At C-Level

Lessons from Sam Walton

While in Bentonville, Arkansas last week I visited Sam Walton's first store--The 5 and 10--on Bentonville's town square, which has been turned into a museum of Walmart and its heralded founder.  It was remarkably interesting, especially the exhibits revealing Walton the man, like the detailed recreation of his unpretentious personal office at the time of his death in 1992. 

A careful reading of the articles and exhibits is like getting an MBA, with extraordinary insights into strategy, marketing, human resources, innovation and entrepreneurship.  Many of these are outlined in "Sam's Rules," which I'll summarize here:

1. COMMIT to your business.  Believe in it more than anybody else.

2. SHARE your profits with all your associates, and treat them as partners.

3. MOTIVATE your partners.  Money and ownership alone aren't enough.

4. COMMUNICATE everything you possibly can to your partners.

5. APPRECIATE everything your associates do for the business.

6. CELEBRATE your success.

7. LISTEN to everyone in your company.

8. EXCEED your customers' expectations.

9. CONTROL your expenses better than your competition.

10. SWIM upstream.  Go the other way.  Ignore conventional wisdom.

Sure, every company has a mission, declared values, principles to believe in, etc.  But you get the sense that Sam Walton really believed in his; that he actually lived them, and that these principles were the foundation of his success.  That's inspiring.

Finger Lickin' Good

Last night at a party I found myself engaged in a discussion with a long-time restaurateur.  He told me that he got his start in the restaurant business through an invitation from Pete Harman, the legendary franchisee who was the first to sell Kentucky Fried Chicken and worked with "The Colonel"--Harlan Sanders--to develop the concept.  Sanders expanded the wildly successful chain and Pete Harman opened and owned over 200 units.

Harman was talented and hard-working.  He helped Sanders create operations standards for the new concept, but also created the name "Kentucky Fried Chicken" and pushed for emphasis of the iconic term "finger-lickin' good."  But what my friend wanted to talk about was more fundamental.  "He had an extraordinary way with people.  He listened to them and cared about them.  He had a way of making everyone feel good while being with him."

And he was compassionate and generous.  My friend told a story about when he was trying to buy a house.  Pete Harman asked him how the search was going.  "Well, we found a house my wife likes, but they want $10,000 more for a downpayment than we have."  An hour later Harman handed him a personal check for $10,000, saying "Pay me back when you can."  And there are countless stories just like that one.  But more than his many acts of personal kindness and generosity, he institutionalized these principles, promoting women when it bucked societal trends, and establishing profit-sharing when the concept was practically unheard of.

I've never met Pete Harman, but I've read about him many times.  Dave Thomas, the Wendy's founder, was a regular disciple.  So is David Novak, the current CEO and chairman of YUM brands, which owns KFC, Pizza Hut, Taco Bell and others.  

Pete Harman did more than run restaurants.  He touched lives.  It's not only a formula for success, but a legacy we all should aspire to.

Wal-Mart Plays Big Casino

It would be easy for Wal-Mart to gloat.  Every other retailer is suffering from horrendous sales, shrinking margins, disastrous profitability and the dull realization that consumer spending isn't going to bounce back.  So while their retail  competitors look forward to nothing better than rolling over the precipitous Q4 '08, the perfectly positioned giant from Bentonville revels in 5% sales growth driven by new traffic from more upscale customers doing more downscale shopping.

So how does new CEO Michael Duke respond?  By taking a bow?  Negotiating his option package?  Nope.  Word is he's making a strategic change of cataclysmic proportions--shifting the concept ever-so-slightly upscale.  Sam Walton might think it blasphemous, departing from that simple, single-minded almighty lowest-possible-price mantra that has resulted in a staggering $400 billion in sales.  This isn't just poking at a sacred cow, it's slicing it into hamburger, eating it for dinner, then washing it down by playing drinking games with the Holy Grail. 

What will it mean to consumers?  More premium brands like Dell and iPod will find space on the shelves.  More capital will be put into stores, making them more inviting and appealing.  More labor will lead to better service. But not more value.  On the contrary, since none of the above come freely, we can, in the future, expect to pay just a little bit more than we might have without these improvements.

A few observations:
1. The logic makes some sense.  Wal-Mart has picked up a new breed of customers.  If the retailer can keep them coming even after the economy picks up it's a tremendous long-term benefit, while avoiding the hard fall if these customers return to their old buying haunts.

2. Now is the time to do it, when the economy is down.  Capital improvements are cheaper and all the competitors are cutting back.  Net, Wal-Mart will get more bang for every buck invested in the stores.

3. It's the riskiest bet a CEO can make--to make fundamental changes in the strategy while times are good.  It reminds me of the famous Microsoft shift to focus on the Internet.  It could be a colossal mistake, a momentum killer resulting in long-term derailment. Or it could be exactly the right thing, at the right time. This is Michael Duke playing Big Casino, and it's the type of bet most CEO's would never have the guts to make. Right or wrong, you've got to give him props for the nerve to raise the stakes and go all in.

I hope it works.  Maybe we can get cheaper iPods.

The Foolishness of the Masses

There's an ugly cousin to James Suroweicki's popular theory of The Wisdom of Crowds.  Let's call it The Foolishness of the Masses.  I thought of this today while reading Rebecca Buckman's article Where's the Cash? in Forbes.  (By the way, I think Buckman writes more authoritatively and insightfully about the venture capital business than any journalist I know.)  The article points out that six months ago web entrepreneurs were getting soundly rejected by VC's if their models weren't based on ad revenues. Now that rates have fallen, the pendulum has swung wildly in the other direction.  Venture Capitalists, perhaps more than any other industry, move in herds, often relying more on popular thinking than good sense.  (Which is why, as Buckman has pointed out in other meticulously researched articles, an average investment in a VC fund has historically been much better for the venture capitalist than for the investor.  But that's another story.)

VC's aren't the only ones who suffer from The Foolishness of the Masses.  Almost every company that has ever hired an executive does the same when they issue specs for a resume that fits the traditional and expected background for the job.  When was the last time a CEO said to a recruiter: "Find me the best available athlete.  We can teach her the insurance business.  But we can't teach talent!"  To test the ridiculousness of this mass foolishness, ask any CEO if he or she would likely be successful running a business very different kind of business.  Most will confidently reply in the affirmative, stating that they would leverage the same capabilities and principles that have made them successful in the past.  So why doesn't the same principle apply to new hires?  Simple: The Foolishness of the Masses.  Everyone recruits the same way, so it must be the thing to do.

I"m reminded of something Mark Twain once said: "Whenever you find yourself on the side of the majority, it is time to pause and reflect."

Petraeus on Leadership

General David Petraeus and David Gergen spoke today at the Harvard Kennedy School on 21st Century Leadership. Naturally there was much about "The Surge," and how they were able to bring about such a radical transformation in thinking, particularly with a nation full of skeptics.  (OK, many nations full of skeptics!)  He made an interesting point: It is easier to bring about transformational change if you treat it like it's your last job. 

The reasoning is simple--if you can eliminate any career aspirations or ancillary goals, and focus on simply doing the right thing, you make better decisions and it's easier to build constituencies.  I recall reading that Petraeus quit voting some years back, not out of lack of civic duty, but so he wouldn't be swayed by Washington politics in the administration of his duty. 

It's a good lesson for executives.  It's too easy to let self-interest get in the way of bedrock integrity and unbiased leadership. If every manager could forget about his or her career prospects, bonus and job security, and focus singularly on building an enduring and successful company, then great things would happen.

Recharge the Batteries

I spent the day at an Entrepreneur's Conference at Utah Valley University.  To be honest, I attended out of a sense of duty.  I'm on an advisory board for the program, and chair a committee on Executive Education.  So I figured I should be supportive.  I didn't expect a tremendous amount of value from the speakers.  After all, I read a lot of business books, scholarly articles and major magazines.  I'm up on the literature.  I subscribe to a dozen business blogs and scan another 50 or so.  Plus, I've run two tech start-ups.  What could I expect to learn from a local conference aimed mainly at budding entrepreneurs?

It turns out that the value was tremendous.  And while some speakers were more valuable than others, they all knew a lot more in their fields than I do, and I got some great ideas from each one.  Further, I met some interesting people along the way, during breaks, etc.  I don't go to many conferences and I was surprised that I felt so exhilarated. I was humbled, and reminded how much I will always have to learn.  And a favorite quote came to mind: "The greatest obstacle to discovery is not ignorance, it is the illusion of knowledge."  (From historian, scholar and author Daniel J. Boorstin.)

I'm really glad I went and it was well worth my time.  Part of the benefit was just stepping back from my businesses and thinking very broadly about their potential, and about some basic assumptions that were just waiting to be challenged.  There were a half-dozen Eureka! moments.

Every business leader should spend some time recharging the batteries--exposing herself to fresh thinking from new sources.  Covey calls this sharpening the saw.  I call it good business.

And heeeeeeere's the President!

 

The American economy is in a shambles.  Trillions have been lost in the market.  Unemployment is at a record high.  And we're spending hundreds of billions of dollars on the problem with no assurance that it's making a difference.  So what does President Barack Obama do in the midst of all this?  He goes on the Tonight Show and yuks it up with Jay Leno.

And you know what?  It was a great move.  It inspires confidence that the guy most in the know is still relaxed and having fun.  It tells the American people that maybe things aren't so bad, and gives us hope that they will get better; that they are getting better.

CEO's take note.  Sometimes when times are darkest we have the urge to hunker down.  We want our people to see us working hard, burning the midnight oil to solve the problems.  Moreover, we want to wait until we have some good news to share before getting out in public or addressing the troops.  So what do our people assume?  Generally the worst.

You may or may not agree with Obama's politics and his economic principles.  But you have to admire his leadership style.  It reminds me a little of how Churchill was received in his first stint as prime minister, as World War II consumed Britain.  His political philosophy wasnt broadly accepted, even within his own party.  But no one questioned his conviction and his steadfast resolution, which is exactly what the country needed.

Similarly, when times are toughest, business leaders need a firm course of action, and they need to openly communicate it with confidence, resolve and good spirits.

Dissenting Opinions

In his new best-selling book The Gamble, author Thomas E. Ricks relates an interesting conversation between military historian Eliot Cohen and President George W. Bush and VP Dick Cheney.  According to Ricks, Cohen counseled the president that LBJ’s great shortcoming in managing the Vietnam War was his unwillingness to foster serious strategic debate between his generals.   And while it could be argued that Bush/Cheney/Rumsfield had to this point operated in the same manner, this was eventually rectified when General David Petraus and others imposed their viewpoints on the issue, leading to the famously effective “surge” strategy.

I detected a similar theme emerging from the Toyota, where incoming president Akio Toyoda is hoping to right the Japanese automotive giant that seems to have lost its way.  According to the WSJ, former president Shoichiro Toyoda (Akio’s father) publicly asked why current president Katusaki Watanabe and EVP Mitsuo Konoshita were making all the decisions recently, a practice out of step with the company’s long-standing tradition of participatory management and leadership.

I contrast these two examples with CEO Eric Schmidt’s reaction when he first joined Google, an organization known for it meritocracy leanings.  Schmidt said that when he observed meetings he couldn’t tell who was the senior person, as the debate was open and free-spirited.  He also said he felt a lot of pressure to know his stuff, and argue his points based on merit, because his CEO title didn’t carry much weight in the discussion of ideas.

The open expression of perspectives and opinions is vital to a company’s success.  It can prevent bad ideas from draining a company’s time and resources, and surface good ideas, foster innovation and attract top talent throughout the organization.

I’ve seen a lot of companies in which the CEO feels like there is strong alignment behind the corporate positions.  Unfortunately, what sometimes parades as alignment is really the suppression of dissenting viewpoints.  There are a lot of reasons for this, but most of them start at the top.  Senior management may give lip service to encouraging conflicting ideas, but in fact feel like any opinions which challenge their own are a threat to their egos and authority.  I’m reminded of something movie mogul Samuel Goldwyn once said: “I don't want any yes-men around me.  I want everyone to tell me the truth, even if it costs them their jobs.” 

Executives can take a number of steps to encourage a free expression of ideas and opinions:

·         Ask for dissent.   Ask people for reasons why the contemplated the plan of action is the wrong approach, especially if management loves it.  If needed, appoint a few people in a meeting to take an opposite view of the prevailing opinion. 

·         Reward dissent.  Don’t stifle contrary opinions with criticisms.  Resist the urge to immediately defend your position by answering objections.  Listen thoughtfully.  Try to build on the challenging idea.  And look for other contributions to the debate.

·         Encourage new ideas and thinking.  There are various ways to do this, including formal or informal gatherings, intranet discussion boards, etc.   The key is to develop easy ways for employees at all levels to fearlessly contribute their best thinking.

Day One Leadership

Smart leadership by the new president.  On Day One, while dealing with monumental issues such as the teetering economy, the Gaza conflict, Iraq and Afghanistan, he made a point to take a few definitive actions:
1. Announced the closing of Guantanamo Bay.
2. Froze salaries for some senior white house employees.
3. Announced new white house staff ethics rules.
4. Asks George Mitchell to be his advisor on the Middle East.
5. Ordered increased transparency in government, as well as more public access to records and documents.

All in all, two Presidential Orders and three Executive Memoranda.  Plus he personally called four influential Middle East leaders.  And it's only 3:00p in D.C.

Politics notwithstanding, that's strong leadership.  Business leaders should take note.  When moving to a new position, take immediate actions.  Do something.  Yes, some initiatives will require deliberation.  But there are plenty that can be pushed out the door quickly and on judgment.  It will tell the troops you are dedicated to action.  The worst thing a leader can do is hunker down to try to solve all the problems, only to emerge days or weeks later more confused than at the start.

As Teddy Roosevelt once said: "In moments of decision, the best thing you can do is the right thing; the next best is the wrong thing, and the worst think you can do is nothing."  Good advice for your first day on the job.  Carry a big stick.  And don't be afraid to use it.

A Sense of Urgency

Harvard Business School professor John Kotter has earned the respect of the business community over the past 25 years, having authored 15 books and numerous articles.  Much of his work has addressed the difficulties business have trying to change, and he is widely acknowledged as the preeminent academic expert on the subject. 

So when I address Kotter's latest book, A Sense of Urgency, I do so with profound respect and the deepest humility.   Two things:

1. This isn't Kotter's best work, and in fact, at $22 for 193 small, large-print, wide-margin, generously spaced and overly headlined pages, it felt more like an article opportunistically morphed into a book.

2. Nevertheless it's a worthwhile read, because as Kotter rightly points out, the lack of urgency is one of the most daunting threats that businesses face. 

The prescriptions for leaders are important, if not profoud: Behave with urgency every day, be externally focused, appeal to emotions, take advantage of crises and neutralize the No-No's (entrenched skeptics that resist change).

Great leaders have an intrinsic sense of urgency, and great organizations follow suit.  Business today is moving at a breathtaking pace, and complacency is a formula for failure.  (One could argue this has always been the case--see General Motors.  The difference is that in today's economy, disaster arrives more like a tsunami and less a glacier.)

It's worth the few hours it takes to get through this book, if for no other reason than to do a gut-check on your own company.  Is your organization driven by a sense of urgency to get better, to fix problems and to deal with perpetual changes in the external environment?  If not, can you hear the clock ticking?  Hint: That's a time bomb ready to go.  The alarm clock went off a long time ago.