Packaging isn’t terribly sexy—but don’t tell Ilene Gordon that. To hear the president and CEO of Paris, France-based, Alcan Packaging tell it, there’s plenty to thrill and excite about the alchemy of turning resins, aluminum, paper and glass into innovative containers for food, beauty products, pharma and tobacco.
“I love packaging,” says Gordon, who credits her enthusiasm in part for her success recruiting and motivating employees in a competitive industry. “I’m able to get people excited; people on my team glom onto my energy and optimism.”
But Gordon, who also serves on the executive board of Alcan’s Australian parent, the mining company Rio Tinto Alcan, brings much more than a positive outlook and passion for packaging to Alcan Packaging, which employs 31,000. The 55-yearold’s formidable background began with undergrad and MBA degrees from MIT followed by four years with Boston Consulting Group and then a 17-year stint with Tenneco Inc., where she headed up the behemoth’s folding carton business and served as vice president of operations. Next, she rounded out her packaging background by joining Pechiney Plastic Packaging, which was merged with Alcan, a
Gordon took the CEO seat at Alcan’s packaging business in 2006, just before the entire company was acquired by Rio Tinto for a hefty $38.1 billion in July 2007. Analysts immediately speculated that the company’s packaging arm would be sold off—and continue to do so today. But Rio Tinto, a mining company whose businesses align most closely with Alcan’s aluminum and metals divisions, may have difficulty unloading the $6.2 billion packaging unit in today’s tight capital market. What’s more, the packaging industry as a whole is grappling with a number of challenges, including rising raw material costs, pressure around sustainability and the demands of increasingly global customers.
But acquisition rumors and industry pressures don’t faze Gordon, who has always found a way to thrive in difficult circumstances. Attending MIT back when the male-to-female ratio was 18 to 1, she graduated summa cum laude and is well versed in navigating a male-dominated industry. “It was perfect training for the environment of the business world then,” reflects Gordon. “Today, with so many women in most organizations, we forget what it was like back then.”
Her vision for Alcan Packaging is centered around expanding the company’s global footprint and creating innovative packaging solutions that trump cost as a selling point. Sales in emerging countries grew from 5 percent of total sales in 2003 to 18 percent in 2007—and Gordon intends to continue that trajectory. “There’s no reason why that number won’t be 25 percent in the next few years,” she asserts.
Alcan is also actively pursuing innovations that will help it stand out from competitors. Companies whose packaging consists of Alcan’s Ceramis film, for example, can boast that no solvents or other chemicals are used during the production process, so there are no emissions to impact the environment. What differentiates competitors in the packaging industry are innovative features like packages that open more easily, provide a longer shelf life, lessen environmental impact or take up less space so that customers can display more product per square inch, Gordon explains. “The right package—like plastic cans for
She points to tamper-proof packaging as an innovation area that currently offers the most potential for packagers. Packaging that incorporates holographs or other printing technologies can help manufacturers and retailers prevent counterfeiting or spot counterfeit product.
But while such innovations are in hot demand, Gordon recognizes that end customers are only willing to pay so much for packages that can identify a counterfeit product, zip open or biodegrade. Even Wal-Mart, which professes to place a premium on sustainable packaging, isn’t willing to actually fork over a premium for meeting that ideal.
“If you have innovation you can deliver value, but the challenge is to bring that innovation at a cost that customers will accept for that product,” notes Gordon. “An extra 10 cents might be affordable to package a $5 pack of cigarettes, but not for a bag of potato chips.”Alcan, however, has an innovation edge in its global footprint. The company already has 130 factories in 31 countries, including a recently opened facility in
Oil price spikes, reeling markets, the implosion of global companies—clearly, the onward march toward a borderless world economy has hit a few roadblocks. Yet even as economies across the globe grapple with uncertainty and calls for greater regulation, corporations recognize that the current crisis brings growth opportunities along with challenges.
Those enterprises able to effectively employ innovations and advances in information technology, fast-cycle logistics and transportation networks will emerge from the current chaos positioned to sell and source globally—at a profit. “The opportunities are bright as long as we can get to them,” David Bronczek, president and CEO of FedEx Express, told CEOs gathered for a roundtable discussion sponsored by FedEx. “Getting to them—and getting to them profitably— is the challenge.”
Already, some companies are finding growth in international markets can compensate for a sluggish
For Bronczek, international global profitable growth ranks first on FedEx’s “critical few” list of priorities. Demand in growth markets such as
“We’ve become top-heavy in terms of resources we put in the
However, the crisis in the U.S. financial, housing and auto markets— all major customer bases for FedEx—only intensified the need to reorient toward growing markets. A drop in oil prices helped offset some of the downturn, and November brought a bigger boon when competitor DHL announced plans to exit the
Communicate and Conquer
The pressure is on to build up capabilities in markets like
FedEx works feverishly to address issues like that, in the meantime steadying relationships by meeting quarterly with each of its 100-plus major global accounts to assess and address priorities. “If it’s not me, it’s my executive vice presidents or it’s Fred,” said Bronczek. “We talk about their global needs and their global portfolios, and they tell us what they need and where they want to grow.”
“It’s about customization, about customer intimacy,” asserted Larry Chaityn, CEO of New York Citybased True North Global. “You need to know your customer on multiple levels. So ask the questions, understand how your customers do business and what they need. That’s how we see our clients being successful.”
FedEx is taking a proactive approach to a challenge facing all large companies, noted Anil Gupta, professor of strategy and entrepreneurship at the
To Gupta, the answer is both physical— managing the repositioning of resources FedEx is homing in on— and psychological—changing the mindset of the company. Managing the latter, he hypothesizes, may require repositioning not only financial resources but management.
Location, Location, Location
“If 34 percent of the market opportunity is in Asia and only 2 percent of the top 200 managers are from Asia or sitting in Asia, then we have a 10,000 mile gap between where the opportunities are and where the power sits,” he pointed out. “When you have that gap, your insights will be faulty or delayed and your actions will be delayed.”
Some companies, he points out, are exploring addressing that issue by placing top executives in growth markets. In 2006, for example, Cisco moved Wim Elfrink, EVP of Cisco services and chief globalization officer, from
“That’s a good point,” agreed Bronczek. “When I went to
A company culture that translates well internationally eases the transition, he added. “One thing I found was that people worldwide, from
To hear iShares' Lee Kranefuss tell it, hawking investment products in today's brutal marketplace isn't as daunting as one might think-at least not if it's ETFs you're peddling. In fact, the Global CEO of Barclays Global Investors (BGI) iShares reports that in today's tumultuous environment the already-popular arena his company plays in is now attracting even more investors.
Volume reports for the volatile months of September and October support the claim. In September, ETF trading volume reached record highs, accounting for as much as 40 percent of total
Of course, volume rises when investors flee a vehicle, but that's not the case here, says Kranefuss, 47, who reports that by the end of September equity mutual funds had seen outflows of $71 billion year-to-date while ETFs reported inflows of more than $89 billion. "In times of volatility, people value even more the ability to have broad diversification, to move quickly, to know what they are holding and to know how much they are paying without having to wait until the end of the day," he says. "People are voting with their dollars."
While not quite gloating, there is a definite note of satisfaction-perhaps even vindication-from Kranefuss these days. "One of the claims of active management has always been, ï¿½ï¿½In times of trouble, we can avoid problems,'" he points out. "But to outperform the market, active managers try to load up on things that will do very well. And the flip side of that is if they load up on things that do very badly, you're worse off." What's more, he notes, mutual funds don't disclose their holdings until the end of a quarter- which means investors can get blindsided by an overweighting in, say, the financial sector. ETFs, by contrast, make holdings public on a daily basis, a valuable commodity now that transparency is suddenly highly prized. And finally, ETF fees are lower (30 basis points on average) than those of their mutual fund peers, which typically are in excess of 1 percent.
The ETF vs. mutual fund argument is one Kranefuss, who came to iShares shortly after BGI introduced its first ETF in 1996, has made many times over the last decade. Charged with building investor interest in the asset class and driving the development of new fund offerings, the Boston Consulting Group alum performed his task admirably. He spearheaded iShares' growth from a handful of funds and $2 billion in assets in 2000 into the ETF behemoth it is today. iShares is currently the world leader in ETF funds, with 330 funds globally, assets in excess of $350 billion and 600 employees worldwide.
It may have helped that ETFs as a whole were winning favor with both investors and the financial journalists who make a living touting investments. Or possibly it was iShares, which took a near-evangelical approach to promoting the low fee, broad diversification and trading flexibility ETFs offer to financial advisors and their clients, that helped the category as a whole.
"We have a joke internally that we've sold an awful lot of ETFs for our competitors- in some cases more than they have sold themselves," says Kranefuss, with a laugh. "But that's okay. It's good to have competition in the marketplace and people want choice."
These days ETF-hungry investors have plenty of that-there are now more than 1,499 ETFs available globally (681 in the
Kranefuss, however, has no plans to consolidate. In fact, quite the contrary. "We are continuing to bring product out," he says, noting that iShares is slower to market than some fund managers. "Because we're in it for the long term and because parts of our clientele are large institutions and financial advisors, we have to make sure we're building products that live up to the quality standards we're comfortable with. In some cases, we would love to have [an iShares version] of some products on the market; we just can't figure out how to do one quickly that would match our standards."
Over time, Kranefuss sees the ETF industry expanding to the point where virtually every asset class-including currency, real estate and venture capital- is available in ETF form. "Why shouldn't you be able to access any part of the market with one trade through any broker into any brokerage account?" he asks. "The answer is just engineering, figuring out how to get every investable asset class into an ETF. And there is a huge amount of effort going into that."
Today, CEOs rely on their senior teams or sometimes several teams more than ever. Thanks to an ever-more-complex operating environment, the challenges of competing in a global marketplace and a mind-boggling pace of change, the leadership role is simply too complex for one person, no matter how talented he or she may be. In fact, increasingly the most effective leaders are not the "heroic CEOs" who can do it all, but those who are able to assemble and energize effective senior-level teams.
Yet many CEOs fumble in creating and directing a leadership team. In fact, less than 25 percent of senior teams actually realize their potential, according to a recent study by the Hay Group that examined more than 120 senior teams in 11 countries. "Most of the really important decisions get made in other forums," Ruth Wage-man, director of research for Hay Group, told CEOs gathered for a recent roundtable discussion cosponsored by Hay Group and Chief Executive magazine. "In fact, rather than creating synergy, what most leadership teams are doing is trading reports. And members, including CEOs, typically find the teams to be sources of frustration and alienation rather than a place where real leadership happens."
What factors hamper the top talent in their mandate to pull together and move the company forward? Several CEOs pointed out that one or more "derailers"- team members who are dead weight for whatever reason are often at the root of the problem. Inevitably some senior executives will continue to focus more on their individual roles than on the team's shared work. "A lot of people just can't make that leap," says Anne Drake, CEO of DSC Logistics. "They're used to just doing their piece, and they just can't step outside of what they're used to in order to view the whole enterprise."
In other cases, egos clash, noted Ronald Naples, CEO of Quaker Chemical. "Following isn't easy when you're in the C-suite," he points out. "People tend to think of themselves as leaders rather than followers."
Hay Group's researchers actually looked into the common denominators of "derailers," by asking experts to look at the individuals most likely to crater a team and identify what those people had in common. "Most typically it was, ï¿½ï¿½Will not support the strategic direction of the CEO and is actively undermining it in some way,"' reports Wageman. "Second was an inability to take an enterprise perspective." In many cases, however, the latter issue can be remedied through coaching the employee on embracing his or her enterprise leadership role, she adds.
Feigned collaboration that masks problems plaguing a team can also contribute to a lack of effectiveness. Often a leadership team will seem to be functioning in harmony on the surface yet fail to be productive. "I wouldn't call it derailing, because I don't think anyone is necessarily malicious," says Hassan Ahmed, chairman of Sonus Networks. "But people haven't bought in 100 percent, and the team's effectiveness goes way down."
Lack of clarity as to what, exactly, the team is charged with doing is another stumbling point. "Is it a decision- making team, a consultative team, an information team?" asks Wageman. "What do you want them to do on behalf of the organization? The team cannot decide that. The CEO must."
Fixing the Focus
What can CEOs do to create and sustain a leadership team whose members learn from one another while collaborating effectively on a shared mission? One clear prerequisite for success is to create a clear and compelling purpose for the team. The CEO must be crystal clear about a team's purpose and boundaries. CEOs, for example, should be clear about which decisions they want the team to resolve versus which decisions they reserve for themselves.
When a Team Fails
To illustrate some of the common failings companies fall prey to in assembling senior teams, Hay Group's Ruth Wageman describes a real-world scenario about a CEO in office for a year whose company is embarking on a new strategic direction after a merger. "He's creating more interdependence among the [various] offices, saying, ï¿½ï¿½There's really no justification for separate practices, services and functions within each country,'" she explains. "ï¿½ï¿½We want to create the focus, clarity and independence needed to do what's right for a particular set of customers and free up costs that don't add value.'"
The CEO assembles a team of 14 leaders and spends a week with them clarifying the new operating model and the roles and responsibilities of the leaders in implementing the strategy, then charges them with helping to chart the company's future. Within a few months, however, it's clear something is amiss. Each team member is continuing to operate pretty much as they always have. Members are repeatedly returning to the same issues, energy levels at group meetings are very low and when asked to make a joint decision, the team can't come to consensus. "Where," asks Wageman, "did this CEO go wrong?"
"First, he's got too many direct reports," suggests Eran Broshy, executive chairman of InVentiv Health. "Second, after being locked up together for a week they probably all hate each other. Third, rather than bring a lot of people together at the same time, you should start at the other end, talking to people individually about the road map and where they see themselves fitting in."
For Andy Taylor, CEO of Enterprise Rent-A-Car, the transition from independence to interdependence is one that must be handled with greater delicacy. "Expecting people to make that shift without laying the groundwork for the two acquisitions to come together could be a recipe for a lot of friction and under-the-surface tension," he points out.
Transitions can be particularly trying following an acquisition, adds Donnelly, who points out that often there will be those among a CEO's senior talent who will resist the new entity's structure or direction. "In an [acquisition scenario], there are always going to be some people who maybe for ego or other reasons won't play ball," he notes. "When that happens, you end up having to make changes. Replacing people sends a signal but so does not replacing people. The lesson there is not to wait too long to replace the underperformers."
How to fix the issue? Create a common destiny, suggests Al Ehrbar, president of EVA Advisers. "When you have a frank discussion about the need for collaboration and a common destiny, these problems tend to go away," he says. Once you get the message of what it is you want to achieve and why that will be good for the company, people sign up and begin behaving differently."
Ultimately, says Wageman, CEOs must also define a compelling purpose for the team. "It's really about defining the work of the team and what [each person's role is] in accomplishing that work," she says.
The next hurdle is to choose leaders who will be effective contributors to the team. Some CEOs feel compelled to include everyone at a certain level of the organization, which can lead to a team size too cumbersome to meet regularly and have robust dialogs. "Don't fall into the trap of thinking you have to be inclusive," warns Gene Bauer, managing director of Hay Group. "I learned the hard way that you don't have to have all your direct reports on a team."
Other business leaders steer clear of strong personalities. But while potentially combative team members may jeopardize team cohesiveness, letting the desire for harmonious collaboration dictate your choices is equally dangerous, warns Robert Donnelly, CEO of Compact, who shuns compliant personalities in favor of "troublemakers with passion."
Six Steps to Effective Team Leadership
In a study of 120 senior teams in 11 countries, the Hay Group found that CEOs themselves aren't always clear on the decisions they want a leadership team to resolve versus those they reserve for themselves. The research findings identified six steps that increase the likelihood of a senior team evolving into an efficient and effective unit capable of leveraging its collective expertise to address an enterprise's most important challenges and opportunities.
"Indifferent teams are made up of indifferent people," he asserts. "Building a team is not about getting people who can work together. It's about getting strong people who may have strong differences and finding a way to get the most out of them."
In creating an effective environment in which a team will operate, CEOs must also balance the need for guidelines on conduct with allowing a team the flexibility to be creative. "If you keep it too strict, you could miss out on some great opportunities for people to come up with creative ideas," says Gloria Bohan, CEO of Omega World Travel. "There's more than one right way to do a job."
As the primary motivator of any senior team, CEOs must also "walk the talk," demonstrating the same kind of commitment they expect of the team members. CEOs should check in regularly with individual team members for feedback on the team's progress and, when charging a team with strategic decisions, be prepared to accept its findings. "If a team comes back with an unexpected recommendation, a lot of CEOs have a tendency to either reject it or try to sway the team," says Al Ehrbar, president of EVA Advisers. "I think that's a big mistake. If you trust the people on your team, and they're doing what you tasked them to do, then trust their judgment."Finally, the respect or lack there of a CEO evidences for a team can be a huge influence on team members' commitment to that team. "Pay the same exquisite attention to detail in your preparation for your leadership team meeting that you would put into your preparation for an analyst call, a board meeting or a meeting with a key client," advises Wageman. "And don't over-challenge the individual team members and under-challenge the team. Raise the level of expectation for the team as a whole."
Hassan Ahmed is chairman of Sonus Networks, an IP-voice telecommunications equipment provider based in
Gene Bauer is managing director,
Gloria Bohan is president, CEO and founder of Omega World Travel, a provider of travel services based in
Howard Brodsky is chairman and CEO of CCA Global Partners, a cooperative of independent retailers based in
Eran Broshy is executive chairman at InVentiv Health, a provider of commercial and clinical pharmaceutical services based in
Ron Cohen is president and CEO of Acorda Therapeutics, a biotech company based in
J. P. Donlon is editor-in-chief of Chief Executive Magazine.
Robert Donnelly is CEO of Compact, a process controls solutions provider based in
Ann Drake is CEO of DSC Logistics, a supply chain management solutions provider based in
Al Ehrbar is president of EVA Advisers, a hedge fund manager based in
Farooq Kathwari is chairman, president and CEO of Ethan Allen, a home furnishings retailer based in
Jane Landon is chief information officer, City of
John Larrere is general manager of Hay Group's
Ronald Naples is chairman & CEO of Quaker Chemical, a specialty chemical company based in
Andy Taylor is CEO of Enterprise Rent-A-Car, a rental car company based in St. Louis, Mo.
MG Keith Thurgood is commander and CEO of the Army and Air Force Exchange Service, a provider of products to military families.
Ruth Wageman is director of research at Hay Group.
Chances are good that there's a Robert Bosch GmbH product under the hood of whatever car you drive. Founded in
And that's exactly what Peter Marks, CEO of Robert Bosch LLC, the company's North American arm, aims to do. "This year, for the first time in our history, we'll have negative growth in our automotive business, he says. We anticipate car sales in
Marks is banking on leveraging Bosch's strength in innovation to offset that dismal news. And for good reason: Bosch plows an impressive 7.7 percent of sales back into R&D and dubs any day when it produces less than 14 patents a bad one.
The company, Marks points out, has long built its success around innovations in technology many geared toward fuel and energy efficiency. For example, Bosch developed a direct-injection diesel engine that uses less fuel and emits less CO2 than comparable gas engines and is now poised to launch a next generation engine that will further improve diesel fuel efficiency.
Today, increasing economic pressure for fuel and energy efficiency as well as consumer enthusiasm for environmentally conscious products suggest several growth opportunities in the automotive industry, he notes. "We see a lot of opportunity for [diesel] in the
Other auto-related energy efficient technologies include the company's engine-management systems for natural gas and alcohol-powered cars and its Smart Electronic Start/Stop System, which saves fuel by automatically stopping a car's engine when the car is in neutral and restarting it when a driver applies pedal pressure.
But Bosch seems most interested in broadening its base beyond the automotive sector. Marks points to both industrial technology where the company dominates as an independent producer of wind turbines and thermal systems solar panels and geothermal heat pumps for the home as two growth areas. "We still see growth potential in automotive, but industrial technology has even more growth potential," says Marks. "And then thermal systems, because North American households will have the need for more efficient heating and air conditioning systems. So we see tremendous growth potential there."Finally, a joint venture with Siemens AG aims to bring Bosch products into as many kitchens as cars in the
|Leigh J. Abrams is president, CEO and director of Drew Industries, a manufacturer and marketer of recreational vehicles based in White Plains, N.Y. Howard Brodsky is co-founder, chairman, and co-chief executive officer of CCA Global Partners, a floor covering company with annual sales of $10.2 billion based in St. Louis, Mo. Mark George is managing partner of the George Group Consulting arm of Accenture, headquartered in Dallas. Tig Gilliam is Chief Executive Officer of the Adecco, USA division of Adecco S.A., a workforce solutions company with offices in 70 countries. Christina Gold is president and CEO of Western Union Company, based in Englewood, Colo. Edward M. Kopko is chairman, president and CEO of Butler International based in Ft. Lauderdale, Fla., and chairman, CEO and publisher of Chief Executive magazine. Mark Manoff is vice chairman, NE managing partner of Ernst & Young, a global leader in assurance, tax, transaction and advisory services. Peter Marks is chairman, president and CEO of The Bosch Group in North America. Anne Mulcahy is chairman and CEO of Xerox Corporation, a $17 billion document management technology and services enterprise based in Norwalk, Conn. Muriel (Mickie) Siebert is founder, chairwoman and CEO of Muriel Siebert & Co., Inc., a discount brokerage firm based in New York City. Jeffrey Sonnenfeld is chairman and Chief Executive Officer of the Chief Executive Leadership Institute at Yale University. Martin Sullivan is the former CEO of New York-based American Insurance Group, an international insurance and financial services organization with more than $750 billion in assets under management. Richard Thompson is CEO of Zootoo.com, an online community resource for pet owners.|
In the new economy, value isn't where it once was. Solid, quantifiable assets like plants, equipment and inventory are now often far less indicative of a company's value than intangibles like ideas, relationships and expertise. For companies like Microsoft, Google and eBay, those "soft" assets are what will determine future earnings-and, as such, can represent as much as 80 percent of total market value. Yet, because intangibles by nature defy quantification, they're rarely managed by businesses with the same integrated, ROI-centric management philosophy traditionally applied to physical assets.
In fact, only one-third of executives polled in a 2004 survey conducted for Deloitte Touche Tohmatsu by the Economist Intelligence Unit claimed that their companies were proficient at monitoring critical non-financial indicators of corporate performance, let alone managing them effectively. Instead, management and boards have tended to focus their energy on budgets and operational performance, taking the value of intangibles like intellectual property, brands, customer relationships and human knowledge and talent for granted.
But that focus is shifting. Increasingly, companies are recognizing that in the drive for growth amid turbulent economic conditions, intangibles may be hidden gold, pointed out CEOs gathered for a recent roundtable discussion. (See p. 59 for a "mental map" of intangibles that can be leveraged to drive growth.)
"In 1990, IBM's global licensing revenues were $30 million," points out Drew Morris, CEO of Great Numbers! LLC. "By 2003, that had grown-basically just by deciding to do it-to $1 billion. That's a 3,200 percent increase." In short, IBM turned soft assets-a bunch of patents not being used-into a revenue-producing licensing business.
Profit from Patents
The specialty pharmaceutical company Barrier Therapeutics was founded on similar intangible assets. A spinout of Johnson & Johnson, Barrier "started life as an adolescent" thanks to unused patents it licensed from J&J, recounts CEO Al Altomari, a former J&J executive. "We said, ï¿½ï¿½If you give us rights to these patents sitting on your shelf that you're never going to monetize, we think we can put enough of a value proposition together to build a company,'" he says. "We have no assets other than our people and our IP. We're running a pharmaceutical company without owning a warehouse, a plant or a lab."
But even Barrier-where it was always clear that intangible assets would be the primary driver of growth-initially overlooked the value of some of its soft assets, adds Altomari. "Initially, our patents represented 90 percent of the value of our company," he says. "Now I would say it's 50 percent patents, 50 percent people. I've learned that the people in my industry are just as critical to the value creation."
Of the 30 core people involved in Barrier's early days, Altomari estimates that 25 hailed from J&J. He pegs their average age as 55. That translates to bringing a boatload of Big Pharma experience-and invaluable industry relationships-to the company's launch. "We have someone on our staff who's been dealing with the FDA for many more years than she will let me say in public," he says, crediting that experience in part for the company's smooth relationship with its industry regulator. "Our [relatively small] company had 2 of only 32 [New Drug Approvals] granted by the FDA in 2006."
Human capital-and the ability to mine that capital-is widely recognized as one of the more powerful intangible assets. Yet many companies struggle to find ways to maximize the ROI on their investment in talent, agree CEOs. "It's not just about having the people," notes Lyndon Faulkner, CEO of Pelican Products. "It's creating an environment where those people can flourish doing what they're doing."
A work force engaged in a company's mission-one with passion-can impact competitive positioning at virtually every level: from boosting productivity and strengthening customer relationships to controlling costs. "We've all been in meetings where there's a deadline tomorrow, and if someone works a bit later that night, we'll meet the deadline-and if they don't, we won't," notes Eric Mosley, CEO of Globoforce. "It's that discretionary effort that drives a company forward."
Most companies rely on incentive compensation to drive employee engagement. At Heartland Payment Systems, CEO Robert Carr recounts cutting a deal with employees who were being paid $10.50 an hour. "I said, 'We'll increase the pay here by 50 percent if we can get more out of the organization with an equivalent amount of spend,'" he says. "Today we're three times the size that we were, turnover is down, we have the best service we've ever had, and that's all become part of our culture. Our employees don't tolerate people who aren't doing a good job because they've seen the benefits of their productivity increasing."
Leigh Abrams, CEO of Drew Industries, reports achieving similar success with a bonus program and profit pool that makes his employees the highest paid in their industry. A factory manager at Drew Industries can earn up to 50 percent of his annual salary in quarterly bonuses if he hits certain targets and receive another year-end bonus based on the size of the profit pool. "We never miss a deadline he says. "Because every single manager in our company knows that his year-end bonus and his quarterly bonuses are based on making those goals."
Better still, managers and employees down the line are so invested in the profitability of the company that they take a proactive stance on keeping costs in line with revenues. When the manufactured housing sector they play in went into a decline-volume dropped by 75 percent between 1998 and 2007-Drew Industries' numbers didn't track the drop. "Last year, our sales were down about 8 percent but our profits were up 28 percent," says Abrams. "I didn't have to do anything. People said, ï¿½ï¿½Business is down, we've got to cut overhead,' and they cut $28 million."
While most companies have incentive programs, not all incentive programs are effective, cautions Mosley. "We advise companies to lower the amount of the cash value of their incentive rewards and increase both the percentage of employees receiving them and the frequency at which they're distributed," he says. "Every time people are given an award they're reminded about the value of the company. So if you're touching only 15 percent of the workforce once a year rather than 80 percent quarterly, you've lost a real opportunity."
To be effective, bonuses must also be firmly tied to performance. "Otherwise," notes Carr, "it's called an incentive plan, but everyone considers it their base pay."
Robert Donnelly, CEO of Compact, sees customer relationships as his company's biggest intangible asset. "This is a battle for the customer's mind," he asserts. "Our goal is to own the plant engineer, and the way we do that is by convincing that engineer that we're able to help them engineer a solution to whatever problems they have."
For many companies, the value of customer relationships and brand go hand-in-hand. For example, Pelican Products, which makes protective cases primarily for the military, enjoys a reputation in its industry for unparalleled quality.
A company's reputation hinges on many factors, from product and service quality to the credibility of management and leadership, agrees Leslie Gaines-Ross, chief reputation strategist at Weber Shandwick (See sidebar, p.60). "You really understand the power of reputation as an intangible when you lose it," she points out. "What happened to Bear Sterns stock price is a good example. Unfortunately, the downside is a way to measure the importance of intangibles."
While overall reputation can be difficult to measure, there are ways to quantify the value of a brand. "One is called excess earnings, where you base the value on how much more of a return you're getting than you would with an unbranded product," says Morris. "Another is relief from royalty, where you model what you would have to pay as a royalty to use the brand if someone else were to own it." Neither is an exact science, which is the case with most intangible asset valuations-and at the root of why companies often fail to recognize that value, much less maximize it.
"Our job as CEO, is basically to go find the higher results inherent in the business that are latent," notes Morris. "Pick a few you think are promising and measure as you go. It's one of the more exciting and rewarding adventures you can have as a leader."
"Getting more out of these intangible assets can be the most powerful way to boost results. For examples of that power and how executives have tapped it, visit http://www.greatnumbers.com/IntangibleAssetsRoundtable.cfm
The Hidden Wealth of a Good Reputation
Reputation is increasingly recognized as a vital intangible asset and proven wealth generator. Total shareholder returns for the top 50 world's most admired company all-stars greatly exceed those of the S&P 500 over one-, three-, five- and 10-year periods (Hay- Group). The value of a good reputation continues to grow largely because of the competitive advantage and market differentiation it delivers-higher sales generated by satisfied customers and their referrals; relationships with the right strategic and business partners; ability to attract, develop and retain the best talent; benefit of the doubt by stakeholders if crisis strikes; spread of positive word of mouth; potential to raise capital and share price; and in some cases, the option to charge premium prices. Also, in an age of regulatory watchdogs, a positive reputation can improve relationships with government officials and regulators.
According to Weber Shandwick's Safeguarding Reputation™ with KRC Research, global business influencers estimate that a significant 63 percent of a company's market value is attributable to reputation. Because reputation is so widely recognized as a distinctive intangible asset and critical factor in how companies are valued today, the consequences of a damaged reputation run far and deep. Without a doubt, the convergence of globalization, instantaneous news and online citizen journalism magnifies any corporate wrongdoing or other misstep. Barely a day goes by without some company facing new assaults to its reputation. Weber Shandwick's "stumble rate" reveals that over the past five years three-quarters (79 percent) of the world's number-one most admired companies lost their crowns in their respective industries.
Reputation recovery is a hard-won battle. Not only are reputation failures perceived to be escalating-a majority of global business executives believe that it is harder to recover from reputation failure than it is to build and maintain reputation. The process is neither easy nor short-term. Reputation recovery takes approximately three and one-half years. This figure squares with former Chairman and CEO Lou Gerstner's assessment of IBM's reputation recovery that began in 1993: "By 1997, we'd declare the IBM turnaround complete." When compared to a race, reputation recovery is often more like a marathon than a sprint. Unfortunately there is no completion date.
The sheer number and severity of corporate falls from grace in the last few years have magnified the need for a viable framework for the repair and recovery of damaged company reputations. Every organization deserves the opportunity to redeem itself and in many cases, second-act performances can surpass the first. Knowing how to build a reputation may no longer be enough. The greatest intangible asset of them all may be knowing how to protect and restore a good name.
Leigh J. Abrams is president, CEO and director of Drew Industries, a manufacturer and marketer of recreational vehicles based in
Al Altomari is CEO and director of Barrier Therapeutics, a specialty pharmaceutical company based in
Robert O. Carr is chairman and CEO of Heartland Payment Systems, a payment processing company based in
Robert M. Donnelly is CEO of Compact, a process controls solution provider based in
J. P. Donlon is editor-in-chief of Chief Executive Magazine, based in
Lyndon Faulkner is president and CEO of Pelican Products, a marketing and manufacturing firm based in
Leslie Gaines-Ross is chief reputation strategist of Weber Shandwick, a public relations firm based in
Edward M. Kopko is chairman, president and CEO of Butler International based in
Drew Morris is CEO of Great Numbers! LLC, a management consulting company based in Red Bank, N.J.
Eric Mosley is CEO of Globoforce, a provider of strategic recognition platforms based in
Dr. Leslie Gaines-Ross is the chief reputation strategist at global public relations firm Weber Shandwick and author of CEO Capital: A Guide to Building CEO Reputation and Company Success and Corporate Reputation: 12 Steps to Safeguarding and Recovering Reputation.
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Forget capital, strategy, R&D. In today’s fast-paced, global economy, the most important criteria for success may well be a robust, active process for identifying, developing and retaining leaders three or more levels below the CEO.
The role talent development plays in a company’s success is hardly news. After all, a smooth succession is the mark of a world-class chief executive and widely viewed as the most important duty performed by a leader and his board. But despite the intense attention paid to the selection of and transition to a new CEO, succession is a far from perfect science. In any given year, chances are good that you can find one or more headline examples of a troubled transition. Witness Howard Schulz, who recently returned to the helm at Starbucks to perk up the flagging coffee company. Or Michael Dell, who reclaimed the top seat at his namesake company early last year, looking to pull a Steve Jobs-style founder recovery effort. In fact, with Jack Welch ripping into his anointed successor for missed earnings, even the much-celebrated GE succession story is looking less than stellar.
That companies falter at even this most critical of leadership development endeavors underscores the challenge CEOs face in nurturing new leaders—whether for the CEO post or for leadership roles two to three levels down the line. What’s more, it’s a challenge growing ever more complex as global expansion both heightens the need for executives with transnational capabilities and brings potential leaders from different cultures and with different native languages into the talent pool.
While human resources and managers throughout the company play significant roles in developing talent, responsibility for meeting that challenge ultimately rests with the CEO, agreed business leaders participating in a roundtable discussion held in partnership with RHR International.
“Part of the CEO’s role is to ensure that the development of top talent fits the culture and values of the company—the culture as it is and the culture as it needs to be,” notes Tom Saporito, president of RHR International. “That’s a very sacred responsibility.”
What can CEOs do—what should they do—to influence the development of critical talent? Often, companies best known for producing leaders share a common trait: assiduous involvement of the boss. P&G’s A.G. Lafley takes time coaching regional leaders one-on-one to be “courageous and inspiring.” GE’s Jeff Immelt personally teaches up and comers on leadership style.
Personal involvement is also key for Ed Ludwig, CEO of Becton, Dickinson, who sees spending time with top employees at the company’s BD University as a way to both communicate the company’s values and to directly interact with potential leaders. “Our [high potential] employees attend a program called ‘Leaders as Teachers’ where top executives get involved in teaching the leadership development programs,” explains Ludwig, who usually spends four to five hours with each class himself. In addition to educating employees about the company’s expectations of leaders, the program serves to align employees strategically, adds Ludwig. “If you’re out there saying ‘this is what matters,’ chances are you’re going to walk that talk.”
Global, Mobile Talent
For an international company with a workforce spread out across the globe, building alignment is no easy feat, points out Bill Mitchell, CEO of Arrow Electronics.
Mitchell says uniting far-flung teams around a common goal is a crucial part of his role as CEO; he emphasizes that it requires nurturing a relationship of trust. “To do that, you’ve got to be out talking to people and having dinner with them,” he asserts. “You have to make it safe for them to tell you what’s really going on—the good and the bad. It can be complicated and messy, but if you can get alignment, a lot of good things start happening.”
At a time when people change companies more frequently than ever, alignment around a central culture and strategic mission is an increasingly elusive goal, agrees Saporito. “We are in a much more mobile society—there’s a whole new generation of people saying, ‘It’s about my career and where I want to move.’ How do you build a franchise when people are free agents willing to move from team to team?”
Some CEOs view a workforce of free agents as an opportunity. “The GE model—exporting four or five CEOs every year—does not work for most of us,” notes Sunil Kumar, CEO of International Specialty Products. “Most of us are importers of talent. To me the biggest aspect of leadership development is recruiting. There’s more risk, but it’s a bit like adopting grownup children. There’s some value to that.”
Three Obstacles of Assessment Identifying potential leaders and providing them with the guidance they need to grow into new roles may seem a straightforward enough task. But three common pitfalls often derail CEOs’ efforts to cultivate talent, says Tom Saporito of RHR International. Over-relying on experiences. There is no checklist that ensures someone is ready for a leadership role. “When people have all the right experiences, it’s tempting to make the assumption that they’re well prepared,” notes Saporito. “But that’s simply not true.” Looking back instead of forward. Leaders tend to look to the next generation for the same experience and qualities that made them effective, but leadership requirements change with the business environment. “You’ve got to look over the next hill and say, ‘What are we becoming and what does that mean in terms of the kind of new leadership required?’” asserts Saporito. Overprotecting a legacy. CEOs often struggle to accept a successor who is different from themselves. “They protect their legacy and try to create people in their own image,” says Saporito. “Often, that’s what makes succession fail.”
Three Obstacles of Assessment
Identifying potential leaders and providing them with the guidance they need to grow into new roles may seem a straightforward enough task. But three common pitfalls often derail CEOs’ efforts to cultivate talent, says Tom Saporito of RHR International.
Over-relying on experiences. There is no checklist that ensures someone is ready for a leadership role. “When people have all the right experiences, it’s tempting to make the assumption that they’re well prepared,” notes Saporito. “But that’s simply not true.”
Looking back instead of forward. Leaders tend to look to the next generation for the same experience and qualities that made them effective, but leadership requirements change with the business environment. “You’ve got to look over the next hill and say, ‘What are we becoming and what does that mean in terms of the kind of new leadership required?’” asserts Saporito.
Overprotecting a legacy. CEOs often struggle to accept a successor who is different from themselves. “They protect their legacy and try to create people in their own image,” says Saporito. “Often, that’s what makes succession fail.”
“I would argue that it’s a big risk, albeit a necessary one depending on your size and scale,” counters Saporito. “How do you have a high degree of confidence that the people you bring in will have the ability and the orientation and inclination to align with the philosophy, value and culture that make your company unique?”
At McCormick and Company, direct CEO involvement in both recruiting management talent and integrating that talent into the organization helps bring new hires into alignment. “I try to make sure that I’m personally connecting with high potential new hires really early on,” reports CEO Alan Wilson. “I go out and talk to every group of management hires about what it takes to be successful in our company. And I make an effort to reach out and help top talent with their experiences.”
Metrics and Incentives
Ideally, both managers and employees will also make development a priority, adds Glenn Fosdick, CEO of
By taking an active and visible role in nurturing leaders, CEOs can help inspire managers down the line to do the same. Several participants also reported that having a structured process in place to develop talent, using talent development criteria in performance evaluations and tying those criteria to compensation prove effective in instilling a culture that prioritizes development.
For Craig Rogerson, CEO of Hercules, a formal assessment process is the cornerstone of the specialty chemicals company’s ongoing effort to fix a “bench string” problem created when the company downsized several years ago. “We took a big head count reduction out of the middle layer, and now we’ve got to address that [gap],” he explains.
“We’ve got a lot of good technically trained managers, but there’s a big difference between good management skills and leadership skills. So assessing the next generation of leaders coming up is a real challenge for us. We’re using tools like 360-degree analyses and other metrics to address that.”
But metrics for evaluating development efforts can be murky, warns Mitchell. “We ask every senior manager in our company to identify what they will do in terms of talent development, and part of their compensation is based on how well they do that,” he says. “We try to hardwire it as much as we can. It doesn’t always work, but we have quarterly reviews with people about how they’re doing with those objectives. I find those to be very rich conversations.”
Leading Learning Helping high-potential employees grow is a complex endeavor, requiring exposure to the right experiences at the right times, as well as the necessary feedback to help them interpret and grow from those experiences.
“At the end of the day, there are three components to how talent gets developed in an organization,” points out Saporito. “First, people have to have the right experiences. Second, they need some kind of mechanism to process those experiences. And third, they have to have the inclination to learn.”
Sunil Kumar urges CEOs to provide growth experiences by moving high-potential employees into new areas of responsibility. “You tell a sales executive on Monday that he’s now responsible for manufacturing and place the manufacturing person in R&D or sales, then tell them to figure it out,” he explains. “It can be very effective.” Craig Rogerson recounts experiencing just such a move when he was taken from sales and given a group of plants to run at Hercules. “I was 31 and had never worked in a plant,” he recalls. “It was difficult for me, but good. It gives you a different perspective.”
Despite that positive experience, Rogerson sees the concept as potentially problematic. “It’s very tough to take that risk at a public company today, because if it blows up on you, how do you defend taking a sales executive and letting him run your most important plants?”
Bring in the Board
Calling upon experienced and involved board members can be a less risky way to provide growth experiences for up and coming leaders. Several CEOs reported making a point of bringing senior executives in front of the board on a regular basis, both to familiarize board members with potential leaders and to give the executives board presentation experience.
At The Nebraska Medical Center, senior leaders are also encouraged to visit with board members outside of board meetings to discuss challenges and ask for feedback. “We urge them to meet one-on-one outside of the office,” reports Fosdick. “Our board members are willing to take that time and we’ve found that our managers enjoy it and really good things come of those meetings.”
At Vermont Electric Power, board members sometimes take on a more involved role, in one case even chairing a working unit assigned to address an operational issue. “I take issues that we have and send one or more executives out to visit a board member and discuss it,” says CEO John Dunleavy. “It’s good exposure for everybody involved.”
For Craig Rogerson, CEO of Hercules, assessing the next generation of leaders has always been a “real challenge.” And now that challenge is intensifying with the company’s growth in international markets. “I believe that a lot of our good talent is outside of the
It’s a problem shared by an increasing number of CEOs as their companies extend their reach—and their workforces—on foreign shores. How do you create a fair and equitable process to develop a global talent pipeline?
For Sunil Kumar, CEO of International Specialty Products, the assessment process must be adapted to the individual employee. “If we’re assessing someone in
Tougher to address, says Kumar, are the cultural differences that can color perceptions of an assessment team. “To some extent you can do that by using a local team, but the metrics are still off,” he says.
“We’re better at getting exposure for American expatriates getting broadening assignments outside the
To compete for and retain top global talent, companies will need to develop an inclusive evaluation and development processes. After all, “intercultural facility” will be an essential capability for future leaders, notes Allen Parchem, CEO of RHR International. “There’s got to be a discipline to be inclusive and give serious consideration to the people in countries where you operate,” he says. “And that will mean going out into the field, whether it be to
J. P. Donlon is editor-in-chief of Chief Executive Magazine.
John Donleavy is president and CEO of Vermont Electric Power, an electric power company based in
Glen Fosdick is president and CEO of Omaha, Neb.-based The Nebraska Medical Center, which owns a 687-bed teaching hospital and portions of facilities in
Edward M. Kopko is chairman, president and CEO of Butler International, based in
Sunil Kumar is president and CEO of International Specialty Products, an $8 billion chemicals manufacturing company based in
Ed Ludwig is president and CEO of Becton, Dickinson, a $7 billion medical technology company based in
Bill Mitchell is CEO of Arrow Electronics, a $16 billion distributor of electronic components, systems and products based in
Al Parchem is CEO of RHR International, a global management consulting company based in Wood Dale,
Tom Saporito is president of RHR International.
Craig Rogerson is president and CEO of Hercules, a $2 billion global specialty chemicals com pany based in
Alan Wilson is CEO of McCormick and Company, a $3 billion seasonings and specialty food manufacturer based in
When Andy Prozes took the helm at LexisNexis in 2000, the com pany was the go-to resource for legal records, relied upon by law firms and corporate law departments as a one-stop resource for all manner of articles and public records. In fact, among the legal community, "LexisNexis" was practically a verb, as in "I'll Lexis it and see what turns up." That kind of brand equity-a name that's synonymous with the service you provide-is tough to come by.
As Prozes is finding out, it's also tough to change. Seven years later, LexisNexis is a very different company, but "the market doesn't understand that we're no longer a database company," says Prozes, who spent the last seven years working to transform LexisNexis from primarily a research entity into a strategically aligned, global solutions provider. "When I came on board, we were a very dispirited, [disjointed] company that was losing out to our prime competitor, Thompson," recounts Canadianborn Prozes, who has seen revenues rise from $1.9 billion (2001) to $3.2 billion (2007) under his tenure. "We needed to build a global organization that was unified under a common brand around a common strategy, and to focus on improving our products through a renewed emphasis on technology."
Prozes lost no time taking steps to bring the ailing collection of disparate country operations of Lexis- Nexis, a division of Reed Elsevier based in
to what we do in
Much of that additional technology came to LexisNexis through a series of acquisitions-35 over the past nine years-which had to be integrated into the company's offerings and sold to a client base spread out over more than 100 countries.
"Lawyers all over the world need to handle their practices, get new clients, handle litigation, apply for patents and so on," says Prozes. Delivering such information-based solutions to lawyers across the globe comprises the bulk of LexisNexis' total revenue-about 75 percent.
"RIA has grown dramatically, and continues to grow in the double digits," says Prozes, who says the credit card boom and security concerns are the principal drivers of that growth. "Laws about [privacy] are much more stringent here in the U.S. and in the U.K., which means that you have to rely much, much more on news articles to verify that people are who they say they are-and we have by far the largest database of news articles of anybody else on the face of the Earth."