Patricia Russo’s Strategies For Survival In Times Of Crisis

The CEO who led Lucent’s remarkable revival after the telecom crash of 2002 dissects disruption and leading in times of crisis.

Patricia Russo

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In 2002, Pat Russo took the helm of a company drowning in debt and decimated by the dot-com disaster. One of just six women CEOs leading Fortune 500 companies at the time, Russo deftly steered the company through the monumental challenge of retrenching after seeing its revenues slashed nearly in half, all the while bolstering morale among remaining employees.

Under her steady hand, Lucent survived the crisis, regained profitability and went on to strengthen its market positions in emerging areas like optical and wireless networks. Today, Russo serves as director of General Motors, Merck & Co., Hewlett Packard Enterprise and KKR. Chief Executive recently had the chance to talk with Russo about leading a company in times of turbulence. Excerpts of that conversation, edited for length and clarity, follow.

The telecom crash hit early in your tenure at Lucent. How did you respond?

When I took the job—I joined on the first day of January of 2002—the expectation was that the market would decline about 5 percent. As it turned out, the market declined almost, in our case, 50 percent. So what started out as a $19 billion revenue plan ended up in one year to be $12 billion. And, I will tell you, our cost structure was set up for $19 billion. So as you can imagine, revenue was dropping like a rock. All of this happened in my first four or five months. It was stunning.

We immediately just had to jump into action to save the company. We ended up having to do two convertible equity raises in order not to run out of cash… But we got into action. We formed a plan. We realized early on that being perfect was the enemy of the good. Our mindset became one of survival. We had to make very tough decisions very quickly and execute them.

We focused on the things we could control. We can’t control revenue right now. We can control costs. So we chipped away at our breakeven point. Actually, we hacked away at our cost structure because time was not on our side.

As you go through a reduction of half of your work force, how do you hold onto your key people and keep them motivated?

Look, it is exhausting. It is not at all fun. It’s incredibly unfortunate because we obviously couldn’t keep all of the people that made that company what it was during its booming time. How do you keep people motivated? For the people who I worked with, including the folks on the senior team, it was about saving the company. It was a matter of pride. It was a matter of working to preserve the assets as best we could, given the situation.

If you looked back at Lucent’s genesis, you could argue it was Western Electric in the Bell system so there was passion around we have to make this happen. None of us like it, but our job is to save this company for as many of our employees as we possibly can, for our customers, for our retirees. There was a sense of obligation that I felt, and I know the senior team felt, and that’s how you do it.

What key lessons would you pass on about leading in a time of crisis?

I learned there is a distinction between managing and leading. The planning, what actions will we take, who will do what by when, are management activities you do. But if you’re the leader of a group of people, in a really trying time, who you are and how you show up is really important. So I distinguished managing and leading. What do I mean by leading? For example, I never used words like, “I hope,” [as in] “I hope we get through this.” I said, “We will.” That’s just a simple example, but language from the leader of an organization in times of stress—body language, facial expressions and the words you choose—really matter. That was one of the key learnings.

Another is, especially for an organization used to doing things comprehensively, holistically, systemically, was that the perfect can be the enemy of the good. When you have to make quick decisions, roughly right is what you have to solve for because time is of the essence. Also I learned, and everybody learns this, you cannot over-communicate. Say it, say it again and then say it again.

Also, celebrate your successes. It’s important to find ways to help feel good about something. I measured how we were doing three ways. The first was, are we doing what we said we would do? You could still be burning cash, but if you’re doing what you said you would do, that’s something to acknowledge. The second was progress. Is it better than it was last quarter or the last time we measured it? It was important to me that we celebrated progress. And the third measure is, how much further do we have to go?

I never said to the organization, “We could go bankrupt,” but I was very honest and realistic about the severity of the situation and the toughness of the actions that we would have to take. I have found that people within an organization generally know when there is trouble. They see it, they know it. They want to know that you acknowledge it and you’ve got a plan. The last thing you want to do is sugarcoat a real problem when everybody else knows it’s a real problem. So genuineness in communication, authenticity in communication, being honest about the reality of the situation was helpful and, frankly, necessary.

Every now and then, I sat in my office with my CFO when it felt like the sky was falling. And what I learned is the sun comes up tomorrow. It does. You get to get up again and go fight the good fight. And you have to hang on to your optimism. From a personal standpoint, it’s important to hang on to that so you can keep doing what you need to do.

You spent a year at Kodak, the stepchild of any conversation around disruption. The company holds more patents in the digital photography space than any other company so it wasn’t that they didn’t see change coming. What went wrong?

What I have seen time and time again is it is really hard to disrupt a core business when it is contributing the bulk of your revenue and profits. But that is actually the time that you should start. It is just very difficult. The margins in digital photography are nothing compared to the historical margins in the film business.

What was being disrupted was the biggest and most profitable part of their business. And that is very tough. I have nothing but the greatest respect for CEOs of public companies who say, “Listen, here’s what’s happening. Here’s how much our profits are going to go down so that we can invest in the new business that’s going to disrupt our current business.”

So how do established companies approach that?

I think it depends to some extent on your strategy. To sit on a depreciating asset and not look for and invest in what replaces that really suggests you are executing a harvest strategy If you have a growth strategy, you’ve got to find a way to leverage your core assets and your core business while investing in what will be replacing that. That is not always easy.

GM concluded that transportation as a service embodied in autonomous vehicles is a place where there is a lot of future potential. Mary Barra has very clearly said, we will disrupt ourselves.

What’s the best way to invest in disrupting yourself?

There are ways. Large corporations have utilized venture efforts to tap into technological developments. Companies have formed their own venture funds where they become investors in a bunch of startups, some of which will fizzle out, some of which will become something significant. And so they use that as a mirror, if you will, on what’s out there and what should we be attuned to. That’s one way to have a bit of a reality check.

Second, leadership has to create room for investment risks to be taken. Obviously, you’re prudent about it, it’s calculated. But you have to be willing to make some investments to see if you can’t create some moon shots in the newer spaces if you’ve concluded that you need and want to be there. And that may mean bringing some people in with a different perspective who don’t come from the core business. It’s a combination of elements that can lead to the creation of new businesses within these larger, more longer-standing corporations.

How do you manage culture in an environment where all these changes are happening in such an aggressive way?

The cultural work that leaders do has to start with the mission and purpose of the organization. What are the behaviors that I, as the leader, or we as a leadership team, feel are important? What are the values that are critical that we’re going to hold people accountable for in addition to producing the financial results? There needs to be that contextual framework from which you then take whatever actions you take to create that behavior and drive that cultural change.

GM’s mission is is zero emissions, zero crashes and zero congestion. That is a very big statement about what the company is committed to with respect to its product portfolio, to the environment, to the objective of participating in transportation as a service, autonomous vehicles. It starts with clarity around what you are trying to accomplish and what behaviors are necessary to get it done. Then you lay out a plan for driving that change within the organization, starting with the leadership team.

What has been the role of mentoring in your career?

It is always valuable and often necessary to seek advice and counsel from people who can help you think more broadly and test your hypotheses, the way you’re potentially attacking an issue. Throughout my career, there have been people, generally people who were at a higher level in the organization than myself, who had more experience than I did, who I would get advice from. It’s not always the same person. It changes with time. And sometimes it even changes with what the set of issues are that you want to get some help thinking through. The CEO job is a lonely job. There are a lot of things you can’t just go talk to your team about.

So having a relationship with your lead independent director, the chair of your board or your board members, which you can use as a sounding board, is very helpful. It plays an important role. I personally do a lot of mentoring work with leaders that I’ve known over the years. It was helpful to me, and I hope it’s helpful to them.