that and they are going to like that. And so for long-term, you gotta be very transparent. ‘I’m a huge believer in India’ KMB: Tell me, what happens if a business misses its targets three years in a row, how do you view that?
JI: I would say that if a business missed its targets and it was not related to the industry, you would always have a new management team. I understand business cycles, sometimes business go into tough cycles for several years. There’ll be businesses and businesses. If we have a management team that cannot execute on its commitments they get 1 second chance but they don’t get two second chances. I think it is too important to our company, to our people, to our investors that management delivers result.
KMB: So, then the management is transferred to other businesses or they are shown the door? JI: Probably shown the door, I would say. In the end the performance counts. But we know that there are times, there are industrial cycles which our managers have no control over. Sometimes great managers doing great jobs have disappointing financial results because the industry is so tough and we reward those people versus managers that missed because they didn’t execute well and those people have to be shown the door.
KMB: I am sure that is clearly understood across the company.
JI: It has to be.
KMB: So what are the kind of people, what are the qualities you are looking for in a manager who you think will succeed. Who would you fast track? What is it other than performance that you’re looking for in someone who you would like to fast track in the GE system?
JI: If I would pick just one trait, it would be the ability to learn, I think people that have hunger for improving themselves, curiosity, and knowledge gathering. That is an absolute critical aspect for what makes people successful in GE. So, that’s a common attribute and then after that its decisiveness, its external focus and, working with others. I mean there is a whole series of things to go after that, but one common trait of all the successful people in the company is that they are good learners and they have real dedication to self improvement.
KMB: You have a lot of Indians in GE. I know it’s very difficult to generalise, but anything you observe that sets them apart, in terms of their strengths.
JI: I think what I just said, when I went to a tech centre in Bangalore, you see thousands of people that have thirst for knowledge, for change, for improvement, for success and I think the attributes that I just mentioned exist in abundance in all of our Indian employees. It’s one of the things that’s made India so successful and so appealing over time.
KMB: And you see India as a continuing talent sourcing pool for GE?
JI: No doubt, we’ve got more competition than we used to but I am just a huge believer in the country and the power of the people of India. It’s just fantastic. I am most impressed.
KMB: Going back to the people’s questions Jeff, what happens to the manager who is relatively not so high on performance but has huge potential, is that something you think would help him to survive in the system, the fact that he has huge potential?
JI: I think if he has huge potential, we will be more tolerant and more patient. But in the end they gotta somehow learn to perform. We want to see the best in people, we want people to succeed, we don’t want people to fail, so we try to be fair and we try to be open with everybody. A lot of people get a second chance, I’d say almost everybody gets a second chance to do well and to perform. And we cheer those people, we want them to succeed in GE.
KMB: That’s a great attitude, so you’re saying that you’re actually a cheerleader for people and you want them to succeed.
JI: We want them to succeed and we really want the best in everybody. You know while we are tough minded about performance, we don’t do it from the sense of cruelty, we do it from the sense of just understanding how important performance really is.
KMB: Right! You said that people have to learn to succeed and a very substantive part of time is spent on coaching. Who are these people you choose to coach and what is this coaching?
JI: Everybody who works directly with me, I spend a lot of time with them, but then I try to reach down into the organisation, to people that I think have particular promise. Typically, what I can do at my level is give them a kind of new answer of leadership, how to make good strategic decisions, how to get the best out of their people. I think when you’re the CEO of the company you’ve still gotta roll up your shirt sleeves and go individually towards people, try to may be give them, your unique perspectives that can help them. I think that you gotta keep your hand in coaching no matter how high you get in an organisation because it makes you better at how to manage, in terms of totality of the company.
KMB: Despite the fact, that GE is such a large organisation, such a huge company and growing so fast, do you still find it difficult to manage people’s aspirations?
JI: You know what I find is...we’ve got enough growth and we’ve got great jobs. So typically, we can meet people’s goals if they give us a little bit of patience. But this is a place where more transparency the better. You know what I try to encourage is complete honesty with people, sometimes we just can’t meet their aspirations as fast as they want, we are much better off in letting them know that upfront.
KMB: Something about the world of business at large, any discontinuity you see in the world of business in the next couple of years — five or 10 years — that will actually change the way people work? In terms of technology, in terms of legislation or any other such changes?
JI: The two biggest themes in the world. I think one is — what’s the next evolution of globalisation? It’s particularly going to be fascinating. My view is that one of the most interesting trends is going to be business models that get developed or kind of get created in the merging markets in places like India or China or Russia. I think that’s going to be an interesting theme. And then there is always the technology. It depends what industry you’re in ... but I think the pace of technology will continue to change and create discontinuities as time goes on and I think that’s something every company and industry will have to stay on top of.
KMB : What on technology?
JI: You might find in the area of, lets say, a water desalination or something like that. Or even let’s take the Tata’s $2,500 car. It’s developed for the emerging world but may be some of those technologies end up in the US or Europe. So those emerging market business, or what I call business models, I think will end up driving huge efficiency and may be change technologies...you know, vis-a-vis, what happens in the developed world.
KMB: That’s very fascinating to hear and the role of India as part of GE’s plan going forward, Jeff, in terms of recruitment, in terms of market, in terms of being here, do you see India being a larger and larger part of the plan, in your scheme of things?
JI : Well, there is no doubt about that, I think both in terms of the fact that we are a big infrastructure company. So till India continues to invest in infrastructure, that would be a very big deal. I also think, just technically, I think, whether it is you, or whether it is Reliance or Wipro, the business models that you are working on, I think it is going to have a great applicability. In terms of not just how we win in India but also how we win in rest of the world. So India is definitely going to be a core location as we go forward.
KMB: Well, that’s very reassuring for us.
JI: I think it’s really a great time for India, I really do believe that.
KMB: And finally, you are one of the most admired icons in the corporate world, globally. You also head one of the most respected and admired company in the world. What is it that keeps you going, what is that drives you?
JI: You know I would say Kumar, it’s probably like you, I love business, I love people, I love learning. If you love learning, if you are curious about business, you love people. You know I got the best job in the world, it’s like when you run GE, you have the chance to see so many different things happen and I just feel very fortunate to have that opportunity.
KMB: Well, the passion is palpable, so many thousands of miles away. Jeff, it’s been a real pleasure to talk with you.
JI: Hello! This is Jeff Immelt.
KMB: Hi Jeff, I am Kumar Birla from India. I am the chairman of the Aditya Birla Group.
JI: How are you?
KMB: Very well. It’s great to speak with you. Thanks so much for taking the time out.
JI: Well, congratulations for being the editor for the day.
KMB: Well I agreed to do this only because I got to interview you.
JI: I hope there is a little bit more reward for you than just having the opportunity to interview me.
KMB: No. I think this is much more than I can expect. It’s really a pleasure to be speaking with you and thanks for taking the time out.
JI: Happy to do it.
KMB: Ok. Let me ask you — to start with, did you expect the top job? What do you think made Jack select you for the role of the chairman?
JI: No, I have to say I never really expected it. It was one of those things where there is so much luck involved. I’ve always been asked this question and I’ve always told people that it’s hard for me to know exactly what was behind the decision making process.
KMB: Right! JI: You know...I always think people get a chance like this not because of what they know but more because of how fast people think they can learn. I’d have to think that may be Jack and the board thought that I was a good learner and that I could adjust to the world and drive the right changes at GE.
KMB: Right! That’s interesting, let me just go on to ask you, how the last seven years at the helm have been and what changes you’ve been able to make at GE. Are you happy with the way the last seven years have gone by?
JI: Its gone by so quickly...I think the world has definitely gone through a couple of changes during that period and that impacts certainly big companies like GE. You know when I took the job, I always said that I wanted the company to be more innovative, more global and more focused on the customer and I do believe that in the last six years we’ve been able to do that, so I see that progress…a lot of large cap companies in the US, and GE is no exception, have seen our PE ratios depress. So, clearly I’d like to see a better appreciation in the stock prices. But our earning is strong, our global position is strong and by & large I am pretty satisfied that the company is strategically very well positioned.
KMB: You’ve done a great job and I think you are being very modest when you say that the company is well positioned, I think it’s a lot to do with the strategic direction and some very dynamic leadership provided by you.
JI: Thank you!
KMB: Just to go back to the three goals that you set out for GE when you took over which you just talked about, give just one example of each.
JI: In the area of innovation, I would just pick that we were the early mover in the area of environmental solutions, what we call Ecoimagination. You know we started this before it was very popular, in 2004, and in a relatively short period of time our environmental technologies are above $15 billion of revenue, $16 billion this year. So, I think that was an innovation we drove across our platform, that really drives to ensure growth, some of it technical and some of it from the stand point of how we did our sales and marketing.
KMB: Right!
JI: In the case of globalisation, more than 50% of our revenues come from outside the US today. When I became the CEO, it was roughly 42% so that’s a fairly big shift for a company of our size. I see us moving on all fronts from a global stand point. In the case of customers, we’ve embraced what we call Net Promoters’ Score in terms of how our customers view us and judge us and we believe that this very strong focus on the customer has helped us really differentiate ourselves versus the competition. It’s something that we plan to continue to drive forward with.
KMB: Just for my learning, Jeff, can you share one example of how customer centricity and customer service has improved in the last couple of years. To start off with GE, it was already a very customer focused company. I’ve read about remote maintenance of aircraft engines, for example.
JI: You know, I would say, I would take a perspective of, lets say, the locomotive business, where the cycle time to deliver a locomotive we’ve taken down from about 100 days to about 10 days.
KMB: Wow, that’s a huge difference.
JI: Net Promoters’ Score for the people in the business review...it becomes a rallying cry of how we can get an entire organisation rallied around one customer.
KMB: That’s fascinating Jeff, you’re saying delivery time has gone down from 100 days to 10 days.
JI: Yes, its about 90% reduction.
KMB: That’s truly outstanding, so six sigma remains a very important initiative across the company.
JI: I say...six sigma remains important and we’ve kind of evolved it to embrace Toyota’s lean manufacturing at the same time and so what we’ve really tried to do is embrace really the process of change inside the company and try continuous improvement each and every day.
KMB: So, would you say that GE is looking to provide solutions to its customers rather that products and services?
JI: I’ve always talked that way, let us say it’s a continuous journey in terms of how we look at it. I think we really want to be embedded with our customers so that we become their partners. I think that a lot of people talk about that but to me unless you can find ways to make your customer more profitable, you cant live that promise and I’ve always thought that’s something GE is good at.
KMB: How do you actually get a sense of how customer focused a business is, or how they’ve moved in terms of servicing the customer better, is that something that is measured in quantitative terms or is that more of a qualitative feel?
JI: The Net Promoters’ Score from customers gives me at a high level a feel of what a customer is saying about GE. Then I spend about three or four days a month both in the US and around the world really for grassroots customer level exposure… the last two days of this week, I was in Atlanta on Tuesday, Miami on Wednesday and I spent the entire days both visiting customers individually. Then I have a round table with 20 or 30 of our sales people. I also have a town hall meeting with 300 customers and so I get a very fresh perspective during these days in a very filtered way with none of the managers or bosses around, about how the company is doing and what kind of perspectives they have on the company.
KMB: So that’s a meeting that’s held without the executives?
JI: Without the executives around, it’s just one on one.
KMB: So any sort of breakthrough ideas that have come from there Jeff, that you can talk about?
JI: I would say from very mundane ideas to bigger ideas, for example, and how best to position technology. So it just gives me a kind of fresh perspective on what’s going on in the market place. KMB: How do you allocate your time across all the priority areas on your agenda?
JI: I probably spend my time 30% on people, 30% on growth, 30% on operations and 10% on public things you know… investor meetings, stakeholder meetings, things like that and I try to structure my calendar accordingly.
KMB: Let me ask about M&As. What is it that you are really looking for in terms of numbers, in terms of qualitative factors around an acquisition?
JI: In our case we have a fairly deepfilled strategy for each business that we are in. So we actually have a kind of war room when we track 50 or 100 companies...or couple of 100 companies at all times that would just be relevant to us…. Infrequently they are not big companies, may be small companies that we see a strategic fit with. We always know what our strategy is, I’d say we are 100% strategy driven.. you know we would never do something to just do, it has to fit strategy. Financially typically we look for a 15% cash on cash return by the fifth year.
KMB: A 15% cash return?
JI: Fifteen per cent kind of cash on cash return, so by the fifth year we’d like to have the sense that the ongoing cash flow rate of return has reached 15%. If we did a billion-dollar deal, by the fifth year you are actually generating between $150 and $200 million free cash flow from that deal. That’s just a number we use. We’d like to target deals between $200 million to $2 billion. So we try to match those financial criteria with our strategic criteria when we go for the deal. KMB: Typically, what stage or what size of acquisition do you review?
JI: Very small…like I would review every deal, every industrial deal in excess of $10 million and I would review financial deals lets say where the portfolio is in excess of $50 million. K
MB: You know Jeff, a lot of Indian companies like ours are going global, making lot of acquisitions globally, there’s a new found confidence in India. What are some of the post-merger integration issues that you focus on to make sure that the merger or acquisition doesn’t fail?
JI: Every year we go back and review what we learnt about integration, what we could have done better. I would say typically what makes mergers not succeed are more soft issues, the social issues rather than the hard issues. We are very adaptive. We have a system for consolidating Manufacturing system, Financial systems, Information systems. We are good at all that stuff.
KMB: And what would be the first year targets in terms of integration normally Jeff. Are there any sort of guidelines you have for integration as in that the integration must happen in the following way, in the first year of acquisition?
JI: We have milestones. So we got a kind of 90-day plan, 100-day plan and so what I would say is that we try to have most of our cost synergies probably take place in three years, the first year being 50% of them. The growth synergies might again be over three years. We find growth synergies are much more difficult to track, to anticipate, than cost synergies.
KMB: So when you budget it for, the returns that you are looking at, bulk of the synergies are on account of cost reduction? On the flip side Jeff what about divesture. What has led you to divest some of the businesses that you had. What were some of the criteria that you’ve used to come to a decision about divesting a particular business?
JI: We have a tough-minded strategic review of our businesses, when we come to the conclusion that if its going to be some kind of secular change or that someone could run a business better than we could, its time for us to divest a business. You know usually when a business goes through a secular change and it can no longer meet our financial goals. Sometimes there are businesses that can meet our financial goals but where we think somebody would be a better steward than us. Last year, we sold our plastic business and it was clear to us that unless you’re backward integrated in chemicals business, you can’t be a good owner of it, even though we were financially doing ok. We felt we were just not the best owner of the business and we decided to divest it off.
KMB: You know there is a constant debate about this, especially with analysts, about focused companies versus conglomerates and GE has very deliberately chosen for a very long time to be and to stay as a conglomerate and I assume you have a lot of questions coming at you from analysts about whether that is going to be the case forward, so what is the case that you put forward for remaining a conglomerate?
JI: The first thing I would say for decades the company basically has always been a conglomerate. We run it that way, we have central research, central training, we’ve got our own management education centre, we run a common capital allocation process, we drive a common culture. We spend a lot of time and effort on the oneness of the company, to bring things together. One of the things that differentiates GE from a lot of other mega companies is from the day you walk into the door to the day you retire we want it to feel as really one company. I think that’s been a quarter of our strength. Second thing I would say for investors. Conglomerates and big companies go in and out of style but the ability to have diversified earnings power through the cycles, makes us grow earnings in a steady fashion equal to or greater than SNP 500. So automatically it comes down to a financial case, for why the company exists and that can only be through our performance. If you look back over 10 years, 15 years, 20 years, 30 years we financially outperformed over a long period of time... automatically that gotta be the case you make. And the last one I would make is, particularly when I look at my friends like you, these new successful companies coming out of India, they are all going to be conglomerates of some way, because you want to be around for a long time and if you want to grow, it’s very difficult to grow just in one industry. Successful industrialists almost always grab a take to adjust in different business where they can apply their expertise and there is nothing wrong in that..I would say it’s quite natural.
KMB: I couldn’t agree with you more. JI: So we gotta stick in this together.
KMB: Absolutely!
JI: I think some of the great business stories right now are coming out of India, especially some of the new business models. One of the things investors write here is that if you went to India you saw some of the most exciting companies being formed today. They are all conglomerates fundamentally and they are creating tremendous shareholder value. I find that is very persuasive with our investors to say that there is nothing wrong with this business model. I’d clearly say where we are today, in the 6 core businesses that we are in, we feel we’ve got a real competitive advantage.
KMB: Do you see the portfolio of GE changing drastically in next five years Jeff?
JI: I like where we are right now. I would say the answer is no. Mainly because, when I look at energy, health care, transportation, some of our infrastructure businesses, the entertainment business, the financial services business, we have got good position in huge industries that have a lots of room for growth. So I just don’t think we need to do substantial portfolio restructuring in the next five years. We’d do small things but nothing huge to be successful.
KMB: I completely understand and relate to that Jeff. Are you concerned about the overdependence of GE on GE Financial, the finance part of the business.
JI: No, I think we are great at risk management, investors have told me that they really don’t want it to be greater than 50% of our earnings. I would say that our investors are comfortable at 50 % of our earnings. They probably won’t be comfortable if it became more. Even in a very difficult year for our financial business, our write offs have been small…
KMB: And one more thing on investors. You’ve spoken consistently about building businesses for the long run, you’ve talked to people that they must look at their careers from a longer perspective. So you’re clearly someone who looks at businesses from a long term point of view. But you also have to live quarter by quarter. So how do you actually reconcile the two? It must be a very difficult thing to do.
JI: You know, what do I say ... you live in the same world. I think what we want to have is a highly disciplined, well executing company. Strong executing companies know how to predict quarter in and quarter out what they are going to do. Vast majority of our businesses are very long cycle and therefore we have to be making investments that may not pack back for 10 or 15 years and I think that you have to have the whole constancy of the purpose, understand the responsibility both in the short and the long term. That’s why I think business leadership is both fun and challenging as we have to balance the short term and long term pressures and somehow be good at both.
KMB: Do investors really understand the need for investing in a business that has returns over 10 to 15 years, although it’s strategically very important, how do you actually handle that?
JI: Some do and some don’t. I try to go and explain to them. Look when we do a new commercial that’s going to have a 50-year life, if we do it well over those 50 years, it’s going to make $25 or $30 billion of earnings, but you gotta invest a billion and a half dollars. I think if you are really transparent, really transpire with your investors, tell them your philosophy and how your business works. At the end of the day I don’t want anybody invested in GE who really doesn’t understand what we have to do to be successful. Then I better have them invested in another company. So what I want to do is to attract all the investors who can understand our business model and what we do.
KMB: So you’re saying that transparency is the key to communication with any investor?
JI: Totally, totally. I want them to understand our cycles, our technical strategies, how we make money, what investments are long term, what investments are short term, I think if they totally understand the company then they are going to be happy to know that we gotta do some of the things for long term, they are going to embrace that and they are going to like that. And so for long-term, you gotta be very transparent. ‘I’m a huge believer in India’ KMB: Tell me, what happens if a business misses its targets three years in a row, how do you view that?
JI: I would say that if a business missed its targets and it was not related to the industry, you would always have a new management team. I understand business cycles, sometimes business go into tough cycles for several years. There’ll be businesses and businesses. If we have a management team that cannot execute on its commitments they get 1 second chance but they don’t get two second chances. I think it is too important to our company, to our people, to our investors that management delivers result.
KMB: So, then the management is transferred to other businesses or they are shown the door? JI: Probably shown the door, I would say. In the end the performance counts. But we know that there are times, there are industrial cycles which our managers have no control over. Sometimes great managers doing great jobs have disappointing financial results because the industry is so tough and we reward those people versus managers that missed because they didn’t execute well and those people have to be shown the door.
KMB: I am sure that is clearly understood across the company.
JI: It has to be.
KMB: So what are the kind of people, what are the qualities you are looking for in a manager who you think will succeed. Who would you fast track? What is it other than performance that you’re looking for in someone who you would like to fast track in the GE system?
JI: If I would pick just one trait, it would be the ability to learn, I think people that have hunger for improving themselves, curiosity, and knowledge gathering. That is an absolute critical aspect for what makes people successful in GE. So, that’s a common attribute and then after that its decisiveness, its external focus and, working with others. I mean there is a whole series of things to go after that, but one common trait of all the successful people in the company is that they are good learners and they have real dedication to self improvement.
KMB: You have a lot of Indians in GE. I know it’s very difficult to generalise, but anything you observe that sets them apart, in terms of their strengths.
JI: I think what I just said, when I went to a tech centre in Bangalore, you see thousands of people that have thirst for knowledge, for change, for improvement, for success and I think the attributes that I just mentioned exist in abundance in all of our Indian employees. It’s one of the things that’s made India so successful and so appealing over time.
KMB: And you see India as a continuing talent sourcing pool for GE?
JI: No doubt, we’ve got more competition than we used to but I am just a huge believer in the country and the power of the people of India. It’s just fantastic. I am most impressed.
KMB: Going back to the people’s questions Jeff, what happens to the manager who is relatively not so high on performance but has huge potential, is that something you think would help him to survive in the system, the fact that he has huge potential?
JI: I think if he has huge potential, we will be more tolerant and more patient. But in the end they gotta somehow learn to perform. We want to see the best in people, we want people to succeed, we don’t want people to fail, so we try to be fair and we try to be open with everybody. A lot of people get a second chance, I’d say almost everybody gets a second chance to do well and to perform. And we cheer those people, we want them to succeed in GE.
KMB: That’s a great attitude, so you’re saying that you’re actually a cheerleader for people and you want them to succeed.
JI: We want them to succeed and we really want the best in everybody. You know while we are tough minded about performance, we don’t do it from the sense of cruelty, we do it from the sense of just understanding how important performance really is.
KMB: Right! You said that people have to learn to succeed and a very substantive part of time is spent on coaching. Who are these people you choose to coach and what is this coaching?
JI: Everybody who works directly with me, I spend a lot of time with them, but then I try to reach down into the organisation, to people that I think have particular promise. Typically, what I can do at my level is give them a kind of new answer of leadership, how to make good strategic decisions, how to get the best out of their people. I think when you’re the CEO of the company you’ve still gotta roll up your shirt sleeves and go individually towards people, try to may be give them, your unique perspectives that can help them. I think that you gotta keep your hand in coaching no matter how high you get in an organisation because it makes you better at how to manage, in terms of totality of the company.
KMB: Despite the fact, that GE is such a large organisation, such a huge company and growing so fast, do you still find it difficult to manage people’s aspirations?
JI: You know what I find is...we’ve got enough growth and we’ve got great jobs. So typically, we can meet people’s goals if they give us a little bit of patience. But this is a place where more transparency the better. You know what I try to encourage is complete honesty with people, sometimes we just can’t meet their aspirations as fast as they want, we are much better off in letting them know that upfront.
KMB: Something about the world of business at large, any discontinuity you see in the world of business in the next couple of years — five or 10 years — that will actually change the way people work? In terms of technology, in terms of legislation or any other such changes?
JI: The two biggest themes in the world. I think one is — what’s the next evolution of globalisation? It’s particularly going to be fascinating. My view is that one of the most interesting trends is going to be business models that get developed or kind of get created in the merging markets in places like India or China or Russia. I think that’s going to be an interesting theme. And then there is always the technology. It depends what industry you’re in ... but I think the pace of technology will continue to change and create discontinuities as time goes on and I think that’s something every company and industry will have to stay on top of.
KMB : What on technology?
JI: You might find in the area of, lets say, a water desalination or something like that. Or even let’s take the Tata’s $2,500 car. It’s developed for the emerging world but may be some of those technologies end up in the US or Europe. So those emerging market business, or what I call business models, I think will end up driving huge efficiency and may be change technologies...you know, vis-a-vis, what happens in the developed world.
KMB: That’s very fascinating to hear and the role of India as part of GE’s plan going forward, Jeff, in terms of recruitment, in terms of market, in terms of being here, do you see India being a larger and larger part of the plan, in your scheme of things?
JI : Well, there is no doubt about that, I think both in terms of the fact that we are a big infrastructure company. So till India continues to invest in infrastructure, that would be a very big deal. I also think, just technically, I think, whether it is you, or whether it is Reliance or Wipro, the business models that you are working on, I think it is going to have a great applicability. In terms of not just how we win in India but also how we win in rest of the world. So India is definitely going to be a core location as we go forward.
KMB: Well, that’s very reassuring for us.
JI: I think it’s really a great time for India, I really do believe that.
KMB: And finally, you are one of the most admired icons in the corporate world, globally. You also head one of the most respected and admired company in the world. What is it that keeps you going, what is that drives you?
JI: You know I would say Kumar, it’s probably like you, I love business, I love people, I love learning. If you love learning, if you are curious about business, you love people. You know I got the best job in the world, it’s like when you run GE, you have the chance to see so many different things happen and I just feel very fortunate to have that opportunity.
KMB: Well, the passion is palpable, so many thousands of miles away. Jeff, it’s been a real pleasure to talk with you.
Street-vendors are business people, they get no training yet they understand cash’
An excellent interview found in ET where KumarManglam Birla Interviews Ram Charan! A must read!
Excerpts: KMB: Ram, you know one book that really got me thinking was your Every Business is a Growth Business। In India, on the one hand, we have a whole set of new opportunities that have opened up because of India liberalising and becoming more and more a part of the global economy। But, you have another set of business which is the more real economy businesses — lots of businesses where one wonders how to grow any further because growth stats in that industry are not very high। So how does one take larger market share from a pie that isn’t growing, sometimes even shrinking? So on this whole concept of Every Business Being a Growth Business, tell us a little more about the philosophy।
Ram: First thing, what every manager, every business leader has to have is the attitude, a mind set of profitable growth। It is the challenge for the leader and the leadership team to reconceptualise a landscape in businesses which have low or zero growth। It’s the imagination that makes the difference. Businesses are led by leaders. Every organisation is led by a leader. A leader and a leadership team can take a business and can do things differently from another leader and another leadership team. Therefore, the first thing is the attitude and the mindset.
KMB: Right. Ram: Saying, this is the hand that I have dealt with. Now I am going to look forward and re-conceptualise, re-imagine and find ways in which there can be profitable growth. It starts with the leadership.
KMB: That’s a bold leadership stance to take in a business that is not growing. So what happens next? Ram: So, the leadership of the company and the leadership chain is now looking at ways to grow. Here are the ways. And this is not in order: First, the overall growth of the market maybe zero, but you search for segments in the market that are growth markets because style is changing, new technology is changing. So I will give you an example in the American scene.
KMB: Right. Ram: If you look at roughly the last five years, the total market in the automobile industry in America has not grown in any significant manner. But there are segments in it that have been very profitable and growth oriented.
KMB: For example? Ram: For example, the Lexus. The important thing is to figure out a segment which is growing and continues to grow — share out of Mercedes Benz, share out of Cadillac, share out of Lincoln, and is very profitable.
KMB: And that’s a live example that you have. Ram: That is one of the examples. So the concept here is that you look at the landscape and you look for drivers of change of the landscape and re-segment your market. That requires skill, attitude and imagination. How is the outside world changing? If the outside world is changing, there are opportunities. If the outside world is not changing, then you have a different issue.
KMB: So this is an example, like you said, of businesses where growth is almost nil — which is the automobile business in the last five years in the US. Ram: When I look at companies in any space, I am looking at the landscape from a different lens. That lens is re-segmentation. That lens is where are the drivers, demographics, life style, income or technology that can change the landscape.
KMB : Right. Yes Ram: That’s one area. The second area is what technology can do to change the landscape. Now look at Mexico. In Mexico you have demographics where you have low income families but they are not really starving. And here, the housewife spends considerable time in washing, in cleaning clothes for the family. So here is what people will call a “mature brand”. And the brand is Tide. But most people don’t expect the Tide brand to grow. People think it’s matured. But it is growing very well.
KMB: Right. Ram: It has a huge market share. So the people in Procter & Gamble go to a consumer’s house and they live there and they observe it, and they find out that the housewife rinses the clothes four times before it goes for laundry. They go back to the laboratory and say, can we do this in one rinse or two rinses? And what will that do?
KMB: And then? Ram: They figure out a new composition, that actually reduces the number of rinses, uses less water, less labour and it’s also cheaper. And you are creating more demand at that level and below. I can take that from Mexico to India, China, Russia and we have found a growth driver. So if you have tools and technique, attitude and imagination, tenacity and passion, that’s my methodology for growth and that’s where I come out with growth for every business.
KMB: Right. So, how do you get companies to have deeper insights into what their consumers are looking for really, or would be looking for in the next couple of years? Ram: I think there are simple tools. One of the best ways for leaders is to set themselves as an example. If the leader does it in a truthful way, others usually learn from it and many actually copy it. One of the very best in the world that did it was Sam Walton. He was at his store three days a week. He saw his competitors’ stores three days a week. And so he was in tune with what is happening to the competition and what is happening to the consumer.
KMB: Right. Ram: Leaders need to go directly to the user, then competition, and see what is happening. Also the leader needs to see these consumers, observe these consumers, buy in complementary products. For example, I buy expensive jeans. Do I also buy expensive perfumes? What is their behaviour? What are the new trends? KMB: Very interesting. Ram: So, as a leader, you are a highly passionate person about the consumer. Business first. If you don’t understand the customer and the consumer, you really are not a very good businessman, first of all. KMB: True Ram: Every leader at the helm of a company and business unit must demonstrate this quality. KMB: Right. Ram: The second thing that I have organised in companies is that every month at the staff meeting a leader should spend half an hour asking his/her colleagues, what is that they are detecting new about their customers. Do it twelve times a year. You will be surprised how it changes the culture in the company.
KMB: Right. What happens after that? You have the CEO who spends times in observing change in consumer preferences, lifestyles. How does he complete the loop by feeding it back into marketing, product development? Ram: Great question. Two things happen. One is if you are doing it with a discipline repeatedly, other people see it that you are doing it, they will do it. That influences their behaviour and that is very powerful. Second, if you believe that you don’t want to tell people what to do, you as a leader are very good in asking the right questions.
KMB: Right. Ram: In the reviews of the product/projects, you ask those questions like – will the consumer prefer this? Why? Why not? What is the evidence? By asking these questions, empower them. They begin to look at it. You can make your inputs if you are not a delegating type of CEO.
KMB: So you are leading people in a particular direction. Ram: Leading through questioning, by opening their minds. Let them have the passion to learn about customers. And of course, one must stress heavily on innovation. Let’s say, Apple’s Ipod. If the customer doesn’t buy it, it is not very good. So Apple creates the Ipod and the first moment of truth is that the customer buys it. The second moment of truth is that the customer actually uses it. Third moment of truth is that the customer does repeat his purchase. Fourth moment of truth is when the customer tells other customers about it.
KMB: Correct. How true ! Ram: Most of the consumer habits are not about the numbers, it’s about the preferences and how is it changing. KMB: But when you talk about the leadership at the helm, getting deeper insight by interacting directly with the customers — that would require a huge time commitment. In your experience, with top managers, top leaders, how much time does one actually spend with customers? Ram: It’s a very good question. Here you use a sampling technique. Just the way Gallup does it. Build the rhythm and consistency as does an athlete.
KMB: Right. Ram: You can do the sampling through the year when travelling, going to visit the plant site. Take an hour to go to the Supermarket. Take an hour to go and stand outside of some particular area. Talk to five customers. Observe. Observation is a skill but the time commitment depends on the company and multiply yourself by other people doing that. I am saying 10% of your time needs to go to observe customers and competitors.
KMB: Say for example, since you have done lot of work with Dell, how would someone like Michael Dell go about implementing this? Ram: Let’s pick some other company. I cannot talk about Dell. KMB: You pick one that you are comfortable talking about. Ram: Almost all people like Target, Wal-Mart do. The CEO of P&G does. He is absolutely in his own way very, very disciplined. He walks through these major mega stores, and he feels unhappy if he did not figure out what is new and if somebody else did. He spends that time. If you do it regularly, you make those trips in less time in the future because you become efficient and become more observant.
KMB: Let’s go ahead. You have always spoken of execution as a source of competitive advantage. Your book Execution was path breaking. What in your experience do companies that execute well do differently? Ram: There are many things. But I give you just three items. The most important thing they do is putting right people in right jobs. Nothing will overcome the deficiency if you have wrong people in key jobs. It is a huge discipline. No. 2 is that you have to be very good in followthrough. No. 3 – each of these things have milestones and there are review mechanisms for major milestones.
KMB: That sounds deceptively simple! That takes up to the issue of leadership. How do companies create leaders who have the multiple skills required in abundant measure to do all that you have spoken about? Ram: I think we got to be very clear. First is — no human-being is going to have all of this. So what you are looking for is leadership where the leader himself/herself is personally growing. The growth engine in each of us is very important. No. 2 — today leaders have to work with teams, not just solo. So they are complementary. Third, you have got to develop leaders in the sense that identify them early, at the age of 25-26-27 and give them a variety of experiences.
KMB: Right Ram: Move them out from one function to the other, but keep them long enough to demonstrate a track record. You will be surprised how they all grow their skills. And they realize what they don’t have and how to complement. KMB: How do you identify a leader at 25-26? RAM: Does this person like to work with people? Does this person mobilise people without hierarchical power? Is this person looking at another person, and really figuring it out — what is this person’s talent and how do we use it? KMB: That would require very keen observation skills. RAM: That’s very true. Just go with those three items. You begin to see — is this person a loner or is this person a leader? Can this person be a leader.
KMB: One last question, Ram. I read that you talked about teaching business acumen. Can you actually teach something like business acumen? Ram: I think the key point here is that some of the basics of business acumen are present in large part of population, say in India. The largest number of businessmen and business-women are street-vendors. They get no training. They understand ‘cash’. It is a four-letter word, they understand that. Their mind works on how to get ‘cash’ at the end of the day
Excerpts: KMB: Ram, you know one book that really got me thinking was your Every Business is a Growth Business। In India, on the one hand, we have a whole set of new opportunities that have opened up because of India liberalising and becoming more and more a part of the global economy। But, you have another set of business which is the more real economy businesses — lots of businesses where one wonders how to grow any further because growth stats in that industry are not very high। So how does one take larger market share from a pie that isn’t growing, sometimes even shrinking? So on this whole concept of Every Business Being a Growth Business, tell us a little more about the philosophy।
Ram: First thing, what every manager, every business leader has to have is the attitude, a mind set of profitable growth। It is the challenge for the leader and the leadership team to reconceptualise a landscape in businesses which have low or zero growth। It’s the imagination that makes the difference. Businesses are led by leaders. Every organisation is led by a leader. A leader and a leadership team can take a business and can do things differently from another leader and another leadership team. Therefore, the first thing is the attitude and the mindset.
KMB: Right. Ram: Saying, this is the hand that I have dealt with. Now I am going to look forward and re-conceptualise, re-imagine and find ways in which there can be profitable growth. It starts with the leadership.
KMB: That’s a bold leadership stance to take in a business that is not growing. So what happens next? Ram: So, the leadership of the company and the leadership chain is now looking at ways to grow. Here are the ways. And this is not in order: First, the overall growth of the market maybe zero, but you search for segments in the market that are growth markets because style is changing, new technology is changing. So I will give you an example in the American scene.
KMB: Right. Ram: If you look at roughly the last five years, the total market in the automobile industry in America has not grown in any significant manner. But there are segments in it that have been very profitable and growth oriented.
KMB: For example? Ram: For example, the Lexus. The important thing is to figure out a segment which is growing and continues to grow — share out of Mercedes Benz, share out of Cadillac, share out of Lincoln, and is very profitable.
KMB: And that’s a live example that you have. Ram: That is one of the examples. So the concept here is that you look at the landscape and you look for drivers of change of the landscape and re-segment your market. That requires skill, attitude and imagination. How is the outside world changing? If the outside world is changing, there are opportunities. If the outside world is not changing, then you have a different issue.
KMB: So this is an example, like you said, of businesses where growth is almost nil — which is the automobile business in the last five years in the US. Ram: When I look at companies in any space, I am looking at the landscape from a different lens. That lens is re-segmentation. That lens is where are the drivers, demographics, life style, income or technology that can change the landscape.
KMB : Right. Yes Ram: That’s one area. The second area is what technology can do to change the landscape. Now look at Mexico. In Mexico you have demographics where you have low income families but they are not really starving. And here, the housewife spends considerable time in washing, in cleaning clothes for the family. So here is what people will call a “mature brand”. And the brand is Tide. But most people don’t expect the Tide brand to grow. People think it’s matured. But it is growing very well.
KMB: Right. Ram: It has a huge market share. So the people in Procter & Gamble go to a consumer’s house and they live there and they observe it, and they find out that the housewife rinses the clothes four times before it goes for laundry. They go back to the laboratory and say, can we do this in one rinse or two rinses? And what will that do?
KMB: And then? Ram: They figure out a new composition, that actually reduces the number of rinses, uses less water, less labour and it’s also cheaper. And you are creating more demand at that level and below. I can take that from Mexico to India, China, Russia and we have found a growth driver. So if you have tools and technique, attitude and imagination, tenacity and passion, that’s my methodology for growth and that’s where I come out with growth for every business.
KMB: Right. So, how do you get companies to have deeper insights into what their consumers are looking for really, or would be looking for in the next couple of years? Ram: I think there are simple tools. One of the best ways for leaders is to set themselves as an example. If the leader does it in a truthful way, others usually learn from it and many actually copy it. One of the very best in the world that did it was Sam Walton. He was at his store three days a week. He saw his competitors’ stores three days a week. And so he was in tune with what is happening to the competition and what is happening to the consumer.
KMB: Right. Ram: Leaders need to go directly to the user, then competition, and see what is happening. Also the leader needs to see these consumers, observe these consumers, buy in complementary products. For example, I buy expensive jeans. Do I also buy expensive perfumes? What is their behaviour? What are the new trends? KMB: Very interesting. Ram: So, as a leader, you are a highly passionate person about the consumer. Business first. If you don’t understand the customer and the consumer, you really are not a very good businessman, first of all. KMB: True Ram: Every leader at the helm of a company and business unit must demonstrate this quality. KMB: Right. Ram: The second thing that I have organised in companies is that every month at the staff meeting a leader should spend half an hour asking his/her colleagues, what is that they are detecting new about their customers. Do it twelve times a year. You will be surprised how it changes the culture in the company.
KMB: Right. What happens after that? You have the CEO who spends times in observing change in consumer preferences, lifestyles. How does he complete the loop by feeding it back into marketing, product development? Ram: Great question. Two things happen. One is if you are doing it with a discipline repeatedly, other people see it that you are doing it, they will do it. That influences their behaviour and that is very powerful. Second, if you believe that you don’t want to tell people what to do, you as a leader are very good in asking the right questions.
KMB: Right. Ram: In the reviews of the product/projects, you ask those questions like – will the consumer prefer this? Why? Why not? What is the evidence? By asking these questions, empower them. They begin to look at it. You can make your inputs if you are not a delegating type of CEO.
KMB: So you are leading people in a particular direction. Ram: Leading through questioning, by opening their minds. Let them have the passion to learn about customers. And of course, one must stress heavily on innovation. Let’s say, Apple’s Ipod. If the customer doesn’t buy it, it is not very good. So Apple creates the Ipod and the first moment of truth is that the customer buys it. The second moment of truth is that the customer actually uses it. Third moment of truth is that the customer does repeat his purchase. Fourth moment of truth is when the customer tells other customers about it.
KMB: Correct. How true ! Ram: Most of the consumer habits are not about the numbers, it’s about the preferences and how is it changing. KMB: But when you talk about the leadership at the helm, getting deeper insight by interacting directly with the customers — that would require a huge time commitment. In your experience, with top managers, top leaders, how much time does one actually spend with customers? Ram: It’s a very good question. Here you use a sampling technique. Just the way Gallup does it. Build the rhythm and consistency as does an athlete.
KMB: Right. Ram: You can do the sampling through the year when travelling, going to visit the plant site. Take an hour to go to the Supermarket. Take an hour to go and stand outside of some particular area. Talk to five customers. Observe. Observation is a skill but the time commitment depends on the company and multiply yourself by other people doing that. I am saying 10% of your time needs to go to observe customers and competitors.
KMB: Say for example, since you have done lot of work with Dell, how would someone like Michael Dell go about implementing this? Ram: Let’s pick some other company. I cannot talk about Dell. KMB: You pick one that you are comfortable talking about. Ram: Almost all people like Target, Wal-Mart do. The CEO of P&G does. He is absolutely in his own way very, very disciplined. He walks through these major mega stores, and he feels unhappy if he did not figure out what is new and if somebody else did. He spends that time. If you do it regularly, you make those trips in less time in the future because you become efficient and become more observant.
KMB: Let’s go ahead. You have always spoken of execution as a source of competitive advantage. Your book Execution was path breaking. What in your experience do companies that execute well do differently? Ram: There are many things. But I give you just three items. The most important thing they do is putting right people in right jobs. Nothing will overcome the deficiency if you have wrong people in key jobs. It is a huge discipline. No. 2 is that you have to be very good in followthrough. No. 3 – each of these things have milestones and there are review mechanisms for major milestones.
KMB: That sounds deceptively simple! That takes up to the issue of leadership. How do companies create leaders who have the multiple skills required in abundant measure to do all that you have spoken about? Ram: I think we got to be very clear. First is — no human-being is going to have all of this. So what you are looking for is leadership where the leader himself/herself is personally growing. The growth engine in each of us is very important. No. 2 — today leaders have to work with teams, not just solo. So they are complementary. Third, you have got to develop leaders in the sense that identify them early, at the age of 25-26-27 and give them a variety of experiences.
KMB: Right Ram: Move them out from one function to the other, but keep them long enough to demonstrate a track record. You will be surprised how they all grow their skills. And they realize what they don’t have and how to complement. KMB: How do you identify a leader at 25-26? RAM: Does this person like to work with people? Does this person mobilise people without hierarchical power? Is this person looking at another person, and really figuring it out — what is this person’s talent and how do we use it? KMB: That would require very keen observation skills. RAM: That’s very true. Just go with those three items. You begin to see — is this person a loner or is this person a leader? Can this person be a leader.
KMB: One last question, Ram. I read that you talked about teaching business acumen. Can you actually teach something like business acumen? Ram: I think the key point here is that some of the basics of business acumen are present in large part of population, say in India. The largest number of businessmen and business-women are street-vendors. They get no training. They understand ‘cash’. It is a four-letter word, they understand that. Their mind works on how to get ‘cash’ at the end of the day
CUTTING EDGE
Will history happen to your company?
Why do successful businesses find themselves losing ground? Because they get stuck in their moment of glory and forget about what matters the most—the customer By Richard S Tedlow
Why do successful businesses find themselves losing ground? Because they get stuck in their moment of glory and forget about what matters the most—the customer By Richard S Tedlow
People who start businesses are notorious for their optimism. But most entrepreneurial ideas never pass from dream to reality. And when they do, the great majority of new companies fail
There are filters through which an idea must pass to become a business, then through which a business must pass to become sustainable, then through which a sustainable business must pass to become something special, and then through which that something special must pass to become great. The tests are severe. For that rare company that passes all of these tests, history appears to freeze in its tracks. The end point has been reached, the answer is now known. Yet history teaches that the wheel keeps turning. Bad things do happen to good companies. Why is it that great firms—companies with the smartest executives and the most powerful competitive advantages—persist in the mistakes of their predecessors? History offers three reasons.
Reason 1: The market abandons the firm: When Henry Ford introduced the Model T in 1908, his goal was to put America on wheels; and he succeeded. Prior to the Model T, automobile manufacturers produced short runs of high-priced, high-margin vehicles. But Ford was committed to the mass market. He produced a reliable appliance within the financial reach of a far larger market than any of his competitors. By 1921, the Model T held a commanding share of the US market in a product category in which scale economies and the learning curve make market leadership critical. Within less than a decade Ford lost the leadership his company was never to regain. Why? Because the market left the firm. The US was growing fast and getting richer in the 1920s. Radio, movies and sports were changing the way the post World War I generation looked at the world. Life was to be enjoyed, not just endured. Suddenly consumers wanted more from their automobiles—style, fashion, colour and choice. But Henry Ford, enraptured by tales of his own greatness, fell in love with his product and forgot about his customers. In 1908, he was inspired by his vision of Americans freed from the tyranny of distance. By 1927, he was merely making more Model T's. As a result, he lost control forever of a market he owned.
Reason 2: The firm abandons the market: Counter-intuitive though this is, it happens more often than you might think. Take the case of Sears, Roebuck & Co, for years the most trusted firm in the US. It was an honest, reliable outfit that stood by its washing machines, refrigerators, and automobile batteries. Sears enjoyed several competitive advantages: hundreds of thousands of devoted employees whose current income and retirement security depended upon its prosperity, millions of loyal customers, and the best store locations in the nation. So impressed were Sears executives with their greatness that in 1970 they started creating what at the time was the tallest building in the world. Chicago’s Sears Tower, completed in 1973, was limited in height not by ambition or conspicuous display but by the Federal Aviation Administration. Beware of big buildings like the Sears Tower. Such monuments often become mausoleums. In its heyday Sears Tower had gorgeous and expensive furniture and paintings—they did not look like they were bought at Sears. Sears had begun to put on airs. The firm was leaving its market. Sears had a lock on a segment that will exist forever: people who want the best for less. How do we know this market still exists? Because Wal-Mart moved into the void that Sears left. Sears turned its back on one of the most vibrant market in history.
Reason 3: The market abandons the firm and the firm abandons the market: This insidious case where the firm and the market bid farewell to each other simultaneously was the fate of the Great Atlantic and Pacific Tea Company, the grocery chain known as the A&P. This was the third-largest corporation in the US in 1950. Today, it is a pale shadow of its former self. The market abandoned the firm as shoppers began to move to the suburbs and favour large stores. A&P, shackled by the memories of what had made it great in years gone by, failed to heed these trends. It also stuck to its heavy investment in private-label brands in the face of the growth of nationally branded grocery products fuelled by TV advertising. Sales slowly stagnated. As they did, morale in the stores declined and the quality of management deteriorated. The good managers saw what was happening and left. As the quality of management declined, overall performance deteriorated and so did customer satisfaction. That further weakened sales. Breaking the downward cycle This downward cycle is tough to break. How do you do it? By stopping it before it starts. How do you do that? Begin by asking the right questions—and avoiding the wrong ones: Don’t ask, ‘Am I competitive?’ Every failed company would answer in the affirmative. Instead ask, ‘Am I competing in the right way?’ This is more provocative and makes you think twice. Don’t ask, ‘Am I working hard?’ It doesn’t matter. It is an input question, and customers want output, not effort. Instead ask, ‘Am I working smart?’ The people at these failed firms were not. Don’t ask, ‘Is this a good product?’ That is the trap that Ford fell into. Instead ask, ‘Will the market care?’ The customer is all that really matters. Remember, you may be selling three-inch drill bits, but the customer is buying three-inch holes. Don’t ask, ‘Do I know what I need to know?’ This is a reasonable question. That’s the problem with it: it is too reasonable. Instead ask, ‘What am I afraid to find out?’ Exploring the worst plausible scenario for your firm may help you avoid it. Finally, remember: History does not stop just because you happen to be successful.
The author is the Class of 1949 Professor of Business Administration at Harvard Business School. He is the author of ‘Andy Grove: The Life and Times of an American’ BREAK
THROUGH: Edsel Ford’s 1934 Ford Model 40 Special Speedster is driven in Ypsilanti, Michigan. In 1934 Ford returned from a tour of several European auto shows and assigned E T ‘Bob’ Gregorie the job of designing a car with a ‘continental’ look. When Henry Ford introduced the Model T in 1908, his goal was to put America on wheels; and he succeeded. By 1921, the Model T held a commanding share of the US market. But within less than a decade Ford lost the leadership his company was never to regain
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