CAPABILITY & COMPETENCE ADVANCEMENT AGENDA’ (C2A2)

YES, THE STRUCTURAL CAPABILITIES ARCHITECTURE GIVES A GREAT METHOD TO SLOT YOUR CAPABILITIES; BUT AT THE SAME TIME, CAPABILITIES ARE USELESS IF NOT MANAGED WELL. AND FOR THAT, I PRESENT THE CONSEQUENT CAPABILITIES ARCHITECTURE. THERE’S A STATUTORY WARNING THOUGH: THIS STUFF IS NOT FOR KIDS!IN MY PREVIOUS EDITORIAL, I HAD commented on how modern day multinational and transnational corporations should have a structured capability & competence development process in place to achieve long-term success! I also went ahead to present the C2A2 theory (Capability and Competence Advancement Agenda) – a benchmark model that transnational organisations could and should implement offthe- rack for developing capabilities and competencies. In that very editorial, had mentioned details on how the capabilities and competencies of any corporation were of various kinds, but broadly could be divided into a few types of Structural Capabilities (see pictorial representation on the right side); namely, Doorway Capabilities, Elemental Capabilities, Enrichment Capabilities, Power Leadership Capabilities (For a better understanding, refer to my strategy book, CULT, which I’ve coauthored with Arindam Chaudhuri; a faster way would be to go to a--sandeep.blogspot.com and search for the term “C2A2”; yes, the term sounds so hackneyed, but you can’t miss it I guess).

Yes, the Structural Capabilities Architecture gives a great method to slot your capabilities and competencies; but at the same time, capabilities are useless if not managed well. But then, you can’t just stand up in a board meeting and scream at your Presidents to, uh, manage the competencies better; and not at all so in transnational organisations employing thousands. Then what structure exactly should one follow to organise the people to manage structural capabilities of any organisation? For that, I present the Consequent Capabilities Architecture. There’s a statutory warning though: this stuff is not for kids, and not the least for glam-struck management students – it’s meant purely for CEOs, and that too of very large organisations.

CONSEQUENT CAPABILITIES ARCHITECTURE
Consequent Capabilities are named such because the nature of their existence is consequent to the nature of the main structural capabilities. But the most important aspect of them all, as has been mentioned above, is the fact that Structural Capabilities exist and improve or get discraded only because of Consequent Capabilities. Structural Capabilities are the display & end result of the power and efforts of Consequent Capabilities. Different types of Consequent Capabilities identify the need for Structural Capabilities, refine their efficiencies and effectiveness, remodel their alignments with overall corporate structures and processes, and finally ensure that the organization becomes the most intelligent corporate animal that responds demandingly & profitably to all that the environment has to offer.

The existence of Consequent Capabilities runs parallel to the main operational line of structural capabilities. That is, while the continuum from Doorway capabilities to Power Leadership Capabilities focuses on competitive requirements (developing, improving, sustaining, or discarding competitive leadership), Consequent Capabilities focus on development perspectives (developing, improving, sustaining or discarding Structural Capabilities leadership). Consequent Capability Units (comprising of respective managers and team members) are of four types:

LEARNING CAPABILITY UNITS (LC UNITS)
These Units are made up of teams that are associated with all the Consequent Capability Units (Transformation, Fortification and Exnovation) at all levels and have two prime responsibilities:
1. Documenting processes, structures, organizational initiatives, goals, objectives at various discernible levels of the transnational organisation.
2. Developing a sharing network that enables all levels in the organization to learn best practices, structures and initiatives of various Capability Units by initiating Consequent Capability Architecture intervention programmes aimed at educating, teaching, disseminating knowledge, information and data throughout the organisation.

LC Units play the role of historians and professors. The LC Units are repositories of information. LC Units involve themselves in organizational intervention exercises (including, but not restricted to training & development workshops, conferences, seminars, sales sessions etc) at every level to make sure that Units all across the organization share in the learning experiences from across the organization.

EXNOVATION CAPABILITY UNITS (EC UNITS)
Exnovation is literally defined as the opposite of Innovation (I wrote about Exnovation in one of my previous editorials; it’s also there in the book that I mentioned a few paragraphs above, CULT: The ultimate CEO guide to calling the shots without getting shot). Exnovation Capability Units are meant to monitor anomalies in organizational functioning and rectify them. EC Units are dedicated capability units that ensure Exnovation of aberrations to the strategic architecture and initiatives being undertaken by the organization. The primary responsibility of EC Units is to ensure that best practices and benchmarked processes are followed throughout the organisation to the tee; and those employees/structures not adhering to the predecided processes, be either reassigned/retrainedor even retrenched in case retraining does not give progress.

Recent lessons in Corporate Non- Governance (Reliant, Dynergy, Enron, Andersen, Tyco...) have ensured the rising importance of EC Units in the corporate governance functions of organizations. Internal audit teams, for example, are EC Units attempting to ensure that standard financial processes (for example, SEC guidelines, Sarbanes Oxley Act etc) are not tampered with. Presence of Exnovation Capability Units is akin to presence of anti-bodies in human bodies in more ways than one. EC Units are dynamic in nature, both in size and their project requirements.

Corporate governance Exnovation responsibility Of the top management
The compelling need for Exnovation Capability Units does not arise only from the fact that they assist in maintaining normal operations, but more so from the fact that they fall in line with urgently required corporate governance norms. It’s the responsibility of the top management to ensure that EC Units are created at every critical level or process or department, staffed with competent ‘general specialists’, allocated resources for successful functioning, provided independent authority and responsibility to undertake transparent actions, provided with access directly to top level management, and ensured transparency with Prime Stake Controllers like Shareholders, employees, regulatory bodies like SEBI, Federal Trade Commission, European Commission etc.

There is another interesting standpoint that develops once an organization has implemented the EC Units structure through all the critical levels of the organization. By the very definition, fault lines, anomalies, aberrations or deviation occurrences need to be corrected. In this case, after judicious analysis has been done to confirm the findings, the faults should be prioritized according to the damage they might continue to cause to the existence and operations of the organization. Such impending irreparable faults and their consequent damage should be immediately communicated to relevant Prime Stake Controllers

FORTIFICATION CAPABILITY UNITS (FC UNITS)
Fortification Capability Units are meant to continuously identify better processes and structures to achieve the predefined results. FC Units are capability units that ensure continuous improvements to the strategic architecture and processes being undertaken by EC Units at various levels. FC Units do not question the results to be achieved. They rather find out better methodologies of achieving the results. In traditional terms, FC Units attempt to be effective (doing the right things), while EC Units attempt to be efficient (doing things right). At each critical level of the organization, FC Units in organizations should be structurally above EC Units because FC Units dictate what optimal processes and structures should be present. EC Units ensure that the processes and strategic architecture laid out by FC Units is followed to the book.

Fortification responsibility of the top management What is the need for Fortification Capability Units in organizations when managers & executives probably know what the right processes and structures
to be followed are? The needs are a screaming many because of the following reasons:
• Managers’ vision to identify effective processes and structures is strangulated because of their stressed out focus on achieving regular targets and meeting key performance measures. They basically
do not have time to develop orientations towards designing newer and better processes and structures.
• Even if they get the time to develop more effective processes & structures, managers are myopically focused on their scope of operations without worrying about cross-structural and cross-process
effectiveness.
• Further, operational managers generally lack knowledge of using quantitative and qualitative analytical tools to calculate relative strengths and value worth of processes and structures.

Efforts of Fortification Capability Units ensure continuous focus on effectiveness of processes and structures throughout the organization. Fortification Capability Units (and to a large extent Exnovation Capability Units) also ensure that the organization retains ground level implementation sense of strategies, irrespective of how high its vision might become. The top level management retains control over practical issues of how profitable & worthwhile individual processes and businesses are through extremely well researched methods of value chain efficiency analysis (or rather, of Exnovation Capability Units) and effectiveness analysis (of Fortification Capability Units).

TRANSFORMATION CAPABILITY UNITS (TC UNITS)
In the order of hierarchy, Transformation Capability Units at each level of the organization are above the Fortification Capability Units (who in turn are above the Exnovation Units). Transformation Capability Units are meant to continuously question and re-question not only the objective orientations of various levels of the organization, but also the need for the levels themselves. For example, a Transformation Capability Unit in the manufacturing plant of an organization not only would decide what should be the manufacturing benchmarks & objectives with respect to various parameters, but also would decide whether the manufacturing plant should be allowed to continue or not. Once the TC Unit decides on the worth of continuing the complete manufacturing plant, and once the TC Unit decides on the objectives that are worthwhile for the manufacturing plant to undertake, the Fortification Capability Unit takes over to design processes by which the plant would undertake the various objectives; and the Exnovation Capability Unit takes over later to ensure that the processes so designed by the Fortification Capability Unit are adhered to perfectly.

What Lou Gerstner was to IBM, Jack Welch was to GE; Transformational catalysts beyond comparison. The early transformational initiatives of Jack and his team focused on the following strategies:
• Being in only those markets where GE could be number one or two (most importantly to counter infl ationary pressures)
• Delayering’ the organizational structures (To transfer the strategic planning function over from senior managers to direct business leaders)
• Going for quantum leaps rather than small steps (Vision orientation of dramatic improvements in financials through practicable mergers, acquisitions & divestments) The later transformational initiatives of Jack and his team focused on the following strategies:
• Improving service orientation (In 1980, 85% of GE’s revenues came from manufacturing. In 2000, 75% of $125 billion revenues came from service, entailing better profitability) •Going global (In 1987, $31.7 billion revenues came from domestic US sales, and $8.7 billion came from global markets. In 1998, $57.7 billion came from domestic US sales, while $42.8 billion came from global sales).
• Using the information technology tools to again competitive advantage (taking GE online on the net to create a boundary-less world to seamlessly connect all stakeholders)

At this time, there might be a presumption that while Exnovation Capability Units operate only at lower levels of the organisation, Transformational Capability Units operate only at the higher levels of the organisation. Not so. True, TC Units have more importance at higher levels, and EC Units have more at lower levels, but every level requires its own EC, FC, TC and LC units.

What I’ve attempted in this massively self-aggrandizing and theoretical editorial is to tell you – the CEO – that the first step to becoming a world class organisation is documenting a plan to know, maintain, develop and even destroy your capabilities and competencies. And if you had no idea how to prepare that document, like I said once before, just blindly implement what I’ve presented here – and keep sending me the royalty.

CAPABILITY & COMPETENCE ADVANCEMENT AGENDA’ (C2A2)

THE MOTHER OF ALL INNOVATIONS – EXNOVATION©

WHY COMPANIES NEED TO MASTER THE ART OF NOT INNOVATING. IN OTHER WORDS, THE ART OF EXNOVATION – THE OPPOSITE OF INNOVATION

Good morning world. The mother of all anti-thesis theorems is here. Well, umm, it was already there since the past few years. Actually it was in 1996 when I conjured up this term called exnovation – which I defined as the opposite of innovation – and presumed that I had arrived on the global management scene; well, had not I finally created a better mousetrap? 15 years later, I see that the term exnovation is still known to almost zero individuals on this plant (‘cept me of course), and where known has taken up definitions that I never intended – and of course, nobody’s beaten their way up to my door yet. And that’s when I decided to give it one more try – define the term appropriately so that organisations realize the need to necessarily incorporate exnovation as a critical process within organisational structures.

I accept, in the present times, nothing excites corporate junkies more than the concept of innovation. Who in heavens would care about exnovation for god’s sake?! Would you wish your company to come out tops on the World’s Most Innovative Companies’ lists or would you wish to be the numero uno on the exnovation charter – in other words, the world’s topmost ‘non-innovating’ company? One doesn’t need to think too deeply to get the answer to that. Frankly, the term exnovation was perhaps doomed from its very definition.

And reasonably too. Iconic CEOs have grown in fame because of being innovative. How many CEOs would you know of in the world who are worshipped because they exnovated? The answer might surprise you. Quite a few. And to understand this dichotomy, you’d have to first understand the correct definition of exnovation.

Exnovation does not actually mean propagating a philosophy of not innovating within the organisation. Exnovation in reality means that once a process has been tested, modulated and finally super-efficiently mastered and bested within the innovative circles of any organisation, there should be a critical system that ensures that when this process is replicated across the various offices of the organisation, the process is not changed but is implemented in exactly the same manner in which it was made super-efficient; in other words, no smart alec within the organisation should be allowed to tamper with the already super-efficient process. In other words, the responsibilty of innovation should be the mandate of specialised innovation units/teams within an organisation and should ‘not’ be encouraged to each and every individual within the organisation. The logic is that not every individual is competent at innovating – yet, everybody wishes to innovate, which is what can create a doomsday scenario within any organisation. Think the case of two call centers, where credit card customers call when they wish to complain about their lost cards. Imagine one call center, where all employees are trained by exnovation managers to follow tried and tested responses and processes; imagine the other call center, where each employee is allowed independence in innovatively deciding how to respond to the calling customer’s lost card issue. Any guesses on which call center would ensure better productivity and customer satisfaction? Clearly, the one practising exnovation. And that, my dear CEOs, is the responsibility of the Exnovation units within an organisation – units staffed with managers and supervisors whose sole job it is to ensure that best practice processes and structures are followed to the tee and not tampered with within the organisation by individuals or teams without a formal mandate. Call them what you may – but any manager responsible for ensuring replication and mirror implementation of any efficient process is an exnovation manager.

And it’s a fact that CEOs and companies have thrived practising this management philosophy of exnovation. The last time this $421.85 billion- a-year topline earning company allowed each and every was much before its stock became a market-commodity on NYSE (on October 1, 1970). Till date, its “Save money. Live better” concept is based on standard processes, followed to the hilt and marginally improved over the years, to deliver maximum productivity and efficiencies. What gives this company’s operations the push? Leveraging tested economies of scale (a process that economists have discussed over decades), sourcing materials from lowprice suppliers (simply put – common sense), using a well tested satellitebased IT system for logistics (a technology that was invented in the late 1950s; today, the company’s vehicles make about 120,000 daily trips to and/or from its 135 distribution centers spread across 38 states in US alone, a count equal to the average number of vehicles that use the Lincoln Tunnel per day in New York City) and smarter financial and inventory management called ‘float’ (the firm pays suppliers in 90 days, but plans its stocks so that it gets sold within 7 days).

The company is #1 on the Fortune list: Walmart (2011; it has occupied the pole position in the Fortune 500 Rankings for the eight time in ten years!). For that matter, recall the last time you heard of an innovation from Walmart. “After I came in as CEO, I looked at the world post-9/11 and realised that over the next 10 or 20 years, there just was not going to be much tailwind. It would be a more global market, it would be more driven by innovation. We have to change the company to become more innovation driven – in order to deal with this environment. It’s the right thing for investors.” Wise words from a wise CEO, spoken in the American summer of 2006, it seems. This protagonist was appointed the CEO of a large conglomerate on September 7, 2001 [which he refers to as “the company”]. When he took over the mantle, the company having been led by his “strictly process-oriented” predecessor, had grown to become a $415 billion giant (m-cap). So how has his “innovation-driven-change” focus worked for his investors and shareholders [to whom he wanted to do right]? Ten years have gone by, and under him, the company has lost 58% of its value! And while America Inc. has become more profitable in the past decade, this company’s bottomline has actually gone drier by 14.91%. The first thing this innovation-lover of a CEO did when he took over control of this company was increase the company’s R&D budget by a billion dollars more and spend another $100 million in renovation of the company’s New York innovation centre. Well, loving innovation is not wrong. What is wrong is in forgetting that the best innovated products, processes and structures should not be tampered with!

In other words, Geoffrey Immelt forgot exnovation, which his predecessor Jack Welch had mastered. Yes, I’m talking about GE. Immelt, later in an HBR paper titled, “Growth as a process”, confessed, “I knew if I could define a process and set the right metrics, this company could go 100 miles an hour in the right direction. It took time though, to understand growth as a process. If I had worked that wheelshaped ‘execute-for-growth-process’ diagram in 2001, I would have started with it. But in reality, you get these things by wallowing in them a while. Jack was a great teacher in this regard. I would see him wallow in something like Six Sigma.” But this is not to say that Jack Welch was against innovation – in fact, he loved it; but he ensured that not everybody in the organisation was allowed to do that. Immelt’s paper does state that “under Jack Welch, GE’s managers applied their imaginations relentlessly to the task of making work more efficient. Welch created a formidable toolkit and mindset to maintain bottomline discipline.”

Whatever best practices were innovated in GE’s group companies, Welch ensured that the same were exnovated too and shared with other group companies in GE’s Crontonville Training Centre and GE’s Management Academy. And subsequently, such best practices were implemented throughout the group with a combination of commonsense and managerial judgement. From Six Sigma to the 20-70-10 rule, Welch was all about making GE’s traditional strength – process orientation – religion for its employees. It’s easy to guess a name that Welch would have fired in his tenure at GE. What else when you have a list of over 112,000 employees to choose from? [They were fired because they did not fit into the process-oriented culture of GE; according to a June 2011 HBR article titled, ‘You Can’t Dictate Culture – but You Can Influence It’, by Ron Ashkenas, Managing Partner of Schaffer Consulting and a co-author of The GE Work-Out, “The real turning point for GE’s transformation came when Jack Welch publicly announced to his senior managers that he had fired two business leaders for not demonstrating the new behaviours of the company – despite having achieved exceptional financial results.]

Next, tell us one innovation that Welch introduced. Difficult? In all probability, your answer will only end up defining a process he introduced at GE and ensured everyone – from his senior managers to the junior-most – followed to the hilt. Honestly, it wasn’t just innovation that created wealth on a massive scale for GE shareholders during Welch’s tenure by 2,864.29% (to make it the world’s most valuable company; with an m-cap of $415 billion, much ahead of the world’s thensecond- most valuable Microsoft at $335 billion), it was exnovation too – perhaps more so.

Talk about a petrochemical company which is the third-largest company in the world and the highest profit-maker ever (with $30.46 billion in bottomlines in FY2010). In the name of innovation, the last time you saw this company contribute was when it developed the naphtha steam cracking technology (which it uses till date to refine petrochemicals) in the 1940s. Since then, there have only been modifications and improvements on this technology. Even when others had started talking about bio-fuels and innovation, this company’s CEO was adamant on continuing to invest in the technology that made what the $363.69 billion company (m-cap as on November 1, 2011) represented in the modern world. “I am not an expert on biofuels. I am not an expert on farming. I don’t have a lot of technology to add to moonshine. What are we going to bring to this area to create value for our shareholders that’s differentiating? Because to just go in and invest like everybody else – well, why would a shareholder want to own Exxon Mobil?”, said Rex Tillerson, the Chairman & CEO of Exxon Mobil – the second-largest Fortune 500 company. And this is what Fortune Senior Writer Geoff Colvin wrote in his article titled, ‘Exxon = oil, g*dammit!’ about Tillerson’s attitude to innovate in fuels of the future: “The other supermajors are all proclaiming their greenness and investing in biofuels, wind power and solar power. Exxon isn’t. At Exxon it’s all petroleum. Why isn’t the company investing in less polluting energy sources like biofuels, wind, and solar? Remembering that Exxon is above all in the profit business, we know where to look for the answer. As a place to earn knockout returns on capital, alternative energy looks wobbly. It’s a similar story for alternative fuels for power generation. Exxon just doesn’t know much about building dams or burning agricultural waste. Its expertise is in oil and gas.” Translation – Exxon continues to work on processes set and ignores what Tillerson calls moonshine [read: innovative fuels].

And to talk about how efficient and bottomline focussed this system at Exxon has become, Colvin has some lines to add: “At this supremely important job, it is a world champion. All the major oil companies bear about the same capital cost, just over 6%. But Exxon earns a return that trounces its competitors. Others could be pumping oil from the same platform, and Exxon would make more money on it. It is like taking the same train to work, but they get to the office first.” Can the way the most valuable company on Earth functions be some lesson for exnovation managers? Of course.

Next, the auto majors. Since Henry Ford introduced real innovation in the industry in the form of the assembly line, the Ford Motor Company hasn’t had much to boast about in this regard. And yet, it became the only Detroit major to bounce back without a Fed bailout. And how about the real innovator? Appears, being an innovator does not pay well in the auto industry too! General Motors was ranked the #1 innovator (among 184 companies) by The Patent Board in its automotive and transportation industry scorecard for 2011. But all this came at the cost of the company’s bottomlines which bled $76.15 billion in the seven years leading to 2010 [and this is not considering the fateful year 2009 when GM got a fresh lease of life with the US Fed pumping-in a huge $52 billion that ultimately saved America’s innovation pride]. And what about investors? If GM has the patents and is the king of innovation, should it not have been the best bet for investors? Count the numbers and decide: if an investor had invested $100 in GM stock exactly 10 years back, he would have just $78.42 left in his trading account – a return of negative 21.58%! Had the same sum been invested in four of the other big automakers in the world, the reading would have been quite different. Investing in Ford, the investor would have gained 22.72%, in Toyota: 39.52%, in Hyundai Motors: 89.4%, and in Volkswagen: 364.32%! These are companies that focus on design and maintaining a procedure that helps create cars with set standards of quality – not innovate or lead the rush for patents in clean-energy fuels! Message for GM – instead of investing billions of taxpayers’ funds in developing green-fuel and propulsion technologies, put people on a production process that will help launch more variants of the small diesel car (the Chevrolet Beat) for the BRIC markets. That should suffice. Exnovate – like Toyota does with its production system that follows the 5S, Kaizen and Jidoka philosophies – and create a process of continuous improvement in small increments that make the system more efficient, effective & adaptable.

In his May 2007 best-seller ‘The Myths of Innovation’, author Scott Berkun [who had worked on the Internet Explorer development team at Microsoft from 1994-1999], using lessons from the history of innovation, breaks apart one powerful myth about innovation – popular in the world of business – with each chapter. “Competence trumps innovation. If you suck at what you do, being innovative will not help you. Business is driven by providing value to customers and often that can be done without innovation: make a good and needed thing, sell it at a good price, and advertise with confidence. If you can do those three things consistently you’ll beat most of your competitors, since they are hard to do: many industries have market leaders that fail in this criteria. If you need innovations to achieve those three things, great, have at it. If not, your lack of innovation isn’t your biggest problem. Asking for examples kills hype dead. Just say “can you show me your latest innovation?” Most people who use the word don’t have examples – they don’t know what they’re saying and that’s why they’re addicted to the i-word.”

The fundamental question really is – could airlines like Singapore Airlines, Virgin Airways, China Southern, United Airways, KLM Royal Dutch Airlines and Korean Air maintain their near 100% On-Time departure record for flights to and from India (for Aurgust 2011; as per DGCA) had each of their management heads, employees and pilots innovated in their transactions? No. [That would surely have disastrous consequences!] Would renowned hospitals for heart surgeries be the same safe place for patients if their doctors were to innovate their processes and dig out new surgery styles each time? No. [Absurd!] Would Chinese steel companies like Hebei Iron and Steel, Baosteel Group, Wuhan Iron and Steel, Jiangsu Shagang and Shandong Iron and Steel Group feature in the world’s top ten volume producers of steel (source: World Steel Organisation, 2011) had they innovated on the manufacturing method every single day? Impossibly no!

But really, I repeat ad nauseam that exnovation is not about refusing innovation within the company. Yes, a few of my examples may give off that air, but really, exnovation engenders an ideology that only some employees are gifted enough to analyse and innovate processes – and therefore such elitist employees should be placed in specialised innovation units with a sole responsibility to check processes and structures throughout the organisation and to innovatively improve them in whichever way possible. Employees who don’t have such innovative capacities may be better at simply implementing or following the processes; such employees should therefore be trained to ‘not innovate’ by exnovation managers.

The world believes that Steve Jobs was a great innovator. I would rather say he was the world’s second greatest exnovator – one who ensured that even his innovation teams had to follow a structured time driven process to come up with innovative solutions and products. And when they did, the same was exnovated across all of Apple’s divisions and offices. That was the wonder of Steve Jobs the visionary.

In the year 2003, the globally renowed management author Jim Collins wrote an iconic article for the Fortune magazine, titled The 10 Greatest CEOs Of All Time. Jim ranked at #1 on this all time list, an individual known as Charles Coffin. Jim wrote in that articel, “Coffin oversaw two social innovations of huge significance: America’s first research laboratory and the idea of systematic management development. While Edison was essentially a genius with a thousand helpers, Coffin created a system of genius that did not depend on him. Like the founders of the United States, he created the ideology and mechanisms that made his institution one of the world’s most enduring and widely emulated.” If this is not one of the greatest combinations of innovation with exnovation, then what is? The institution Coffin co-founded with Edison was GE. Coffin passed away in 1926. Till date, he remains for me the world’s greatest exnovator.

THE MOTHER OF ALL INNOVATIONS – EXNOVATION©

CAPABILITY & COMPETENCE ADVANCEMENT AGENDA (C2A2)

MODERN DAY CORPORATIONS SHOULD HAVE A STRUCTURED CAPABILITY & COMPETENCE DEVELOPMENT PROCESS IN PLACE TO ACHIEVE LONG-TERM SUCCESS! PRESENTING, THE THEORY OF IT ALL – A BENCHMARK MODEL THAT ORGANISATIONS CAN IMPLEMENT OFF-THE-RACK FOR DEVELOPING CAPABILITIES AND COMPETENCIES

Look around – and you’ll easily find a plethora of visionless CEOs arbitrarily deciding which business areas should a company enter and which it should leave, without giving a glimmer of thought to whether their organisations have the wherewithal to succeed in chosen battlefield. The astoundingly mammoth list of failed M&As is evidence of the same. More evidence is provided by the speed with which CEOs are being eased out of their jobs – from Yahoo to Google to Tiger Airways to Wipro to RIM, from new-age to traditional industries, companies and CEOs seem to be deciding on new businesses based more on the “fools dare where...” ideology than basing the same on a logical and structured capability and competence advancement agenda. I usually write what my readers term ‘light stuff’ – easy on the eyes and amusing on the brain – and would have used this column to simply berate those organisations that don’t have structured plans to develop competencies and would have praised those that did. But I realized that even for an organisation that in all sincerity wants to set in motion a long term plan that could match its capabilities and vision, there practically exists no ‘readymade’ model that one could implement straight off the board to document one’s competencies. Worse, there’s no telling which competence fits where and is how important for future growth!

Guess what, for a change, I decided to ditch the ‘light stuff’ trademark and to go ahead and benchmark the methodology that is followed by the best in class to match vision with strengths, goals with skills, objectives with focused training – I call it the C2A2 model; in other words, the ‘Capabilities and Competencies Advancement Agenda’! Of course, the ‘C2A2’ term might seem pure limerick at its best, meant to invoke ‘term recall’ in the minds of the reader. But irrespective of the play of the term, the fact is that implementing such a competence development agenda in your organisation – whatever you call it, as long you have a process that does it – might just save your firm from getting decimated in the near future.


C2A2: AN IMPERATIVE FOR IMPLEMENTING STRATEGIC INTENTIONS

An imperative reason for corporations to take up the C2A2 model is the fact that immediately, the top management within the organisation is forced – or encouraged – to match their irreverent business vision (which may have been earlier propagated more due to their ego) with the competencies that are documented within the organisation. In other words, call it what you may, but even if you have documents floating around in various business of your organisation that have mapped out various strengths and weaknesses of those businesses, you’re well started already. But wait, there’s much more left – and that’s where I hit you with the jargon.

‘CAPABILITY MODULATION’ IN C2A2: KNOW YOUR HARDCAPS Vs. SOFTCAPS

Capabilities within any organisation should be visibly perceived in two basic forms, namely HardCaps and SoftCaps. Hard capabilities, or HardCaps, show themselves in the forms of visible ‘hard’ items that can be seen. For example, machinery, cash, personnel, number of patents et al, are HardCaps. Soft capabilities, or SoftCaps, show themselves up in the form of ‘soft’ items that cannot be necessarily seen, rather can be perceived. The backbone of any company’s strategic architecture is made up of the combination of HardCaps & SoftCaps. HardCaps can be quantified. But Hard Capabilities are ruled by Soft Capabilities and this is where the problem arises. It is much difficult to maintain and understand SoftCaps. Knowledge management, process manuals, ISO et al, are all attempts by any organisation to maintain a Hard interface on Soft Capabilities. The corollary is that SoftCaps are most difficult for competitors to replicate and hence can become the basis for extremely long sustainable competitive advantages. But a corporation cannot succeed on Soft- Caps alone. There has to be a most practicable combination of Soft Capabilities and Hard Capabilities for any company to succeed.

So how does one understand which ‘Caps’ is more important? And which less? And how does one know which capability does one need to develop and which to destroy? Differentiating your capabilities using the Structural Capabilities Architecture is one solution that provides the answers.

THE STRUCTURAL CAPABILITIES ARCHITECTURE

Structural Capabilities within any organisation belong to four categories. Doorway, Elemental, Enrichment and Power Leadership Capabilities. Once you have categorised each and every capability under these heads, you would automatically understand which ones you need to maintain, develop and which ones you need to leave go.

DOORWAY CAPABILITIES: These are essential capacities which allow entry of the organisation into targeted businesses/markets/ industries by dissolving entry barriers. These capabilities could relate to any of the functional areas (marketing, human resources, manufacturing, finance, research & development, legal, advertising et al). For example, any corporation wishing to enter the business of manufacturing aircraft needs to have all-encompassing financial capabilities, technology backup with respect to personnel, plant & machinery, necessary government licences, patent clarifications et al. Similarly, every industry has a set of Doorway Capabilities (Porter slantingly refers to these as Entry Barriers), which one has to obtain ‘before’ entering an industry. The simple corollary which most CEOs forget: if you don’t have Doorway Capabilities, it makes quite less sense to enter a new industry, however attractive it might be. Ergo, first document what Doorway Capabilities are required to enter an industry, then acquire those capabilities, and subsequently enter.

ELEMENTAL CAPABILITIES: These are capacities that, after an organisation has procured the Doorway Capabilities, sustain any organisation’s functioning on a day-to-day basis. When Barista took leadership of the narrow market of café sales through Barista stores all over, competitors were more moved by the glamour of it all, rather than the pure profit dynamics. Also-ran competitors did not realise that coffee parlours were not a source of industry leadership, but were rather only a source of industry survival and continuance (Elemental) capabilities. Duncans (a G. P. Goenka group company) went into setting up Barista style tea parlours in various East Indian territories with the collaboration of retail outlets like Pantaloon (Café Bollywood). At the same time, Café Coffee Day was bent on targeting the highest potential markets by opening up coffee parlours all over India. Even though Nestle also has Café Nescafe outlets all across relevant markets, Nestlé is the leader in the overall coffee segment (with HUL following in at second rank) not because of Café Nescafe coffee parlours, but thoroughly because of the focus on converting traditional supply chain channels (institutional sales, vending machines, retail sales et al) into ‘Enrichment capabilities’ (definition on next page). Nestle & HUL have clearly realised that in this industry, the maximum sales growth can occur only through leadership in traditional channels, rather than through fashionable outlets.


But wait, there are two groups of Elemental Capabilities – Pure & Derived.

Derived Elemental Capabilities are those that are continuations & combinations of improved Doorway Capabilities. For example, for an automobile manufacturer, having a plant is a Doorway Capability, but continuing production in the plant is an Elemental Capability derived from already existing Doorway Capabilities like the plant, personnel, electricity availability etc. The fact that Maruti Suzuki India Limited’s plant in Manesar (Gurgaon), rolls out the maximum number of vehicles per day (1200 units, as of September 6, 2011) and has been attaining similar benchmarks for the past 14 years (since it started) is a brilliant example of excelling at attaining derived elemental capabilities. Setting up marketing channels are invaluable Doorway Capabilities for retail corporations to start operations; maintaining these marketing channels using a combination of Doorway Capabilities like sales personnel, dealer network, and transportation et al, is a Derived Elemental Capability. Globally, Walmart is an example of this.

The other group of Elemental Capabilities is known as Pure Elemental Capabilities. These are capabilities that have not been derived from Doorway Capabilities but have been developed or acquired anew. Having detailed customer query handling processes, in spite of not being Doorway Capabilities, are essential for almost all airlines and computer selling organisations for able day-to-day customer relationship management, thus becoming Pure Elemental Capabilities that should be acquired & developed by any computer organisation. Virgin Atlantic’s customer relationship management programme, being currently handled by loyalty marketing specialists ICLP (which also works with airline group Star Alliance and for several carriers like Cathay Pacific, Air New Zealand and Qatar Airways) is an example.

ENRICHMENT CAPABILITIES: Any capability that provides the basis for growth over and above the current standards of the organisation is known as an Enrichment Capability. Enrichment Capabilities are not about gaining leadership in the industry, neither are they about obtaining competitive advantage. Rather they are about gaining absolute growth in areas that are critical to the organisation. Jet Airways entered the Indian market in May 1993, and has since then, carried millions of passengers. Since the start of its operation, Jet was clinically involved with a radical focus on improvement of structural capabilities. It continuously attempted to upgrade the most critical structural capability, namely the aircraft fleet. In 2003, Jet Airways started with an operational fleet of 34 Boeing 737s and 8 ATR72-500 aircraft. Since then the airline has earned a reputation for “constantly maintaining its average fleet age below 10 years”, which is characterised by frequent phasing out of aircraft that exceed 10 years of age. As of May 2011, the average age of the airline’s fleet stood at just 5.4 years – the lowest in the industry! Today, the airline’s total fleet of 97 aircraft consists of 12 A330s, 55 B737s, 10 B777s and 20 ATR72s. Aircraft are nothing but Enrichment Capabilities for Jet, as growth of the airline increases with the number of aircraft acquired by Jet, ceterus paribus. In fact, today, despite not being at the top in terms of the number of aircraft in their fleet, Jet Airways has the largest market share of 25.5% (June 2011) and is the only profitable FSC (with a positive bottomline of Rs.96.9 million during FY2010-11) in the domestic market.


But wait. Even Enrichment Capabilities can be pure or derived.

The capabilities that have been derived from Elemental Capabilities are known as Derived Enrichment Capabilities.

For example, a food services organisation might believe after research and inference that improvement of the marketing channel reach might result in improvement of its market share. In this case, the organisation would attempt to Derive Enrichment Capabilities from the already existing Elemental Capabilities by combining factors like PR campaigns, advertising et al. The food services organisation might replicate this combination of its Elemental Capabilities in expanding marketing channels to other geographic regions, thus providing the much needed growth. For an automobile manufacturer, having a plant is a Doorway Capability, continuing production in the plant is an Elemental Capability, but improving production process efficiencies in order to be more cost effective are Derived Enrichment Capabilities. The other group of Enrichment Capabilities is known as Pure Enrichment Capabilities. These are capabilities that have not been derived from previous Capabilities but have been developed or acquired anew. Capability processes covering PR, market scanning & research, training & development, technology & capital asset acquisitions, research & development are all examples of capabilities that can take the form of Pure Enrichment Capabilities if directly acquired or taken over from the external environment. Brand takeovers, joint ventures, plant acquisitions, marketing channel purchases are all examples of Pure Enrichment Capabilities.

POWER LEADERSHIP CAPABILITIES (OR COMPETENCIES): Capabilities that provide the basis for gaining leadership and sustainable competitive advantages in various industries and markets – those that give you Power Brands too – are known as Power Leadership Capabilities or Competencies. This set is what a company should strive to maintain.

For example, becoming the lowest cost manufacturer in any industry could be a direct result of a previous Enrichment capability of cost effective manufacturing becoming extremely superior to those of competitors. Do not forget that this ‘cost effective manufacturing’ must have been obtained after combining various Elemental Capabilities like relevant training of personnel, process improvements & IT systems integration being refined to the highest degree and thus becoming a reason for industry leadership (see chart on previous page for progression). But this can be bought in one straight shot too!

Yes, Power Leadership Capabilities can also be obtained without necessarily goingthrough the progression of organic development of capabilities. M&As are typical examples of how companies attempt in one go to gain Power Leadership Capabilities external to the organisation by taking over targeted companies that have critical and strategically important assets, products, brands, structures and processes. But given the ever-present risk within M&As, it’s better (but not necessary) if Power Leadership Capabilities are developed organically within the organisation.

What I’ve attempted in this massively theoretical editorial is to tell you – the CEO – that the first step to becoming a world class organistion setting superlative benchmarks, is documenting a plan to know, maintain and develop your capabilities and competencies. And if you had no idea how to prepare that document, just blindly implement what I’ve presented here – and keep sending me the royalty.

CAPABILITY & COMPETENCE ADVANCEMENT AGENDA (C2A2)

DOES HAVING TWO CO-CEOS WORK FOR A COMPANY?

HOW GOOD IS A CO-CEO FOR A COMPANY’S SALES, PROFITS, MARKETSHARE, AND SHAREHOLDERS? I FOUND OUT THE ANSWERS, AND WASN’T AT ALL SURPRISED...

In the weeks that followed the first signs of infertility in the US home mortgage market in the new century, panic gripped boardrooms in America Inc. According to the US Government’s Department of Commerce, these dates correspond to the Aug-Sept months of Q3, 2008. Then, the shock was expected, accepted and came with reasons. [Till Q3, 2009, the US economy continued going downhill with GDP growth recorded in the four quarters leading to Q3, 2009: -2.7%, -5.4%, -6.4% and -0.7%]. Corporations which till then had been a symbol of America shining, had fear in their minds – they wanted to avoid losing the pounds gained since 2001. And those who had been doing quite the opposite, sensed a threat to their very existence. One of them was Motorola.

(L-R, starting opposite page): Sanjay Jha (CEO, Motorola Mobility Solutions) & David Brown (CEO, Motorola Solutions) – co-CEOs whose roles and divisions were split after an initial failed start; Anshu Jain & Jurgen Fitschen (Co-CEOs of Deutsche Bank) – an unwelcoming reaction from the stock market on their appointments; and Mike Lazaridis & Jim Balsillie (co-CEOs of the troubled Research-In-Motion) – who will go first?

Motorola then, had become a shadow of its glorious past. Between 1994 and mid- 2008, Motorola’s global market share in the mobility devices market had plummeted from 45% to 9.5% (Gartner). The company had clearly missed the leap from analog to digital. It failed to introduce digital phones, missed out on customer interests when their attention turned towards more software-than-hardware handsets, and its plodding culture and bureaucracy within the ranks resulted in non-exciting launches in the decades leading to 2008 (except for the RazR). At the company – largely regarded as a victim of innovator’s dilemma – cancellation of projects and firing became the order of the day. Finally, after having lost 76.29% of its m-cap since Jan 2000 (from $109.14 billion on Jan 2, 2000 to $25.88 billion on Aug 3, 2008), on Aug 4, 2008, it planned a boardroom surgery. Two men were chosen to rule the fast-disappearing island kingdom and better what Edward Zander had tried with the RazR launch. Sanjay Jha and Greg Brown were the two co-CEOs. The move backfired.

Since Motorola became a victim to the co-CEO leadership practice, its decline accelerated. Until Q4, 2010, the company’s share in the worldwide mobile market – despite an 888.8% rise in sales of Android handsets (which was Motorola’s bet) – had fallen to 2.1%. And how did the co-CEOs do worse for the company than the much criticised authoritarian-andbureaucracy- promoting CEO Zander? While under Zander (between Jan 2004 and Jan 2008), the company had gained 1.2% in market share (to touch 17.5% for Q4, 2007), with its m-cap too appreciating by 24.0% to touch $39.01 billion (as on Dec 31, 2007), under the two co- CEOs, within just a year-and-a-half (between Q3, 2008 and Q4, 2010), the company besides losing 7.4% of the global market share, eroded more than half (55.56%) of their shareholders’ wealth – to touch a lowly $9.26 billion as on December 31, 2010. While everyone – from a near-dead HTC to the ever declining Nokia – moved ever so swiftly to capture opportunities in the 4G market, Motorola, under the duo remained every so dedicated to its engineering and careful to market culture [rather, slow – proof is the delayed launches of its Droid Bionic and Xoom 4G update]. This co-CEO arrangement suffered from delays in decision- making. In an interview with BusinessWeek, Jha had confessed that he takes about “90 days to assess a situation before taking any final decision.” Naturally, much time is spent in convincing the other co-CEO – Brown. 90 days to take any call in the world of mobility beats any logic. The Economist, in a Mar 2010 piece titled, ‘The Trouble with Tandems’, puts the problem with co-CEOs theory rightly: “Joint stewardships are all too often a recipe for chaos. Rather than allowing companies to get the best from both bosses, they trigger damaging internal power struggles as each jockeys for the upper hand. Having two people in charge can also make it tougher for boards to hold either to account. At the very least, firms end up footing the bill for two CEO-sized pay packets.”

The shareholders at Motorola (led by Carl Icahn), having finally realised that this joint-leadership is doing no good to them, split Motorola into two separate companies in Jan 4, 2011 – Motorola Solutions (headed by CEO Brown) and Motorola Mobility Holdings (headed by CEO Jha). Going by the financials during the two bygone quarters, it appears that both the companies are en route to safety. After losing $4.29 billion in FY2008 & FY2009, within seven months of the split in roles, it is quite visible that the move is working – the combined net m-cap of the two firms have reached $19.92 billion (a rise of 115.12%), and the two companies have also become more profitable (with a 206.93% y-o-y increase in PAT for H1, FY2011 to touch $709 million). Motorola invented the 6-sigma more than two decades back. It can’t have two CEOs in the name of ensuring quality, and missing out on timely meeting consumer demands. One CEO on top will do.

Trouble in cases where joint bosses are calling the shots, is not rare. The most recent instance being that of RIM which is led by co-Chairmen and co-CEOs Mike Lazaridis and Jim Balsillie. While Balsillie is the techie, Lazaridis is the salesguy. This combination was supposed to bring out the best in RIM. It has not. Considered to be amongst the biggest threats to Apple and Nokia, RIM’s co-CEOs structure has succeeded, but only so far as to please its small target audience with handsets that lack variety. Three years back, RIM’s mcap stood at an all-time high of $73.47 billion (Q2, FY2008). Since then, RIM has lost 84.14% in m-cap and is today, worth only $11.65 billion. In fact, over just the last five months, with delays in the launch of its tablet Playbook (and the poor reviews) the company’s share price has fallen by 65.5%. RIM in Q1, 2011, lost 5.1% of its global market share y-o-y (which fell to 14%). On the other hand, Apple (rise of 3% to 18.7%), Samsung (+6.5%; 10.8%), and even HTC (+4%; 8.9%) grew their respective pies. And the future? Both IDC and Gartner have bad news for RIM, whose market share is forecasted to fall to a lower 13% by 2015. For others, the picture is pretty. Android (43.8%), Apple iOS (19.9%), the Nokiasaviour Windows Phone 7 (20.3%) are set to rise further. So where lies the rub? Industry experts claim that RIM is not making a bad product. It is only that the company is not delivering what customers want to pay for. And this is where the two co-CEOs are finding hard to match their thoughts. Lazaridis would prefer selling something unique and mass-pleasing, while Balsillie does not seem too confident about RIM representing simple technology. A case in point of this company making a product unnecessarily complicated is the Playbook tablet. Why on earth would any user want to link his tablet to his smartphone to even send an email? Again, time is lost, and the worst case scenario is right in front of the world. Smartphones with no innovation, tablets that are not selling for the right reason (at present, what RIM is selling is a half-baked tablet, on which there is no email app, no calendars, no notes app et al), and two co-CEOs whose performance cannot be questioned as they are also the co-Chairmen of the Board of Directors of RIM. Balsillie should step down and perhaps assume the role of the CTO and Laziridis should continueas the sole CEO and not allow geeks to force him to sell engineering feats that do not help win customers’ dollars. What RIM needs to do fast is to make rapid, incremental alterations to its hardware, software, and platform products. If it does not, it only risks giving up the high-end status cult-crown, and will over time, slip in the priority lists of carriers, and witness a constant fall in margins. Remember: Palm was also once a smartphone leader, but is today, almost nowhere on the charts. RIM can become the second Palm. Balsillie cannot even blame any lack in R&D dollars for not getting his products right. Warren Buffett once wrote in one of his book titled, ‘On the Interpretation of Financial Statements’, that, “If a company has to spend more than a certain percentage of its gross profit on R&D, its competitive advantage cannot be sustained...” According to him, that percentage is 15%. RIM spent 15.86% of its gross profits in R&D last year (FY2010-11). See where the problem is? The geek co-CEO is burning cash, while the salesguy co-CEO is only getting complex stones to sell! Summing up the solution, Rick Wartzman, Executive Director of the Drucker Institute at California- based Claremont Graduate University writes in a BusinessWeek article titled, ‘RIM’s Prickly Board Problem’, “Some governance experts have long suggested that a good way to foster the kind of independence Drucker advocated is to have one individual acting only as CEO and another individual acting strictly as Chairman of the board. Indeed, over the past 25 years, the trend toward dividing these jobs has accelerated, so that 40% of S&P 500 companies now follow this practice. With RIM having had trouble launching new products, its profit forecast dwindling, and layoffs mounting, the board needs to demonstrate that it understands management’s performance is nothing to phone home about.” Strange – in case of Apple, the exit of its CEO is considered a danger to the company. In RIM’s case, the opposite is true!

Other creaky seesaws with two co- CEOs promoting organisational paralysis can be seen too. Bill McDermott and JimHagemann Snabe who have been co- CEOs of SAP, since February 7, 2010, have actually been leading the least-attractive outfit in enterprise solutions business for shareholders. Even in a growing enterprise solutions market (especially after recovery started post-2010), since they took charge of SAP, the company has lost 1.93% in m-cap. In fact, during the very next session of trade post announcement that the duo would take charge of SAP, the stock grew slimmer by 5.82%. To make a quick comparison, since Feb 2010, SAP’s competitors, led by single bosses who can hardly be described as consultative or the sharing types, have done better. While tyrant- Larry Elisson’s Oracle produced a return of 13.77% during the past 17 months, the salesguy-Sam Palmisano’s IBM increased his investor’s money by 40.44%!

It was the two co-Chairmen and co- CEOs Michael Klein and Tom Maheras of Citi Markets & Banking (Citi’s investment banking arm) who led the division to becoming the highest contributor to the bank’s total losses of $29.38 billion in FY2008 & 2009. When Anshu Jain was crowned co-Chairman and co-CEO of Germany’s largest bank (Deutsche Bank; alongisde Jurgen Fitschen) the stock market reacted negatively – one trading session after the announcement on Jul 26, 2011, the stock was down 3.31% to $53.77. Nine trading sessions later (Aug 8, 2011), it had shed 21.86% (at $43.41). Why such a stigma attached to co-CEOs? History is proof. Whether it be MySpace’s Jones and Hirschhorn or Wipro’s Paranjpe and Vaswani or Martha Stewart Living Omnimedia’s Millard and Marino, co-CEOs have always failed the litmus test. And quite spectacularly so. Either the company has suffered or they have been replaced (and the company still suffers!). These outcomes are summarised well by a 2010 paper titled, ‘Shared leadership: Is it time for a change’, in which Dr. Michael Kocolowski of South Florida University writes, “We are dealing with a universal myth: in the popular mind, leadership is always singular. A shared leadership issue to consider involves decision making. Since it is sometimes difficult for a more than one leader to reach consensus, decisions can take longer to make. The benefits of complementary leadership are negated when agreement about organisational priorities differ and irreconcilable differences impede decision making and forward progress.”

When the 20-feet long, 2 tonne-weighing Stegosaurus (a dinosaur that lived in the Woodlands of western North America) was first discovered in 1877, scientists were foreign to the idea of living beings with gigantic lizards & walnut-sized brains. Therefore, a palaeontologist named Othniel Marsh put forward his claim that a second brain resided in the Stegosaurus’ backside, which helped him control the back and lower part of its body. Debates continued over this extinct being that walked the Earth, 150 million years ago. But there is one lesson which this Jurassic Park-page has for today’s board of gigantic organisations that fear extinction: the second brain wherever in the body didn’t quite help Stegogaur’s fate? And it doesn’t seem to be working too well in the modern world either. There can be only one emperor to the empire. There should be only one leader in the corporation!

DOES HAVING TWO CO-CEOS WORK FOR A COMPANY?

SHOULD CEOs WASTE TIME ON “INTERNAL MEETINGS”?

“TOO MANY MEETINGS, TOO MUCH TIME WASTED,” IS A LAMENT ONE OFTEN HEARS WITHIN TOP AND MIDDLE MANAGEMENT. SHOULD CEOS EVEN BELIEVE IN MEETINGS?

Apple’s success is not hard to interpret. Same is the case with Steve Jobs, when you talk about anything (except a liver). After the music industry-defining iPod, the smart phone segment-winning iPhone, the tablet market-establishing iPad – “Apple=innovation” has become the new equation in the world of technology. And all this is not about to change soon. Despite the continuing dispute over Tim Cook’s competence [to fill Jobs’ shoes], the company’s shareholders have been on the right side of celebrations. Today, Apple has become a $310 billion-worth obsession for investors (m-cap on Nasdaq as on June 28, 2011; making it the 2nd-most valuable company in the world), having grown at an annualised rate (CAGR) of 45.8%, making it the fastest wealth-creating corporate entity in the world over the past decade (between January 1, 2000- January 1, 2011).

Innovation yes, but Apple is less about processes than it is about people – people who make machines, people who get fired, and people who have the final word at the end of a disguised six-sigma activity. But these are people who work in an atmosphere of discipline thrust upon them – wearing formal attire to work (unlike the bathroom slipper-and-bermuda casual culture of Adobe & Google) and compulsorily attending internal meetings. In these two respects, the black turtleneck-wearing Jobs has maintained a policy of no exception, whether it be the new recruit or his heir-apparent at Apple. It is perhaps the very reason why despite only a handful of 100 chosen employees being given the opportunity to spend a two-day workshop with Jobs in a secretive location every year, everyone across the board at Apple still breathes in an air of equality. How did Apple outgrow everyone else? [In the past decade, the company’s topline grew by 717.4% to touch $65.23 billion in FY2010, while its bottomline increased by 1677.2% to $14.01 billion.] This ruthless corporate culture that Jobs has nurtured since his return seems a mystery. Actually, it is not.

As much as Jobs finds no justification in the logic of paying people cash for not falling ill, he is absolutely convinced that internal meetings with employees help matters regarding the company’s set goals, product lines, costs and performance. It comes in the form of marathon Monday meetings at the company’s headquarter at 1 Infinite Loop.

This is what he told Fortune magazine in February this year about how important internal meetings are to him and everyone at Apple, “So what we do every Monday is we review the whole business. We look at what we sold the week before. We look at every single product under development, products we’re having trouble with, products where the demand is larger than we can make. All the stuff in development, we review. And we do it every single week. I put out an agenda – 80% is the same as it was the last week, and we just walk down it every single week. We don’t have a lot of process at Apple, but that’s one of the few things we do just so all stay on the same page.” To understand why they are called ‘marathon meetings’, you must note that there are 21 Senior VPs at Apple who report directly to Jobs, besides others like Cook, Jony Ive and Phil Schiller – names that are familiar beyond Silicon Valley. So respecting the voice of someone like a Craig Federighi (Sr. VP, Software Engineering, who of late has been working on new feature enhancement transition for the new Mac OS X: Lion, to pump new life into the declining sales of Mac OS desktops) or a Scott Forstall (Sr. VP, iOS Software, who would always argue for a higher budget allocation to support the ongoing project to come up with a new version of iOS – the next one is iOS 5.0), would mean tens of minutes of ear-filling patience on the part of the core team. But Jobs does not mind.

He knows that his company’s report card has improved dramatically in the past decade only because he has not been scared to give news during team meetings, especially the bad ones. That’s the solution to correct things that have gone wrong or avoiding things that could.

Jobs has never shied away from dropping shells and otherwise not-so-common shockers during regular weekly meetings. Call it tradition. Name a project and you have an instance. One which everyone at Apple would remember comes to mind. One fine Monday morning in the autumn of 2007, Jobs walked into a meeting with his design team and declared, “I just don’t love this. I can’t convince myself to fall in love with this. And this is the most important product we’ve ever done. All this work you’ve done for the last year, we’re going to have to throw it away and start over, and we’re going to have to work twice as hard now because we don’t have enough time.” He was referring to the enclosure design for the first iPhone due to be launched in about a month from then. As any of the 50-odd who attended that meeting at Apple will confess forever – it was unbelievable that this man had the heart to push the reset button at such a late stage. But they all volunteered to make it possible. Result: they re-created the way the first three versions of iPhone would look.
There is another incident which proves another aspect of Jobs’ team meetings – the bombs. CEO Jobs shouts and humiliates individuals or a group of insiders during meetings. In the summer of 2008, following the failure of MobileMe (which was supposed to become the new darling of corporate customers who loved their BlackBerrys), Jobs blasted-off the entire team that created MobileMe in the Town Hall audi in building #4 of the company’s campus. “Can anyone tell me what MobileMe is supposed to do?” Jobs asked. When someone gave a logical answer, he retorted - “So why the f#<>k doesn’t it do that?” The next 30 minutes, Jobs generously rebuked and abused the guilty lot. “You’ve tarnished Apple’s reputation.

You should hate each other for having let each other down,” said Jobs. Worse, after the verbal volley, with immediate effect, Jobs replaced the head of that project. What Jobs does is a lesson for CEOs to emulate. Hold regular meetings and punish the guilty accordingly, and publicly. Never mind the broken hearts – if it does good for your stock and your company’s coffer, sound them off! Here is the lesson: If you thought that giving the employees a stick in public was unethical, think again. That is not what successful leaders like Jobs think. Today, thanks to him, Apple is the World’s Most Admired Company for the fourth year in a row, as per Fortune’s ranking for 2011 obtained through a survey of business leaders around the world

There are other CEOs who follow the scripture that advocates internal meetings to the hilt. One of them is Sam Palmisano, the 59 year-old CEO of IBM. When Palmisano took over IBM, the Big Blue giant was losing ground fast. Revenue was declining and hardware no longer seemed the way. Keeping the long term in mind, Palmisano started engaging himself in gruelling long session with IBM’s researchers, during which he urged his employees to “track and shape the tech trends that will define the world a decade or more” later. Sweeping troubling matters under the carpet is not his style, and the proof of this is the manyhours- long discussions that he holds with IBM’s lab directors, with whom he discusses corporate strategy and the future of IBM’s technology. And to give you an idea of how unkind he can be during the interactions, his lab directors confess that showing up unprepared is the worst thing that you could do, because Palmisano values his own viewpoints.

Having shed its hardware deadweight at the right time (in 2005) despite the world opposing his move [“Services was seen as a low profit business when we got into it. We were criticised,” he tells Forbes], IBM has today become one of the only three brands in the world with a valuation in excess of $100 billion ($100.85 billion), and is the Most Admired IT Services Company in the world as per Fortune. From meeting 8,000 IBMers in Beijing’s Great Hall of the People to discussing growth with his employees at the Thomas J. Watson Research Center in New York on the company’s 100th birthday, Palmisano travels 200,000 miles a year to meet his employees. In fact, he has pumped-in the habit of meetings into the culture of IBM. While talking about uncountable pre-sales preparation meetings at IBM, Mike Karels, a former employee of IBM notes, “I cannot tell you how many meetings we had, before meeting with the customer…” IBM’s m-cap has risen by 57% since he took over. The company today is only the fourth in US with an m-cap in excess of $200 billion ($200.7 billion on Nasdaq, as of June 27, 2011). This CEO makes himself heard through what is called “meetings with staff ”, expressing both his pleasure & displeasure at will. He knows it works.

Leaders have to appreciate that even with the right team in place, leaving the organisation to prosper on autopilot sans engagement with the employees is wrong. This would mean that bosses should necessarily meet their SBU heads and other employees at least once a week (the higher the frequency the better), and give them an honest feedback on their respective performances – good or bad, encouraging or shameful. In their Fall 2007 paper titled, The CEO’s role in leading transformation, Carolyn Aiken (Consultant at McKinsey Toronto) and Scott Keller (Principal at McKinsey Chicago) conclude, “Typically, the first order of business is for members to agree on how often the team should meet, what transformation issues should be discussed, and what behaviour the team expects and won’t tolerate. Successful CEOs never lose sight of their responsibility to chair review forums. Through these, they identify the root causes of any deviations, celebrate successes, help fix problems, and hold leaders accountable for keeping the transformation on track.”

The reason why spending time interacting with employees is critical is because the role of a CEO is also one that of an reinforcement agent. A. G. Lafley, former CEO of Procter & Gamble (the current #5 company in Fortune’s Most Admired Companies ranking 2011) is an example. When Lafley took over in 2000, P&G was a ship sailing amidst rocks. When he handed over the baton on June 10, 2009 (to become the Chairman of the board), P&G was its powerful self again. So how did Lafley choose a new era over a lost decade? A hard taskmaster, Lafley has always been an advocate of employee engagement through meetings and one who has used words of praise and denigration alike. After the initial meetings with existing employees, Lafley understood that he had to re-do the consumers- employees-shareholders loop and alter management and cost structure to a great extent. First, he reduced R&D dollars greatly. Secondly, he re-jigged the company’s operational framework.

Through subsequent interactions with employees at various levels, he impressed upon them the need to keep that framework in mind, while taking all important decisions. Also, he put some new people in charge of some divisions. He made these changes only after many meetings. But being the hammer-hand that he was, he still had his choice of candidate on top. For instance, he appointed Deb Henretta as the new head of the declining baby care products segment, despite no other board member supporting her case. Reason – they felt she had no idea of how the machines worked. But Lafley knew her reputation for brand-building and marketing. Within two quarters, the segment’s sales began climbing. Later, she even became the head of P&G’s Asia operations. In his June 2009 Harvard Business Review paper titled, A. G. Lafley, Judgment, and the Re-do Loop, Dr. Noel Tichy, Prof of OB & HRM at the Ross School of Business (University of Michigan) concludes, “Lafley invited his top team to a meeting where each had a chance to make a case for a favoured candidate over Henretta. He took their input seriously, but at the end of the day he still believed he’d made the right choice.

He then explained his reasoning in detail – solidly grounded in his consumer- focused story line, which he had relentlessly drummed into their heads. The outcome may not have satisfied everybody.” But what was most important was that in his plan of action to take P&G ahead through marketing, Lafley moved along with his team. Talking about the need for seniors to spend time with subordinates over internal team interactions, Lafley says, “You need to understand how to enroll the leadership team. As a rule of thumb, 80% of the team’s time should be devoted to dialogue, with the remaining 20% invested in being presented to. Face-to-face meetings, as opposed to conference calls, greatly enhance the effectiveness of team dialogue. Excruciating repetition and clarity are important – employees have so many things going on in the operation of their daily business that they don’t always take the time to stop, think, and internalise.” So, did Lafley’s meet-and-discuss strategy work? Sure it did. Under Lafley P&G gave many innovations to the world of consumers (like washing detergent that could be used in cold water, toothpaste that whitens your teeth et al), which showed their effect on the company’s financials as well.
Numbers prove why this turnaround story was as much about cash than it was about exciting tales that were born in this one-divorced, twice-married CEO’s “huddle room” on his 11th floor office in Cincinnati – during his tenure, topline increased by 109.02% to touch $79.70 billion (FY2009) and profits increased 257.45% to touch $13.44 billion. And under his decade-long reign, the company’s market value appreciated by 136.49% to touch $175.4 billion – enough to convince shareholders that his principle works.

Research also proves why spending time with insiders helps. After analysing the timetable of 94 European CEOs of major corporations, Prof. Raffaella Sadun of HBS’ Strategy unit, in an April 2011 paper titled, What CEOs Do, and How They Can Do it Better, concludes, “The vast majority of a CEO’s time, some 85% was spent working with other people through meetings… while only 15% was spent working alone. Of the time spent with others, CEOs spent on average 42% percent with only “insiders”; 25% with insiders and outsiders together; and 16% with only outsiders. Likewise, time spent with insiders was strongly correlated with productivity increases. For every 1% gain in time spent with at least one insider, productivity – for example, profits per employee – advanced 1.23%. Less reassuring,however, was that the time CEOs spent with outsiders had no measurable correlation with firm performance.”

Even Prof John P. Kotter of HBS proves the same through his June 2009 paper titled, What Effective General Managers Really Do, “Successful General Managers [GMs] spend most of their time with others. The average General Manager spends only 25% of his working time alone, and that time is spent largely at home, on airplanes, or while commuting. Few spend less than 70% of their time with others, and some spend up to 90% of their work time this way. They spend time with many people in addition to their direct subordinates and their bosses. General Managers ask a lot of questions. In a half-hour conversation, some will ask literally hundreds of them.”

There are also some who believe that timings of meetings should always find a spot on the annual calendar and that last minute appointments and surprise calls only show indiscipline on the part of a CEO and the organisation. Wrong says Prof Kotter. Writes he, “Unplanned and unstructured activities help General Managers address two critical challenges: figuring out what to do and winning widespread cooperation. The key tools for meeting these challenges are flexible agendas and broad networks of relationships. With flexible agendas, General Managers capitalise on unanticipated opportunities that emerge in day-to-day events. With broad networks, General Managers can use impromptu encounters to exert influence far beyond their chain of command.” Team meetings make even a process-oriented company like GE versatile and strong to take on challenges of change; and the more dynamic the timings, the more your employees are on their toes. That keeps the organisation awake 24x7. What better?

It was the surprise plant visits (and the grinder sessions that followed) and the feedback notes that made Jack Welch feared and GE revered as a process-oriented, people-centric company. Welch used meetings & review sessions to advantage. Every January, he had meetings with GE’s top 500 executives in Boca Raton (Florida), and every month he took teaching sessions at Crotonville.

Also, each April, he undertook an annual review of employees of the executive level and above. These were called the ‘Session C’ meetings, which ran for 20 days. Everyone knows that these meetings (and many more) gave Welch the flexibility to mould and change GE’s strategic direction, and to discover talent. Discussions over lunch with managers (even many levels junior to him) were a common sight. 3592.3% increase in mcap (from being a $13 billion maker of appliances into a $480 billion conglomerate), 993 acquisitions (worth $13 billion) and a spin-off of 408 businesses (for $10.6 billion) – all this even Welch could not have managed in two lifetimes as CEO (forget two decades) had he not been fanatic about intra-and inter-team meetings. It has been eleven years since Welch left GE. But despite losing 59.61% of its market value since then, the brand is still amongst the top ten most valuable brands in the world ($50.31 billion, as per Millward Brown Optimor 2011). Beat that for the magic called “internal meetings”. [Lesson: If you want to see a real transformation sweeping through your organisation, make internal meetings mandatory and extremely regular. Enforce this law and witness change happen!]

SHOULD CEOs WASTE TIME ON “INTERNAL MEETINGS”?

The “Gut” Revelation!

Before he became a billionaire, he was a paradox. Today, he’s both. Neither does his surname suit his waistline, nor is he ashamed of carrying around a “plastic wristwatch”. He owns over 222 companies and relies on his “gut-feel” more than numbers and computers. That for you is Carlos Slim, the richest man in the world. From his early stock-broking days to amassing a personal wealth of $71 billion (7.07% of Mexico’s GDP for 2010), he has not failed to put his intuitions to use. When he bought around 3% of Apple’s shares in 1997, the stock was trading at $10. Today, it stands at $355, and his empire’s value from Apple’s stock alone amounts to $9.76 billion. While most with years of experience even in the very world of technology failed to read Apple’s future, the non-tech savvy Slim allowed his gut to take control. Consider his purchase of Teléfonos de México (Telmex) in 1990. His company Grupo Carso bought a 21% equity stake (with 51% voting rights) in Telemex for a sum of $1.76 billion. It was considered an overpriced asset, but Slim thought otherwise. Only, he had little proof to support his claim. For years, sales of the 43 year-old company had stagnated around the $2 billion mark, its corporate structure was in need of repair, the sub-6% penetration teledensity had not improved for years, the employee base was overbloated & 10% of its lines were inoperable. The facts were worrying.

Today, Telemex (considered Slim’s crown jewel) controls more than 90% of the Mexican telephone lines and records an annual topline of $10.2 billion (FY2010). “I’ve always thought we got a very good deal on Telmex, even though people thought we overpaid at the time. We won because we paid more,” says he. Currently, his companies account for 33% of the value of Mexico’s leading stock market! Slim is just one of many entrepreneurs who scripted success stories by allowing their intuitions to take charge. When Bill Gates dropped out of HBS and started a business in a garage, there was no guarantee that it would work. It did not. His first business with Paul Allen called Traf-O-Data was a failure. His gut told him to try again. This time, Microsoft took off. Henry Ford & Walt Disney failed many times before they became successful. It was gut feel that told Akio Morita to launch Sony as a rice-cooker brand, and which convinced Bob Lutz to replace Chrysler’s Cobra’s engine with a heavy-duty truck’s (the car spurred Chrysler’s turnaround in the 1990s). Here’s how billionaire Donald Trump sums it up – “Experience taught me a few things. One to listen to your gut, no matter how good something sounds on paper...”

Last year’s analytics report by Accenture titled, Weak Analytics Capabilities..., drafted after interviewing top officials at more than 500 blue-chip organisations, concludes that senior managers don’t see “fact-and data-driven analysis as critical when making key business decisions and, instead, rely heavily on ‘gut feel’ and intuition.” Add Prof. Smith (University of Surrey) and Shefy (Academy of Management Executive) in their paper titled, The Intuitive Executive, that, “Intuition encompasses expertise, judgment and implicit learning, sensitivity and creativity.” Even a year 2009 paper by Choudharya (Surrey), Karlssonb (Reykjavik University) and Zoegac (University of London) titled, Evidence on Price Rigidity in Customer Markets, concludes that, “In many difficult situations [of decision making] managers go by their own intuition or gut feeling.” In his work titled, Implicit learning and tacit knowledge, Prof. Arthur Reber (University of Wales), concludes that, “Intuition is explicable, and can lead to improved executive decision-making capabilities through the development of a finely tuned intuitive intelligence.” Gut feel has as much say in hiring decisions. According to a 2009 HBR paper titled, The Definitive Guide to Recruiting in Good Times and Bad, Profs. Nitin Nohria & Boris Groysberg of HBS state: “When we surveyed 50 CEOs of global companies, along with executive search consultants who rated about 500 firms, we found that fully half the companies relied primarily on the hiring manager’s gut feel.”

The opening article in this issue of Strategic Innovators, titled, Strategic Intuition: The Key to Innovation, authored by Prof. William Duggan of Columbia Business School, talks about how “flashes of insights” lead to innovation. “Analysis and creativity work together in the whole brain, to give you a creative idea that makes analytical sense in a flash of insight. This is what I call intuition - gut feelling,” he writes. He further describes how GE under Welch (who himself was known for taking decisions depending on what his gut would suggest) practised the “insight matrix” team-exercise. No wonder, under him, the company became a powerhouse of innovation!

The “Gut” Revelation!