4

Building a Shared Commitment to Excel

HAVING A HIGHER AMBITION is one thing, but it’s quite another to actually deliver on the promise of creating and sustaining superior economic and social value. To do so requires that leaders throughout the organization commit to raising aspirations and performance expectations. As Tim Solso of Cummins explained, “it is not enough for a company’s people to have a ‘best efforts’ mind-set, in which they say to themselves, ‘I’m smart, I work hard, I did everything I could, and that’s the best I can do,’ as opposed to, ‘Did I do what I said I was going to do?’”

Moving to a high-performance culture cannot be mandated. Employees must see it first as legitimate, then ultimately as essential to organizational pride. Ironically, we found that it was precisely companies like Cummins, with a long and distinguished commitment to a larger social purpose, that faced the greatest challenge in creating a high-performance culture. Such companies tended to have “nice” cultures in which managers found directly confronting performance problems difficult. But higher-ambition leaders saw that the failure to set a high performance standard has negative consequences, not just for competitiveness, but also for the commitment of their people. Herman Miller’s Brian Walker explained, “People won’t get fulfillment from an organization that isn’t recognized as being high performance.” Steven Holtzman, former CEO of Infinity Pharmaceuticals, suggested that the best employees need colleagues around them who will “raise them up” so that they can do their best work. He remarked that world-class talent attracts world-class talent, not unlike in jazz: “Coltrane wants to play with Parker even though he can succeed elsewhere, right?”

As you may recall from our discussion of Campbell Soup Company in chapter 1, it was hard for anyone to imagine that Campbell could become a magnet for world-class talent when Doug Conant became CEO in 2001. The company did not have the kind of inspiring aspirations that might attract smart, talented people. Employees just hoped that, somehow, their company could avoid a complete rout in the marketplace, escape total disaster in the stock market, and somehow hang on until something positive might happen.

As we saw, Conant rather swiftly settled on an unlikely turnaround strategy that centered on the revival of what many observers considered to be an exhausted product: condensed soup.

Conant did not go at his new strategy in a conventional way. He did not implement a program of cost cutting, top-down control, and draconian actions designed to boost short-term results. Rather, he began by rethinking and renegotiating the expectations for performance that he believed had to be met to achieve the long-term, sustainable creation of financial value.

First, Conant made clear to his board of directors and key investors that rebuilding the business would take time. “I was just unwilling to commit to a quick fix,” Conant told us. “We wanted to go from being uncompetitive to being competitive in a mature industry where there is well-developed mature competition. It was going to take us three years at least.” Conant explained to the board that standards and discipline had slipped in virtually every area of the company’s operations. “We had to get our product quality up to the right standards. We had to restore our consumer spending in the business. We had to manage our price gaps smartly. We had to build our innovation pipelines. And we had to rebuild the infrastructure to support all this work,” he said.

Faced with such a dire diagnosis, Campbell’s directors might well have considered other options for the beleaguered company, but they supported Conant in his ambition to get Campbell into “fighting form for the long term.” What’s more, the major investors, members of the founding Campbell family, were eager to restore the company’s former luster and to build a business that would be “sustainably good.” However, Conant knew that, even with this high-level support, he and the company would have to perform: “I wouldn’t want to be sitting in this seat not performing,” he remarked.

Knowing that he had a high-level mandate to rebuild the company, Conant turned his attention to his leadership team and worked to align them around the Campbell Success Model, a simple articulation of what would be required to create and sustain long-term value. As we learned in chapter 1, it had two components: “winning in the marketplace” and “winning in the workplace.” To ensure that the model would be more than just words, Conant established simple, clear performance metrics for each. Winning in the marketplace would be measured by total shareholder returns relative to peer companies. Winning in the workplace would be evaluated by levels of employee engagement as measured by the Gallup Employee Engagement Index.

Conant was relentless in driving for higher performance on both metrics. “Of the 505 leaders at Campbell who were originally surveyed, over 270 were in Gallup’s bottom quartile,” Conant recalled. At the time of our conversation with Conant, the number of leaders in the bottom category had dropped from 270 to 38. “You declare yourself and you systematically work to do better, making the tough calls in a timely and tender way when you have to,” he said. He brought this same level of discipline to winning in the marketplace. “Every year we measure our total share-owner returns relative to our peer group,” Conant told us. “Our goal is to have, over a decade, the best total share-owner returns in our industry. All the math we’ve done says that if we can stay above average on a rolling three-year basis over that decade, we will be the best. Inevitably, people reach too high and fall down. In a world that demands excellence every quarter, you’ve got to be consistently above average.”

Declaring a new set of measurements does not mean that everyone accepts or supports them. Conant soon realized that he was meeting at least as much resistance to these performance aspirations from his internal leadership team as he had experienced from the financial analysts to his declaration that condensed soup would save the company. “One of the key challenges we encountered early on was that the organization had a scarcity mentality,” Conant said. “It was, ‘Well, what do you want us to do? Do you want us to deliver this year? Or do you want us to set the table for next year?’ We’ve had to drive hard to build an abundance mentality. Which is: we’re going to do both. We have to win in the marketplace, and we have to win in the workplace, too. It’s easier to get to one or the other. It’s harder to do both. But if you want to be extraordinary, you have to do both.”

To overcome the resistance, Conant devoted a great deal of attention to establishing the legitimacy of his performance expectations. He realized that he couldn’t expect others to live up to the new performance expectations unless he and his executive team lived up to their promises to them. “We had the Campbell’s Promise, which grew out of a comment I made the first day of work. I said, ‘We can’t expect you to value our agenda as an executive team until we tangibly demonstrate to you that we value your agenda. In my experience, it doesn’t work any other way.’” The Campbell’s Promise essentially says that the company values its people and their personal aspirations. When people come to believe that is true, they are inspired to value the Campbell corporate agenda as well.

To make the promise real, Conant developed criteria for evaluating leadership performance, which became known as the Campbell leadership model. As Conant explained: “The Campbell leadership model said the first expectation we have of you is to inspire trust. You have to earn the right to lead. The second thing is you have to create direction in collaboration with your teammates. The third thing is you have to align the organization to execute on that direction. The fourth thing we said is that, once you’ve got the direction clear and aligned, then you have to build organization vitality—motivate and inspire the people to go do it. The fifth thing is to execute the plan with excellence. The sixth is to produce extraordinary results. Anything we were working on had to connect to the mission to be extraordinary.”

Conant also realized that earning the right to lead began with him. He explained:

How do you win over the organization? You declare yourself. You do what you say you are going to do. And then you have to make sure you tell them you did it, because they’re not always paying attention. You have to do this hundreds of times. You build up the emotional bank account. You start out way in the red. You get to neutral. And eventually you get to the place where you’re in the black. I also found early on that to gain the trust of people, I had to eat humble pie when it was appropriate and acknowledge we made some bad decisions. I made some bad hires that I had to deal with earnestly and clearly and say, you know, I made a mistake—and then move on.

Conant’s willingness to be held accountable enabled him to build a culture in which managers felt accountable for delivering on their promises, not just to Conant, but to each other. “You have to start forcing executives to share with one another. You create an environment that’s self-governing. You can’t govern it all,” he said.

To build this sense of shared accountability, Conant made a contract with each of his staff members. It stated each person’s annual objective and what he or she would do each quarter to deliver on the annual goal. Then each had to do a weekly posting to show how he or she was doing. These were distributed to all the executives on Friday afternoon to read over the weekend. Conant remarked, “We had a staff meeting every Monday, and we talked about how we’re doing. Every executive had an opportunity to ask questions. It quickly became a process that was self-governing. When a staff member would present at the Monday meeting a result that did not meet expectations, he might say, ‘Yeah, but it’s going to be better next week.’ One of the executives around the table would say, ‘Didn’t you say last week that it was going to be better this week?’”

Conant’s approach to building a different performance management culture and to making that culture real—both through his personal actions and through a disciplined set of operating processes—paid off, both in the workplace and in the marketplace. Campbell’s Gallup results have improved dramatically. It ranked in the ninth percentile in 2001; in 2009, the company had climbed to the eighty-second percentile for overall employee engagement. And from its 2001 employee engagement ratio of 1:1, in 2009, the company achieved a world-class engagement ratio of 23:1 among all employees, and 77:1 in its top 350. At the same time, the company won two awards recognizing its commitment to gender diversity and, in 2010, received a top ranking on a list of socially responsible corporations.¹

Conant also achieved his goal of above-average performance on a three-year rolling basis. In 2008, Campbell’s earnings from continuing operations rose by 7 percent. Even as the economy tanked in 2008, Conant increased ad spending, boosted production, and began construction on a new headquarters building. In September 2008, as Lehman Brothers filed for bankruptcy and financial markets ground to a halt, the share price of 499 of the companies in the S&P 500 dropped. Campbell was the only one that didn’t.

As Conant’s story illustrates, the leaders in our sample have a higher ambition for how they manage performance: to build a worthy institution that delivers superior results quarter after quarter, and year after year. To ensure that their organizations are able to deliver on this promise of sustained high performance, higher-ambition leaders:

• Create a culture of accountability.
• Earn the right to lead.
• Build the future one quarter at a time.
• Focus on the fundamentals that drive sustainable success.

Create a Culture of Accountability

At the core of establishing a performance management discipline is a simple moral precept—deliver on your promises. We have seen how Conant increased transparency and peer-to-peer accountability in his weekly staff meetings to build an ethic of increased performance accountability for delivering on commitments.

Peter Sands and the leadership team at Standard Chartered Bank helped build a performance ethic by bringing in the voice of investors. SCB was a company with a lot of promise that treated its people well and had a strong sense of ethics, but it had not delivered on its performance commitments. As Sands explained, although the bank was operating in some of the fastest-growing parts of the world, it had largely failed to realize the potential of those markets, thus earning itself the “jam tomorrow” epithet. “We said, ‘You’ve got to hear what these people outside are saying, because it’s not pretty,’” Sands recalled. “The conversations we had with investors in the first two months were brutal.” While preparing the budget for 2003, for example, the head of consumer banking, Mike DeNoma, set up a conference call with a hundred bank managers and three outside analysts. “He did that as his way of setting up the discussion around what the target should be, and the shape of it, and how they should think about it,” Sands said. “And he wasn’t saying they’re necessarily right; he just said, ‘You’ve got to understand. If you’re interested in shareholder value, this is what’s going on out there.’” This dose of external reality helped to realign SCB’s people on the need to drive for higher performance. As Sands explained, they actually “loved it. They said, ‘why hasn’t anybody told us before?’”

Unfortunately, some of the leaders in our sample had a much more difficult time convincing their people of the need to improve their performance ethic. We encountered the most dramatic example of the challenge of shifting performance standards at Mahindra & Mahindra.

K. C. Mahindra and his brother J. C., along with partner Ghulam Mohammed, founded Mahindra & Mahindra (M&M) in 1945 to assemble Jeeps in a franchise arrangement with Willys Corp., the U.S. manufacturer of the four-wheel-drive vehicles. Anand Mahindra is the grandson of J. C.; his uncle is Keshub Mahindra, the company’s chairman. Anand received his MBA from Harvard Business School in 1981. At the time, the Indian economy was growing, and Anand’s father beckoned him back to India to join the family business. Anand decided that the opportunity looked bright and joined Mahindra Ugine, M&M’s steel business, as executive assistant to the director of finance. The timing proved unfortunate. “The moment I came,” Mahindra told us, “the economy tanked.” In an attempt to provide it with a shot in the arm, India then deregulated the steel industry, and as the country fell deeper and deeper into recession, thirty-three new competitors sprang up. Mahindra had little to do because the business itself had little to do. In addition, he didn’t find it easy being the son of one of the owners who had just arrived from the United States, especially with the rather nepotistic sounding title of executive assistant. “Everybody had suspicions and would push me aside,” Mahindra said. Finally, however, things got so bad that everybody realized the company could not continue in its sleepy ways. That’s when they asked, “Where’s that MBA?” They charged Mahindra with turning the company around, which, over the next ten years, he successfully did.

During his years at the steel business, Mahindra had resisted a number of overtures from the company’s directors, who wanted him to join the auto business. “Why don’t you shift and join your uncle’s company?” they would say. “There are no heirs here. Why don’t you come in? You have the credentials.” But Mahindra would reply that he still had work to do at the steel business. In 1991, however, in the wake of a failed takeover attempt, the pressure on him mounted. The economy was on the skids again. M&M had suffered its first-ever operating loss.

Mahindra finally agreed to join the auto unit. There, he found a stagnant environment, not unlike the steel business when he had joined it a decade earlier. “This was a company that had for years been dormant because it had a license to produce Jeeps,” Mahindra said. “It never had competition.” Once again, in response to the economic crisis, India opened up still further, liberalizing whole industries and allowing in substantially greater amounts of foreign investment. “All of a sudden, you are looking at a future that was going to be potentially flooded—inundated—with competition, both locally and abroad,” Mahindra said. “There are people saying, ‘You’re not going to last more than a couple of years. You better get out of the auto business.’”

The critics were right that Mahindra & Mahindra was in no condition to compete on the world stage. “Productivity was abysmal,” Mahindra said. “Work discipline and quality were abysmal.” This was largely because of India’s labor laws, which made it almost impossible to increase production or improve productivity. As reported in a 1993 article in the Globe and Mail, “Every time Mahindra increases production, it must increase its labor force. As a result, says deputy managing director Anand Mahindra, assembly-line employees work an average of 3.5 hours a day, which makes his unit labor cost only slightly lower than those for a car manufacturer in the United States. In 1992, Mahindra imposed a new rule: no card-playing on the factory floor. No matter, he says. Idle employees lie down beside the assembly line and sleep.”²

This unproductive state of affairs cannot be attributed only to Mahindra or its management; the social and economic environment also played a role. M&M had been protected for so many years, it had not had to worry much about many of the standard challenges that most for-profit companies face. “When you have a monopolistic environment, why on earth would you invest in R&D, invest in technology?” Mahindra asked. “The people who ran the company were the manufacturing guys, because they were the only ones who determined profit and output. The selling was not a problem, since there was very little competition. Quality was never an issue that you worried about. So you never needed general management strategies of any kind.”

Mahindra was also aware that M&M had a number of real strengths. There was an “incredible we’re-all-in-this-together mentality,” Mahindra told us. “There’s a real feeling that, when our backs are to the wall, don’t mess with M&M. I inherited that.” Mahindra also found a set of ethical values that manifested itself most strongly in a way that we thought a bit surprising: internal auditing. “If you ask me which was the best damn department here, it was internal audit,” he told us. “There was a very strong internal audit culture.”

But, of course, even world-class auditing is not a generative process; a company needs to conduct revenue-producing activities that are worth auditing. Mahindra decided that, since manufacturing drove the business, the company would have to begin its transformation on the shop floor. As he toured the main engine plant, stepping over sleeping workers as he went, he realized that “this is where we need to make the change first.” He engaged a consultancy with experience in auto manufacturing to help M&M with business process reengineering, with the goal of reducing costs and increasing productivity, while still adhering to the labor laws.

But Mahindra could not accept the lack of performance and realized that he would have to build a different level of performance ethic on the shop floor. He chose to announce this just before Diwali, the Indian festival of lights, celebrated in September or October, when M&M distributed the annual bonus to its workers. “Bonus sounds like a bonus you give for performance,” Mahindra said. But it was obvious that bonuses at the M&M plant “had nothing to do with performance. It had just become an entitlement.”

Mahindra spoke to the factory employees at the main engine plant. He told them the company was not doing very well financially, that competition was only going to get tougher, and that, in return for the annual bonus, he expected employees to give something, perhaps something as simple and indicative of a new approach to performance as not sleeping on the factory floor. Although he did not directly threaten to withhold bonuses, his message still did not go over well. Diwali is an important holiday, and emotions were already running high at the plant. People counted on their bonuses to shop for food and gifts, and were making plans to celebrate with their families.

A little while after he had made his announcement to the employees, Mahindra looked out his window and saw that workmen were abandoning their stations on the factory floor, banding together, and rushing toward his office. “I remember them running towards me and saying, ‘There’s the boss! Let’s get him!’ They were a pretty wild mob,” Mahindra said. Fortunately, four union leaders were there and realized what might happen. They shoved Mahindra into a back room, stepped inside with him, and locked the door. “If I had been out there,” Mahindra said, “I would have been thrown over the balcony. They were that emotional. I was under siege. They were banging at the door. I actually called my wife and told her, ‘I may not make it back.’”

After four hours, the employees calmed down, and Mahindra decided to go out and talk with them. The union leaders advised him not to, but he went ahead. “I walked out and I said, ‘Sit down.’ They all sat down. I said, ‘Look, I’m here. You want to throw me over this balcony? You can do it. But that won’t change anything. The world is changing, and there’s not going to be a free lunch anymore. If you want to throw me off now, fine. You want to talk? I’ll come back tomorrow and talk.’” When he was finished, the workers’ self-appointed leader agreed to meet the next day, after which the workers came up and shook Mahindra’s hand. “One of them even asked for my autograph,” he said.

In retrospect, Mahindra realized that he had not chosen the best time to renegotiate performance expectations. “Diwali’s like Christmas. You don’t negotiate and tell people after fifty years to give up something at Christmas time. And they were about to go shopping and so on. To be honest, I underestimated,” he told us. But Mahindra had also established his legitimacy as a leader. He made it clear that the demands for higher performance were not arbitrary, but linked to the reality of a newly competitive marketplace. And his insistence on a higher level of performance paid off. Now, said Mahindra, “our productivity is second to none.”

Earn the Right to Lead

A critical reason the leaders in our sample were able to establish a higher performance standard for their people was that they set an equally high standard for themselves. These leaders were well aware, like Conant, that they had to “earn the right to lead.”

For example, when Ed Ludwig was promoted from CFO to CEO of Becton Dickinson (BD) in May 1999, he quickly discovered that “we weren’t going to make our numbers for the year.” The problem was that BD had expanded too much and too quickly in the late 1990s, had let its cost base grow too rapidly, and had completed a number of acquisitions that hadn’t fully delivered their expected value. Rather than point the finger at others in the company, however, Ludwig began by doing, in effect, a 360-degree performance assessment of BD’s senior leadership, including himself. Early in 2000, he commissioned a task force of sixteen of his best managers to interview key leaders throughout the organization. Their goal was to identify the issues that were standing in the way of BD’s success, by which Ludwig meant the creation of both financial and social value for the long term. BD is, after all, a company whose vision is to be as well known for its contributions to global health as the Red Cross is.

After the task force had completed its work, the members identified two main barriers to success. The first was a project called Genesis, a multimillion-dollar implementation of an SAP software solutions system, that Ludwig had been leading as CFO. He had intended Genesis to be a way to deal with manufacturing issues and the IT problems associated with Y2K, and had expanded it into other areas of the business. By the time Ludwig became CEO, Genesis “was really off track,” he said. The design wasn’t working right. This implementation group had isolated itself from others. A hundred million dollars had been spent, and the project was far from complete. What’s more, as Ludwig put it, “my name was all over it.”

The second issue was that BD offered its distributors incentive programs that tended to distort their ordering patterns, thereby causing significant supply chain inefficiencies. While these types of incentive programs were common in the industry at the time, they were inconsistent with Ludwig’s aspiration to manage the company for the long term. Ludwig responded to the findings of the employee task force by taking personal responsibility for fixing both of these problems. He stood up before his senior leadership team and the members of the task force and said, “These things are wrong. One is broken and the other isn’t the right answer for us or our distributors, and we’re going to stop.” He promised that BD would “stop offering these distributor incentives by the end of the year, even if it means missing our numbers,” and that he was stopping “further implementation of the Genesis project until the problems with it had been fixed.”

To make good on these promises, Ludwig had to endure the toughest period in his professional career. He told us that, after the September Labor Day break, “we came out, and said, ‘We’re restructuring the company.’ We took a big charge. We eliminated twelve hundred positions. We terminated the distributor incentive programs, all at the same time. So this was sort of a nuclear blast.” From a share price that had reached a high of over $40 at the time of his appointment as CEO, BD’s stock fell to a low, below $22 on September 26, 2000.

Then came the breakthrough. Around 7:00 p.m. one evening, the investor relations director burst into Ludwig’s office and announced that Rick Wise, an independent investment analyst, had changed his negative view on BD stock and given it a buy rating. “I didn’t know Rick Wise from Aunt Tillie,” Ludwig told us. “But he said, ‘I think Becton Dickinson has gotten religion. They faced the brutal facts.’ We almost cried!” By the end of October, BD’s share price had rebounded to the mid-$30s.

“That was kind of the end of the beginning,” Ludwig said. “What happened after that? We implemented what we said we were going to do.” Ludwig delayed implementation of Genesis for a year, at a cost of about $15 million, in order to fix it, but the results proved worth the expense and effort. “We got it right,” Ludwig said. He told us that an independent analyst has cited the installation “as one of the most ambitious installations of SAP that they’ve experienced. People are coming here to learn from us how we do this stuff.” And not only did BD end the inefficient distributor incentive programs, it completely revamped its sales and distribution procedures. “Our supply chain now is just unbelievable,” Ludwig said. “Order fill rates, efficiencies, back orders—any way you want to measure, it’s much better.” Gross profit climbed from 48 percent to 52 percent, “and a lot of that is in the supply chain efficiencies,” he said.

What about that most conventional metric of financial performance, share price? Ludwig made reference to the analyst, Wise, who, since issuing the buy order, “has made a lot of money for shareholders.”

However, perhaps most important for Ludwig was the “trust and credibility” that he gained, he said, “from my team, first of all, and from the rest of the organization, when I stood up and said these things are wrong.” The example that Ludwig set enabled him to create a very different performance ethic within the company. He could now ask for the same level of openness and honesty from his organization that he had demonstrated in his own behavior. He explained, “The reason the last six years have been so successful is because we’ve been brutally honest with ourselves. If you have a $6 billion operation, operating in fifty countries with twenty-seven thousand people, somebody’s going to be off their game. What’s happened over the last couple years is that the country leaders, the regional leaders, the general managers, and the business presidents are doing a better job anticipating those problems, confronting them, and dealing with them as relatively small problems rather than having them get to be big problems.”

Build the Future One Quarter at a Time

Higher-ambition leaders approached the relationship between delivering short-term performance and building the capabilities and assets required for the longer term quite differently than their more traditional peers. Leaders like Conant realized that they were not immune from the pressures of financial markets or boards of directors. However, they also were extraordinarily skillful in managing short-term demands in a way that contributed to the development of long-term capabilities and value. This required working hard to set the right expectations with their boards and investors. Like Conant, these leaders “were unwilling to commit to the quick fix.” However, it also required setting expectations with down-the-line leaders so they understood they had to adopt an “abundance mentality,” as Conant put it, in which they both “deliver this year,” while “setting the table for next year.”

This insistence on building the future one quarter at a time led many higher-ambition leaders to focus on driving steady and consistent progress. At Campbell, Conant referred to this as delivering performance that was “consistently above average.” As we’ve seen, his intention was to achieve the best total shareholder returns in his industry over the period of a decade by consistently staying above average on a rolling three-year basis.

Paul Bulcke, CEO of Nestlé, made a similar point about the value of delivering consistent performance in a way that builds long-term success: “The Nestlé model is delivering results year after year. That relates to the question of sustainability, which we define as 5 percent to 6 percent organic growth.” (Financial analysts, of course, would like more—7 percent to 8 percent annual growth.) “But if you want to grow healthily, you cannot overgrow in one year. It’s not good for your bones, he said. “If you have kids, you know that, too. At a certain age, their arms are too long, and they are clumsy, because they’re growing too fast. They’re fragile, because the bones are not set. A company like ours, we have to grow healthily. Healthy is what you can absorb. You have to have the human structure and the cohesion in your company. You have to maintain that balance. We are more about balanced long-term growth, rather than maximizing short-term growth.” As a result, Bulcke told us, “some analysts may say, ‘Come on, Nestlé, you’re a little bit boring.’”

The steady cumulative approach these leaders took to driving enhanced performance was strongly related to their aspirations to build worthy and enduring enterprises. As Bulcke suggests, a healthy business, like a healthy child, develops steadily and organically. Too rapid or erratic growth puts the organization at risk of outrunning its capabilities, which, in turn, can lead to all kinds of unhealthy decisions, such as making hasty hires or ill-considered acquisitions. If the bones “don’t set right,” a business contraction is likely to follow the boom. Then the need for short-term survival can lead to further unhealthy actions, such as staff reductions and the slashing of long-term investments. This is exactly the circle of doom that Conant worked so hard to escape at Campbell. While Bulcke may joke that steady, long-term performance improvement is boring to analysts, it also increases chances that the company will meet market expectations, not just now, but consistently over time.

In addition, a steady cumulative performance trajectory creates the opportunity for ongoing learning, what Conant described as a “continuous improvement” rather than a “quick-fix” approach to building a great company. “It’s this whole concept of sustainably good,” Conant said. “We are always looking to do a little better this year than we did last year. What’s working? What’s not? What’s needed? What are we going to do better next time?”

Val Gooding, former CEO of BUPA, made a similar point. BUPA tracks the satisfaction and loyalty of both customers and frontline employees. “Our philosophy,” she said, “is that the bar must always be higher. Even if it’s only a point higher, the target must be higher than what we achieved last year.”

Focus on the Fundamentals That Drive Sustainable Success

One of the most powerful ways that higher-ambition leaders created quarter-by-quarter accountability for long-term success was through the metrics they used to assess performance, as well as through how they approached the business review process.

It has become fashionable to deploy multidimensional “balanced scorecards” to assess performance. In our experience, the outcome of these assessments is, in too many cases, not so much balanced as a welter of confusing, disconnected measures. Each functional department lobbies for its metrics to be part of the scorecard, and line managers wonder where they should be focusing their efforts. In the end, the large number of metrics cancel each other out, and the performance management process defaults back to focus on meeting short-term, bottom-line results.

In contrast, the leaders we interviewed tied the performance management process to clear, coherent models for how the business would achieve sustainable success. These models created a strong and balanced accountability for investment in building a great organization, as well as for delivering financial results. Conant built this performance model around two powerful imperatives, each with a simple and clear metric: winning in the marketplace, as measured by total return to shareholders, and winning in the workplace, as assessed by the Gallup Employee Engagement Index results.

Nordea’s Christian Clausen provides another good illustration of the systematic and fact-based approaches the leaders take to identifying the drivers of long-term performance and to creating accountability for them. As a first step in measuring performance, Clausen subdivided the bank into a hundred different groups and then compared the ten best-performing ones with the ten poorest-performing ones. What’s most interesting is that company leadership conducted the assessment in terms of culture. They identified nine cultural elements they considered to be “good” or “not good.” They found that the ten groups that got the highest score for these cultural elements also had the highest scores in all other respects, including financial results. “It was quite unambiguous,” Clausen told us. The ten groups that scored highest on the cultural factors had a growth rate of 73 percent. The ten groups that scored lowest on the cultural measures had a 9 percent growth rate. The top scorers had a cost-income ratio of 42 in comparison to the others, which had a ratio of 59. The top groups showed better scores for customer satisfaction, better employment satisfaction, and more. Nordea called this “cultural mapping,” and it shared the map with the manager of each group. Clausen explained, “We say, ‘This is your cultural mapping—here you see the average, here you see the best.’ Everyone could see where the differences were, not just financially, but also in terms of culture. I could see that in terms of customer orientation, I’m here and the best ones are up here.”

Our leaders also found that achieving shared insight into key business drivers required a different approach to business planning and review. We were struck by the extent to which our leaders shifted these business planning discussions from a simple negotiation about the numbers to a more in-depth, searching conversation about underlying assumptions and strategy. For example, Dale Morrison explained that, in the past at McCain Foods, the planning process just involved “getting somebody to sell whatever number you wanted to sell—top-line, bottom-line, and stuff in between. But nothing was underpinned, so we shifted the orientation. The numbers now fall out of a plan. If you don’t have a plan, you’re not running the business the way it should be running. And so, we have a template that we’ve created to really force out the things the managers should be thinking about as part of the development of a good plan.” The result of this planning process was a definition of the three or four important things that the managers were going to do that would have a meaningful impact on the business. “We’re in the third year of this approach,” Morrison said. “Each year, it’s getting better, but it was surprising how at first it was like a foreign language.”

Brian Walker described a similar challenge in reeducating people at Herman Miller, a U.S. furniture designer and manufacturer, to understand that the most important part of a good planning process was shared business insight:

When I work with new product teams, I keep saying, “You guys think a business plan is about giving me a document so I’ll approve your program. The business plan isn’t for me, it’s for you. This should be you painting a picture for yourself about what you’re trying to accomplish with this new product. Whether that’s what market share you want to get, what problems you’re going to try to solve for customers, how big you think it’s going to be, what kind of price points you need to get to. It isn’t about you knowing all the answers and having them be right. It’s about spending the time to sit down and envision for yourselves what you want to be. That will guide you to that spot over time.”

Entrenched behaviors are difficult to change. Walker’s people argued that, despite what he said about the plans being for their benefit, he would still expect them to be right. “I said, ‘No, what I expect is that, when it turns out that your vision isn’t happening, you think what you’re going to do about it. Are you proactively recognizing when you’re off course? Do you know the impact of adjusting course? Rather than assuming that it doesn’t matter that you’re off, it does matter that you’re off, but only in the sense that it helps you guide yourself to a new spot,’” he told us.

Conclusion

Managing performance is central to the work of any CEO. There are few large commercial enterprises in which the annual negotiation of financial targets and regular assessments of performance against plan don’t provide a central rhythm and focus of activity. To achieve a higher ambition, leaders have to get the management fundamentals of good performance management right—setting clear goals, ensuring regular and focused reviews, and creating accountability for results achieved.

However, they also have to successfully address a tougher set of challenges. (See table 4-1 for a summary of how higher-ambition leaders both incorporate the disciplines of good performance management and take things a step beyond.) They shift the mind-set of investors and employees in terms of what good performance looks like, from just making the numbers to building a worthy institution that delivers long-term sustainable performance. They do not just set expectations top-down. Instead, they build a collective commitment to high performance. They spend as much time shaping minds (challenging managers to think deeply about the most critical drivers of long-term performance) and hearts (establishing the legitimacy of their performance aspirations through their own actions as well as by linking them to a shared purpose), as they do on refining the mechanics of their performance management processes.

In the previous two chapters, we have seen how higher-ambition leaders create and legitimize powerful new strategic identities and challenging performance aspirations for their enterprises. In the next chapter, we will show how successfully executing on these strategies and delivering on these performance aspirations require building a distinctive set of cultural strengths.

TABLE 4-1

Building a shared commitment to excel