Use lessons from 2007 to guide plans for 2008

Rick Lepsinger

12/22/2007

If you are the typical executive or business owner, this is the time of year when you take stock of the past 12 months. And what better place to start than to examine the successes and failures of public companies and government agencies? These organizations are like a living laboratory. We just need to pay attention.

Cross-company cooperation
The Good: Since 2001 Cisco Systems, led by Chairman and CEO John Chambers, has been on a journey to reorganize the company around functions. To help the idea become reality, Cisco changed the compensation system. People were paid for hitting their targets, but also on how effectively they collaborate with their peers. In addition, Cisco uses video conferencing and social networking to bring employees from around the world together. As a result, sales increased 23 percent to $35 billion and profits climbed 31 percent to $7.3 billion.
The Bad: Despite the efforts of the Federal Aviation Administration, more than 909,000 flights were late through June of 2007 (twice the level of 2002), and stories of missed connections and lost luggage abound. The obstacles to a well-functioning aviation system do not seem to be funding shortfalls or lack of know-how. Instead, it appears the FAA is unable to break the gridlock among the key players in the system – big airlines, small aircraft owners, labor unions, politicians, airplane manufacturers and others fight to protect their interests and blame each other for the problems.
The Lesson: Shared goals and clearly defined roles support cooperation and coordination. To hold people accountable, leader behavior and systems must encourage and reinforce the appropriate behavior.

Decision dynamics: involving others
The Good: Five years ago, Mayor Mike Bloomberg took control of New York City schools. One of the most powerful reforms he introduced shrunk schools and gave principals greater control over their budget and curriculum. In addition, parents now can screen and recommend candidates for the Parent Coordinator program, whose members work to involve moms and dads in the schools. So far the results have been positive: In 2002, 40 percent of students in grades 3 to 8 were reading and doing math at grade level; today 65 percent are proficient in math and 51 percent in reading.
The Bad: Although Stanley O’Neal is widely credited with boosting Merrill Lynch’s profitability and transforming it into an international firm, former employees point to a flaw in his leadership style. Some report that he did not engage in debate with individuals who could have helped him steer clear of the subprime troubles. As a result, when the market value of Merrill’s asset-backed debt fell, the information may not have moved through the corporate hierarchy, which made it difficult for the firm to respond quickly.
The Lesson: Some leaders view involving people in decision making as a sign of weakness. In reality, though, the world is too complex for any leader to go it alone.

Cost containment and growth
The Good: Costco, the big box retailer headquartered in Seattle, is consistently on our list of companies that are the best. It has a remarkable ability to simultaneously focus on two performance areas that appear to be mutually exclusive: cost containment and growth. It does not use pricey ad agencies. There are no commissioned salespeople. Signage looks like it came off a laser printer. And yes, there are no shopping bags. And, Costco never has had a negative monthly same-store sales result since it was founded.
The Bad: 3M prided itself on its ability to grow through innovation, yet flexibility and lack of structure produced a bloated staff and inefficient workflow. When James McNerney became CEO, he introduced Six Sigma to get costs back in line. As a result, profits grew, on average, 22 percent a year. However, many research scientists felt that Six Sigma stifled creativity, and as innovation slowed, 3M had two quarterly earnings misses. In response, the new CEO, George Buckley, has removed the obligation of Six Sigma objectives. The pendulum is in danger of swinging back the other way.
The Lesson: Today’s leaders must be able to balance two opposing concepts such as cost containment and growth. Finding ways for these paradoxes to coexist is essential for consistent business results.

Aligning structure and strategy
The Good: In 2007, IBM’s effort to become a “globally integrated enterprise” gained significant momentum. The key? Historically, IBM created mini versions of itself in each country where it operated. Now the company sets up shop wherever it finds the right talent at the right price. For example, global IT service delivery in India, global supply chain in China, and global financing back office in Brazil. IBM also redesigned business processes and automated work with software to help coordinate these activities. In the second quarter, IBM’s revenue increased 9 percent to $23.8 billion, and each division reported healthy growth.
The Bad: Although Wal-Mart has spent more than $1 billion in Japan, its Seiyu stores are struggling. Several decisions have created problems: laying off employees, mandating that stores stay open 24 hours, and introducing low-cost products that don’t meet Japanese standards of quality. Observers attribute these problems to Wal-Mart’s international operations being controlled in the United States by people who lack appropriate international experience.
The Lesson: Leaders cannot assume that the current organizational structure and systems will support new strategies and enable employees to get things done. •
Rick Lepsinger is the president of OnPoint Consulting (onpointconsultingllc.com) and co-author of “Flexible Leadership: Creating Value by Balancing Multiple Challenges and Choices” (Jossey-Bass/A Wiley Imprint, 2004).