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Editor in Chief JP Donlon: How CEOs Use Cultural Levers to Push Growth

As markets continue to be plagued by low economic growth and strategic life cycles become shorter, companies that don’t adapt their cultures will most likely not succeed. More and more CEOs are learning to disperse the tasks of leadership across the organization until there are leaders at every level.

There are any number of effective growth drivers that can help companies achieve their goals of creating value for customers. In the end most assume that a culture of alignment exists within the organization. How many times have good ideas emerged with the result that sadly, there was no organizational home or strategy for implementing it? Resources or funding was never found and as a result the notion withered on the vine and died.

Such disappointment often results from not having the right team in place or not correctly identifying the internal entrepreneurs who are the source of strategic initiatives. Booz & Co. undertook a study, “What Private Equity Can Teach Public Companies,” which highlights a number of approaches any company, public or private, can use to re-examine its value creation model. The authors report that “the evidence shows that the best of these firms create economic value again and again, and they do so by implementing real and sustainable operating and productivity improvements.” One of these approaches is called the “parking lot” exercise. In essence one begins with a blank slate and then objectively rebuilds the company’s cost structure, justifying every expense and resource. This, in effect, removes every expense and resource from the building, placing it in the parking lot and determining whether it needs to be allowed back in. This often has the advantage of optimizing high-value work capability and reducing or eliminating low-value discretionary activity. The Booz analysis points to a prominent auto supplier that, faced with sharp decline in sales, was able to use this approach to fix its cost structure and halt the company’s hemorrhaging cash flow. The parts supplier was by degrees, able to control its variable costs and win back business it thought it had lost.

Having the right team and the right champions in place is also fundamental to building growth drivers. Identifying and empowering internal entrepreneurs are critical because they act as change agents that can spread their project success across the whole organization. Internal entrepreneurs can also deploy unknown or forgotten resources. Tony Hsieh, who founded and built the online shoe retailer Zappos, promotes this idea by recognizing and rewarding people who share the company’s obsession with customer satisfaction. The company grew in no small measure due to the enthusiasm of internal entrepreneurs who demonstrated their passion for customer satisfaction.

But such lessons are not restricted to flashy start-ups. (Zappos is now a unit of Amazon.com.) Fred Hassan, now chairman of Bausch & Lomb and senior partner with the private equity group Warburg Pincus, turned Schering-Plough around by changing the culture with the Big Pharma company and by focusing on the internal entrepreneurs among management that could push new growth projects. When Hassan joined in 2003, the company was losing patent protection for its leading product, Claritin, as well as experiencing a sharp decline in its hepatitis C business. Hassan and his team put themselves in the shoes of the consumer and focused on building brand equity in OTC-Claritin through a consumer campaign. The team later broadened the Claritin product franchise through a series of line extensions and product re-formulations.

But the team didn’t stop there. The company revived an older product that had been left for dead, Nasonex, a spray for allergies. Research indicated that patients wanted an unscented form of the product. The internal entrepreneurs at S-P worked side by side with the scientists without the rose-scented alcohol ingredient. The result was a brand transformation and a mini blockbuster product in just a few years. Hassan found much of the impetus through the power of focus and team building and motivating the entrepreneurs within. This doesn’t mean that one won’t encounter bumps along the way or issues with competitors. Keeping the culture aligned along the way isn’t always easy, but clever CEOs never take their foot off the cultural gas pedal.

Fred Hassan along with Cerberus Capital’s Bob Nardelli and Patriarch Partners Lynn Tilton, will be discussing “New Drivers of Growth” at the keynote panel of the forthcoming CEO2CEO Leadership Summit at the NYSE on December 13. These and other insights on building one’s company for expansion will be very much on the day’s agenda.

About J.P. Donlon

J.P. Donlon
J.P. Donlon is Editor Emeritus of Chief Executive magazine.