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Pursuing High Performance

Chief executives can, in fact stay ahead of global competitors

Adapt and win has never looked harder. Emerging from a scandal-scarred era, American chief executives are confronting ruthless competition,  rampant commoditization and relentless bottom-line pressure. Globalization, once heralded as the Next Big Opportunity, does create wealth, but it also poses severe challenges. Corporate American icons like Maytag and Unocal have been hungrily pursued by powerhouses out of China, and big-ticket items like cars and PCs manufactured by Chinese companies are aggressively elbowing their way into the U.S. market.

 

In this burgeoning competitive landscape, achieving and sustaining high performance is obviously difficult. And it’s even more difficult to achieve consistently great results over the long term. Yet CEOs gathered for a roundtable co-sponsored by Accenture report that they are finding creative ways to engage and motivate employees,  innovate around products and processes and use technology to boost efficiency. The challenges are indeed large, but not insurmountable.

 

People Practices

 

Oddly enough, amid increasing pressure to trim costs and achieve technological improvements, management of all-important human resources has too often fallen by the wayside in recent years. Employees have been seen as mere overhead and not essential to long-term problem solving and innovation. “In the past, we were so busy focusing on short-term results that we sometimes forgot that we have to manage people,” noted Paul Zeven, CEO of Philips Electronics of North America. “People know very well whether they’re being respected, and whether it’s a short-term relationship you’re building or a long-term one.”

 

Strong employee relationships boost efficiencies by reducing turnover and increasing productivity,  but it’s equally essential to bring employees into the strategic component of success, argued Peyton Patterson, CEO of NewAlliance Bancshares. “It’s important for a company to run on two parallel tracks, one living for the short-term and the other planning strategically for the future,” she said. Rewards systems can motivate employees to “wear that corporate hat,” she added.

 

Increasingly, the smartest CEOs recognize that creating strong alignments between themselves and their people at multiple levels of the pecking order can unleash new ideas that translate into profit.  “We all tend to go for people who have a demonstrated ability to produce X in a certain amount of time,” Patterson explained.  “But it’s also about creating a group within the company that’s charged with strategic thinking and building that momentum.”

 

For Gary Anderson, CEO of Dow Corning, engaging employees in strategy played a central role in bringing his company back from the brink of disaster (see sidebar, page 68). Forced into Chapter 11 in 1998 by an onslaught of silicone breast implant-related lawsuits, Dow Corning was struggling to battle more than 19,000 lawsuits claiming $4 billion in damages while at the same time coping with $1 billion in debt. To fend off disaster, management  sought out “young leaders” (ages 30 to 50) throughout the organization,  put them on teams and told them, “We have a problem that we need to solve together.”

 

“We knew from the top where we wanted to go and some of the boundaries we faced, but we had them help us develop the strategy,” Anderson explained. Six months later, Dow Corning not only had clear direction on what needed to be accomplished and how to get it done, but leaders at all levels across the company were passionate about making it happen.  Having a strategic development role gave the group of leaders a sense of ownership of the plan and a stake in its success. Energizing this one group of employees snowballed into an entire employee base engaged and motivated around a clearly understood strategy. “They went out and very energetically drove the changes that we came up with,” reported Anderson, who brought Dow Corning out of Chapter 11 in 2004.

 

The company found the young leaders program equally beneficial when a difficult period necessitated a workforce reduction,  he added. “We took out 30 percent of the people, but that was the power of having all the young leaders involved in the decision. They were down there saying, ��This is the right thing to do. We have to do it.’ So we were able to keep a highly motivated workforce.”

 

At Fred’s discount retail chain, a comparable program had similarly positive effects in a noncrisis situation. After several years of stellar results, the chain found itself bumping up against a wall. To get past the growth hurdle, CEO Michael Hayes instituted a “stakeholder program” that gathered employees with over a certain level of stock options for a monthly Saturday meeting.  The program required time from the employees and travel expenditures from the company, which had to fly people in from geographically dispersed locations, but proved an effective way to share success strategies and brainstorm solutions to business problems. “It reminds them that options are compensation that you’re granted because you’re deemed to be one of the people who can influence the company’s success,” noted Hayes, who says the invitation to participate has become a badge of honor among employees. “You would think coming in on a Saturday would drive them crazy, but it’s just the reverse.”

 

Identifying natural leaders, helping them to develop and placing them in key positions can, in fact, be more critical than being a leading market player or having a strong brand in building strong relationships with employees. “We’ve found that if our employees like their leaders, they’re engaged,” said Robert Suh, chief technology strategist at Accenture. “And if they don’t like their leaders, it doesn’t matter that we hired Tiger Woods to be a spokesperson or that we have offices everywhere in the world. What matters is their personal connection with their leaders.”

 

Delivering Innovation

 

Of course, the key is to create the right set of incentives for people so that a company grows. To do that, innovation is essential. CEOs need to continually drive innovation and make sure it’s not limited to just one part of their organization. “A lot of innovations we once brought to market were driven by people in the laboratory who invented nice things,” said Philip’s Zeven. “Products were overdesigned and not based on customers’ needs. In fact, often the product was too complicated for the customers to operate and therefore created dissatisfaction rather than satisfaction with consumers.”

 

“Innovation without implementation is of no value,” agreed Murray Martin, chief operating officer of Pitney Bowes. “Research groups and engineering groups love to innovate, but it doesn’t help if it doesn’t go anywhere. “

 

To ensure that innovations have a true business application, Pitney Bowes relies heavily on having its customer-facing employees ask the market what it needs. “But that can be too narrowly focused,” warned Martin. “Our lines of business are one to five years out in their thinking, so if we leave everything to them we’ll never get leapfrog [technology]. We also created a customer innovation lab within our research group that talks directly with customers and looks into future technology.”

 

Several manufacturers report that recent innovation has been centered more around customer service than products. Rapid delivery, for example, enables RV component manufacturer Drew Industries to compete against offshore manufacturers even though they have much lower cost structures. “We make a chassis that’s 80 feet long and 16 feet wide, and we can get an order on a Monday morning and deliver it Monday afternoon,” says CEO Leigh Abrams. “China can’t do that.”

 

Ethan Allen Interiors, the manufacturer and retailer of fine furniture, is also focusing on timely delivery as a point of differentiation. One of the company’s current missions, for example, is to reduce the average time to deliver a sofa from 12 weeks to 30 days. “A custom-made sofa with all the bells and whistles takes 218 minutes to make-about three hours,” says Farooq Kathwari, CEO of the home furnishings retailer. “So we’ve made it our objective to deliver all of our furniture within 30 days. When we first said it, people said it was impossible, but now we’re in the process of doing it.”

 

Kathwari and other CEOs noted that this type of innovation in business processes and customer service is a competitive necessity in a rapidly commoditizing retail climate. Now that the cycle of bringing products to market has shortened, companies that debut a new product or service no longer enjoy a year-or even a few months-of exclusivity. “Banking could not be a more plain vanilla business, so the challenge is really how to be innovative,” said  NewAlliance’s Patterson. “Because if you come out with a new product, someone is going to have it the next day and be competing with you on price. So we focus on process innovation, because to me our job is to make the consumer happy by figuring out how to deliver a high level of quality within our cost structure.” To that end NewAlliance gathered employees from all parts of the company to form a process improvement team dedicated to identifying process improvements.

 

Changes of standard operating practices can boost efficiencies at professional services firms as well. At Christian & Timbers, placing greater accountability on the executive search firm’s partner level employees has smoothed search processes. Partners from a different practice area survey current clients over the course of the project to determine their overall satisfaction. “Every one of those reports comes across my desk,” says Brian Sullivan, CEO of the New York-based executive search firm. “Most are fine, but there’s an issue about 10 percent of the time. But because the partner knows this accountability is coming, more often than not the issue is already solved by the time it hits my desk.”

 

For Accenture, the innovation challenge is in identifying and rapidly moving into areas of growth. “For us, it’s about how to take our cost of goods sold, which is primarily people, and rapidly retool, retrain and move into topical areas or geographic areas where demand is high,” he noted. “Sensing where those changes are and redeploying is no easy trick.”

 

Finally, some CEOs point to outsourcing as a form of innovation with a potentially significant upside-and potential risk. If a company’s processes are broken or ineffective, it doesn’t work to simply outsource them because that only compounds the problem. So CEOs have to understand the processes and make sure they are as efficient as possible before outsourcing. Even then, they have to be very selective about what goes and what stays. “These outsourcing companies have direct contact not only with our employees on payroll processing, but also our customers with call centers,” noted Philips Electronics’ Zeven. “Since this contact is of vital importance, are we motivating these people in the correct way? Because if they make mistakes or do not treat people with the same respect that we would, it will directly affect our business. So we’re discovering the hard way that outsourcing is not as easy as it seems.”

 

Technology Triumphs


After years of being touted as a path to productivity gains, investments in information technology have lately come under fire. Burned by massive expenditures on solutions that failed to deliver on their promises of increased production, cost reductions and other goalposts, several CEOs reported growing more cautious with their technology dollars. “Technology is what got my predecessor here in huge financial trouble,”said Hayes of Fred’s. “If you have one person traveling from New York to Los Angeles, a 747 may not be the appropriate airplane. He built this fabulous system, and we still have a utilization problem. The data is there, but the key is to have output that is usable by the buyers.”

 

Done right, technology obviously can be a tremendous boon. At Dow Corning, for example, a full SAP implementation unified offices and staff worldwide onto a single system, reducing service costs by 40 percent and freeing up some $200 million in working capital.

 

And therein lies the problem, noted Accenture’s Suh. “Heart transplants are 95 percent predictable, but IT projects are 34 percent predictable,” he says. “And that’s why people don’t invest proactively in major IT projects.”

 

Just as with outsourcing decisions, if a company’s processes are antiquated, automating them almost certainly doesn’t work. Pitney Bowes’ Martin froze an SAP implementation when he realized that underlying issues would jeopardize its success. “I realized that we would just be automating old processes, which is a waste of time,” explained Martin, who also warned his peers about the dangers of undocumented institutional knowledge. “We did a call center consolidation that became a mess because there were things people just knew to do that they chose not to share with anybody. So you basically move 80 percent of a process, implement it perfectly, and then the hidden 20 percent blows you out.”

 

How can a company get the solution and implementation aspects of the equation right? The answer is by taking the time to identify the appropriate processes, map out the implementation plan, train employees and vet each step along the way. Before Dow Corning deployed a new system, for example, the company spent five years simplifying its existing processes. “We had old systems we had built ourselves and we knew we needed to simplify those before we did a new implementation,” noted Anderson, who sees the final result as well worth the investment in cost and time. “Now I can go to China, India or anywhere in the world and have access to everything.”

 

So CEOs have key levers they can use to shape their organizations. The way they inspire people, the cultures of innovation they create and the knowledge they develop about the right ways and wrong ways of using technology are some of the most important. Those highly developed skills  are difficult for a competitor in China or Mexico or Poland to duplicate-at least for now. To the victors will go the spoils.


 Chemical Reaction

When you reach the crisis point of having to file for Chapter 11, your immediate fears are losing your customers, your employees or community support. The customer part is obvious. You visit your customers and do everything you can to reassure them. The employee part is more difficult. We develop high-tech materials, so we are always in a competitive recruiting market for top scientists and engineers. We needed to ensure that we maintained good relationships and kept employees motivated. We knew we had to be open and honest and forthright so our employees could have confidence in what we said.

 

In any group, there are natural leaders. We felt that if we engaged these leaders-the peers our employees look to, trust and have faith in-and got them involved in the company’s strategic direction, they could then speak with authority and self-confidence to other employees. We have about 8,000 employees, so we chose 80, formed 20-member teams, and had them each work on different aspects.

 

Next, we developed a communication program that included various mediums and both formal and informal discussions. We had people talking to people, presentations, management forums, intranet communication, videos and CDs. Over the course of the year, we kept communicating different pieces of the message. The result? Complete companywide buy-in on the direction we were heading and a team of highly motivated employees.

 

Several years later, when cost and economy programs necessitated reductions, we counted on those same people to carry the financial message. This time they were instrumental in communicating to our employee base how critical it was that we get the cost structure right for the long term-that to be successful in a global market, we must be cost-competitive. And while there are various ways to do that, one way is the people factor.

 

We also set aggressive cost-cutting goals. Rather than 3 percent or 5 percent reductions, I asked for 30 to 50 percent. At first, people think it is impossible; then the creativity flows. It’s amazing what people come back with-totally new ways of doing things. In procurement, for example, by automating purchasing activities and empowering people to do their own purchasing of smaller value items, we reduced costs by more than 30 percent.

 

We also introduced “100 Day Projects.” We do a lot of product development with our customers-typically one- to five-year R&D efforts. We decided to accelerate our commercialization process. We looked for projects where there was urgency from the customer and on our side, where both parties were willing to commit resources to work more quickly. Essentially, the goal became starting from scratch and bringing a product to market within 100 days. One example was a new adhesive for electronic equipment; another was a skin care product for a personal care company. Having that “impossible target” energizes people. A little stress is healthy; a lot is bad. That is the philosophy here.

-J.P.

 

Photos


 How to Realize Impossible Possibilities

 

Ethan Allen CEO Farooq Kathwari says one of his secrets is setting “reasonably impossible” goals.

 

How do you set “impossible” goals without completely demoralizing employees?

We all have a tremendous ability to stretch ourselves. Two years ago, I had an opportunity to climb Kilimanjaro. They didn’t tell us that on the last day we would be climbing from 11,000 to 15,000 feet, then after a few hours climb the rest of the night to 20,000 feet, and in the morning start walking down to reach the base camp the next night at 9 p.m. If they had, we might have said, “They must be crazy. We can’t do that.” But somehow, when given the opportunity, you find the capacity to do what would be considered impossible.

 

When I talk about impossible goal setting, I also use the word “reasonable,” meaning that in the judgment of the people making things happen, it cannot be completely irrational stretching. I’ve seen that when you establish that kind of a deadline, people meet it.

 

What kind of reasonably impossible goals have you set forth?

About six or eight weeks ago, I got the troops together and said that instead of introducing a major program to consumers next spring, we will do it this fall. There was shock, disbelief, and then they said, “All right, now what do we have to do?” And now we are doing it. But I also have to make sure I help them in the process. I can’t just say “Do it” and then leave. Leadership requires not only that you create these reasonably impossible goals, but that you are part of the process yourself.

 

What role do you take?

About eight weeks back, I established a six-month period within which we wanted to appoint 100 project managers who would help our design consultants become better by reviewing their work. It has now been eight weeks, and we have 65 in place. Along the way, I was interviewing and reviewing to help with decision-making. Most organizations lose time because decisions aren’t being made, which is where the CEO must step in.

 

At a time when cost reductions are the norm, you increased pay for some employees by as much as 40 percent. Why?

First, we didn’t want to take the best people from our stores to fill those project manager positions, because they were working as design consultants with our clients. Second, our compensation structure was primarily incentive pay. Incentive pay is good, but it can take three to five months for a new person to get to a good total compensation; meanwhile, they have to eat. Because that would discourage people from joining the company,  I decided to give them a higher base pay right away.

About Jennifer Pellet

As editor-at-large at Chief Executive magazine, Jennifer Pellet writes feature stories and CEO roundtable coverage and also edits various sections of the publication.