4 Navigating a new route

‘Clients come first. Relationships are tougher, pricing is hard, issues are more intense, companies are struggling, so I spend a lot of time with clients. You’ve got to leverage yourself deeper into the organisation, use the skills of all your people, and use the processes you built in good times to cover the tough times.’

Sam DiPiazza, PwC

Crisis and opportunity

‘It is vital to see this challenge as an opportunity, to boldly face up to it, and to continue to provide value to customers’, says Kazuyasu Kato of Kirin Holdings. Tom Glocer phrases it differently though his sentiments are much the same: ‘Terrible markets are a great time to extend the amount of open water you have on the competition.’

Or take this view from Ed Dolman of Christie’s International: ‘Over the last few months, despite the obvious disappointment at suddenly seeing revenues falling and remuneration levels being reduced, and going through a lot of the painful aspects of downsizing the business and letting people go, there is a real feeling that we’ve got an opportunity to take back the company, shape it to how we want it to look for the next two, three years, that there’s much more control being applied, and that we’ve got much more control in this market. There’s a more stable working environment, people are basically much happier with their lot. There’s less poaching going on, they’re glad to be employed. It’s a totally different environment to manage in, and it does mean that you feel empowered to influence some of the changes that you’ve been trying to make over the last two or three years but just haven’t been able to put in place because of all the other pressures of growing the business and hanging on to your top staff.’

In the crisis is the opportunity. Time after time people told us that the crisis – any crisis – had to be viewed as an opportunity, an opportunity to learn, an opportunity to change, an opportunity to restructure, an opportunity to change personnel, but always an opportunity.

‘In the company we’ve developed a slogan that while everybody’s suffering in this crisis we should also think through what opportunities there might be in this crisis. The Chinese word for crisis is made up of two characters. The first character is wei. Wei means danger. And the second is ji which means opportunity’, says Victor Fung. ‘While we are suffering from the dangers and the problems we should not lose sight of the fact that this also allows us a lot of opportunity. And that’s the way we have approached this crisis. While we’re trying to minimise the impact of the adverse side we’re constantly saying, how can we emerge from this crisis stronger than we went in? How can we improve our market position?’

If a crisis is a balance between danger and opportunity then the challenges posed to leaders in this situation are also often paired and balanced. Such qualities as openness and decisiveness as well as the need for decisive analytic rigour coupled with active listening to both the ideas and the emotional concerns of people, tests the mettle of a leader very profoundly.

This was particularly brought home talking with Carlos Fernandez, chairman and CEO of the Mexican brewer Modelo (whose brands include the beer Corona). Carlos began working for Grupo Modelo at 13 and was just 29 when he succeeded his uncle Don Antonio Fernandez as CEO in 1997. He is a member of a five-family trust which owns the controlling interest in the brewery.

‘Without any question, last year was a difficult one. This one is not going to be any easier, but I’m convinced that a crisis opens doors to new opportunities. For instance, we’re working on increasing our presence in Mexico and international markets, to strengthen our previous platform, and to focus on being more competitive’, Carlos told us.

We pushed Carlos on what Modelo actually does to make this happen. He highlighted six elements to seizing the opportunities presented by the crisis.

Long-term vision: ‘We don’t execute or do anything on just a short-term action. We have clear goals.’

Concentrate on what you are good at: ‘We focus on what we know best, and that’s really beer and how to manage a brewery. We focus on the market, the way we take our products to the market, how we deliver our products to clients, how we make sure the client is convinced of our product’s potential and will drink it.’

Build management systems to weather the storm: ‘What we have to do now is to minimise any negative impact and to create the best management systems that we can with our teams, to respond to any unforeseen events.’

The adaptive will survive: ‘We are used to adjusting many of our expectations, we are prepared to reposition our cost structure, we know how to build products in an environment where there is a lack of purchasing power, so we can work out pricing and changes in demand. We are prepared to confront it.’

Hold firm: ‘Turbulent times, yes, but I would say that it really has not changed. We have to pursue a steady profit and excellence in quality in what we produce and the services we offer. We also have to be better aligned. Working together we can chart our own course or direction. We are flexible. Every day we define our destiny in some way, but by maintaining what has made us successful, maintaining our traditions, and always keeping in mind that change is the only constant.’

Be positive: ‘I’m trying to see in these events possibilities of a better future and a better performance for everyone. I try every day to convince and to make everyone understand that we continue to be a very strong company, and that we have a long-term vision, that 80 years of history has not been only about good times. There have also been bad times, challenging times, and we have the tools and flexibility needed to face this change in the way we lead.’

There is not much you can argue with here, but we like to think of navigating a new route forward as a process of understanding a series of balances. The first of these is the fact that a crisis always presents opportunities. The second is that thinking about what’s best has to work hand in hand with taking action. Leaders need to think and act.

Think and act

‘Management is all about execution in the marketplace, and we’ve got to do that more flawlessly and more precisely than ever before. That’s everything from visual inventory to cases on display, to advertising, local marketing in combination with cases on display to try to drive profitable growth’, says John Brock of Coca-Cola Enterprises.

Leadership is a balancing act. In turbulent times this is even more apparent. The balance must be struck between thinking and action. Do you need to act now or can you make a more considered response at a later date? Do you have everyone onside before you make a move? Make no mistake, in a crisis immediate responses with no thought to their future implications are tempting. After all, execution is how leaders are measured. We all want to do something. People are desperate for action in the face of a crisis, but action needs to be combined with thoughtfulness. Action for its own sake is rarely a good thing.

Yet execution is central to any leadership role. Sometimes companies and their leaders need to hold their breath and just jump. There can be no going back. Executing on a plan is often preferable to cogitating about potential new plans or changing the plan halfway through.

‘There is no plan B’, confessed Stuart Rose of Marks & Spencer when we spoke to him. ‘I remember telling the chairman in quite the same way about this, saying, “Well, look, if I can’t fix the business don’t ask me if I have an alternative plan. I haven’t got one. I’ve only got one plan and we’re just going to keep going at this, guys, until either I get sacked or I’m proved right. There ain’t no turning, we’re not moving left or right. That’s the way, that’s going to pay off and I won’t change the plan now.” ’

Leaders learn the need to separate what is urgent from what is important; and that comes down to judgement. The leaders who fail are those who micromanage and overcomplicate everything; those leaders who are convinced they must be involved in every detail. Leaders tend to be curious about everything but the effective ones realise they cannot be an expert in every single area of their business and they have to rely on the expertise of others. If you have the right people in place then this is not hard because you trust those people to tell you what is crucial; and they grow and develop because they know they have your support – we all know how good it feels to be relied on.

The think/act balance is at the heart of what we are often looking for when we come to recruit a leader. They need to be action-oriented but also strategic. ‘The ideal person is someone who has a successful and demonstrable record in doing and planning; someone who has a proven record with experience in running profit centres, staff support functions and, especially, the strategic planning function within a corporation. Now, if you have somebody that can strategise and execute and you’ve got a record that they have done it successfully, then you’re home’, says Gerry Roche, senior chairman of Heidrick & Struggles.

Hard and soft

Tom Glocer joined the Reuters Group in 1993 as vice president and deputy counsel of Reuters America. He held a number of senior leadership positions before being named CEO of Reuters Group in July 2001. In April 2008, Reuters was acquired by Thomson, and he continued as CEO of the combined group.

‘I had an unusual formative experience. I took over essentially a couple of weeks before 9/11 in what was then considered a pretty bad financial services recession and assumed leadership of a company that had come as close as it could to laying down and dying after 150 years. But this meant I had great freedom in what I could do. I made a lot of mistakes, but could cut pretty strongly and kill the old culture to start a new one.

‘Now, it’s a different exercise because it’s a much healthier patient altogether, but the change we’re driving is: What’s the new company? What does it stand for? What’s the mission? What are the values? What do we want the culture to be? I have probably spent much more time on the soft side of things than the more hard-edged ones. All the nitty-gritty stuff’s getting done – we did 10,000 office moves last year – but I am essentially a new CEO with the opportunity to re-set the goals of the company.’

There is a need for balance at every turn as you contemplate navigating a new route forward. One of the most significant themes which came across as we travelled the world talking to leaders was the need to combine the hard and the soft sides of business. At times this appears to be an impossibly difficult balancing act.

To mix our body parts, the knee-jerk assumption is that turbulent times require hard balled decisions, a relentless eye on costs, redundancies, cash flow above all. The leaders we talked to were happy to make difficult decisions, but their emphasis was on the human side of their businesses, the so-called soft side. Yes, you need to manage cash. Yes, you need to keep a lid on costs. But you also need to manage, guide, inspire and lead people.

Everyone is in a people business. ‘Largely it’s about people, finding the right people, putting them in the right place, having a shared vision, providing them with support – probably limited in the current circumstances – and then moving forward and seeing the results’, Alexey Mordashov of Severstal confided.

The stereotypical instant response of companies in a crisis is to slash human resources and marketing budgets. The leaders we interviewed had little time for such simple reactions. Indeed, time after time we encountered companies which had actually ramped up their training and development activities.

Again, this is something K.V. Kamath was insistent on. ‘We do about ten days of training for every single employee in the organisation, and I proudly tell my team that I take 10 days off every year to train myself.

It could be just sitting at the feet of somebody who is well regarded and listening to him speak and discuss, or engaging with a person, it could be a CEO forum, it could be any other type of activity where you are listening to others and their experiences and building on your knowledge, or it could be things that are not really day-to-day things. Technology for example, understanding new technology and the way it has played out.’

‘We are doing massive re-training during this crisis inside the company. This helps to give meaning to this both at the company and at the individual employee level’, says Victor Fung. ‘At a later stage we will go against the grain. When everybody’s cutting back their hiring we will be selectively hiring, and I’m sure we’ll get the cream of the crop. We will emerge stronger out of this crisis.’

Cutting numbers and still recruiting great people appears contradictory. But a company cannot simply say no to talent. ‘The bold companies are going to go ahead and do recruiting anyway and then figure out a different way to cut costs and they will have a competitive advantage down the line’, predicts Bijan Khosrowshahi, formerly of Fuji Fire and Marine.

IQ and EQ

Another balance which needs to be struck is between IQ and EQ (emotional quotient), smartness and sensitivity. Forget about the heroic or macho leader marching troops blindly forward. Leadership requires sensitivity.

Daniel Goleman’s book Primal Leadership makes the case for cultivating emotionally intelligent leaders. In it, Goleman and co-authors Richard E. Boyatzis and Annie McKee explore how the four domains of emotional intelligence – self-awareness, self-management, social awareness and relationship management – give rise to different styles of leadership. These constitute a leadership repertoire, which enlightened leaders can master to maximise their effectiveness.

Our belief is that, at the heart of any top job and integral to leadership is the ability to balance IQ and EQ. Leaders now require a broad spectrum of knowledge. The best leaders are adept at applying their analytical skills and their emotional skills at the right times. They aren’t purely people people, but can make sense of complex market data and strategic plans. The important thing is that they are able to balance the two elements.

This balance requires a strong equilibrium within oneself. We have referred to the central role self-esteem plays in a leader’s effectiveness. Genuine self-esteem translates into decision making that is not full of rationalisations or defensiveness. It is open to other perspectives and to many streams of data, but still manages to be clear and decisive.

Another leader we talked to put it like this: ‘The problem is that you think that everyone thinks like you. But if they thought like you, they wouldn’t need you as their leader.’

Today and tomorrow

‘I’ve got a 55 per cent long-term strategic shareholder who doesn’t manage quarter by quarter’, says Tom Glocer of Thomson Reuters, ‘but we certainly keep score quarterly and even monthly.’ He continues, ‘You can convince yourself a lot of stupid things are really long-term strategic and they’re not, but we have a sensible balance. Our shareholders know that the planning horizon is not necessarily quarter by quarter. We would never go out and buy a big credit company to smooth our earnings quarter to quarter.’

At PwC, to make sense of the crisis one of the reactions was to put some of the company’s best minds to work on the future. At its busiest time of year, it took some of its brightest partners and put together a team to look at how the changes underway were likely to affect business in three to five years. ‘Our view is that the world has structurally changed, for at least the next decade’, says Sam DiPiazza. ‘US growth is going to slow, capital is going to be more expensive, regulatory environments are going to be tougher, and it will be more difficult to cross borders. Some businesses are better prepared than others, but unless we actually apply all that to our own business model, we’ll miss that change, and so we’re deep into that right now.’

One of the big questions we asked people is how you manage in the short term bearing in mind long-term opportunities. For the CEOs of public companies this is particularly difficult, because of the quarter-to-quarter scrutiny that they’re under. This revealed another paradox: the balance between dealing with the nitty-gritty of the moment – dramatic changes in the marketplace and so on – and an ability to keep an eye on the long-term prize.

Says K.V. Kamath: ‘You have to have the ability to stand up and say what we are doing is for the long term, we will try to do what is good in the short term, but we will work with the long-term context. There are headwinds, but they do not stay there all the time. You have to plan on blue skies. Businesses you have built have to be nurtured. If you are building for the short term you can chop and change every now and then, but if you are building for the long term you stay the course and then you reassess.’

No matter what the circumstances, change begins with a vision. It has to. ‘You cannot make a change or even engage in a process of change if at the beginning you do not know where you want to go. Establishing the destination, establishing the purpose is fundamental. If you do not have a purpose, do not even try to make any changes, because they will fail. Having from the beginning a clear vision, a clear sense of purpose, is fundamental to any change’, Carlos Ghosn told us. ‘Up to 1999, Nissan was a company in disarray. Company objectives were set and people worked hard to achieve them, but then the course kept changing. People lost a sense of motivation and did not know where to go. When I came on board in 1999, my sole objective was very simple: it was to revive Nissan. This objective would determine all our priorities. It would determine even the people we would count on to achieve them. In 1999, we had to revive the company. There would be no compromises and no half measures. Nothing that could threaten the revival of the company would be accepted.

‘What was true then is still true today. If you do not have a shared and attractive destination, you can forget about any process of change.’

The big picture does not disappear just because the immediate reality is so daunting. It cannot. A leader and an organisation without a future is going nowhere.

This was repeatedly brought home to us in our interviews. We found that leaders were fire fighting, but they were also insisting that here was an opportunity to re-calibrate future aspirations, plans and visions. The best leaders have a constant sense of the future they want to create.

‘I try to keep a part of my agenda dedicated to strategic, important and not urgent topics’, says Alexey Mordashov of Severstal. He is a passionate reader of Jim Collins’ books, which inspired him, in November 2007, to set up a ‘hedgehog committee’ made up of the top ten managers of the group to discuss long-term strategy. For the uninitiated, a hedgehog concept is explained by Collins as a frame of reference for decisions, an understanding of what you are best at. The metaphor behind it is that a fox wants to eat a hedgehog and has a variety of cunning ways of springing a surprise. Every time it happens, the hedgehog has a tried and tested response: to curl into a prickly ball. It is simple and it works. The challenge is to find your own hedgehog concept, the strategy or way of working which makes you the best in the world or resilient in the face of a competitive fox.

‘What the hedgehog concept means for us is long-term competitiveness. And these discussions helped us to develop a shared vision about the company says Alexey Mordashov.

Whether they think in hedgehog terms or not, the crisis provides an opportunity to view the world and all of your activities in a sharper focus. This was brought home talking to Tom Glocer of Thomson Reuters. ‘What we’ve done is basically say let’s kill all the obvious nice-to-haves out there. Let’s use this as an excuse to really do the tougher things that in fatter markets you just don’t do, let’s actually increase our investment in the two or three things that we think really make a difference’, says Glocer. ‘The data I’ve seen suggests that at least over the last two recessions firms that continued to both invest organically and in acquisition significantly out-performed their peers when the economy eventually recovered because the natural thing that everyone does is cut, cut, cut and I’m not convinced that’s the right thing.’

In a crisis a price is often paid in human and financial terms, but the best leaders always have their eyes on the future prize.

Common sense and complexity

We asked Tom Glocer about how he had changed his time management since the going became even more turbulent. ‘I’ve spent a bit more time on safety factors – making sure our balance sheet is strong, making sure that the credit facility is truly a committed one and not a facility in name, a bit more idiot-proofing because safety first has got to be the right approach; focusing on cash and liquidity and we re-financed our debt even though it really wasn’t due for another 18 months because I’ve always had the belief that you borrow money when you don’t need it because when you do it’s often not available. Now, that just turned out to be lucky. We hit a good window, but we took out our average maturity to something like six, seven years and don’t have any real debt coming due. Now, would we have done that in a normal market? Maybe, but we’re just a little bit more focused on that sort of thing.’

Some see the downturn as a wake-up call, a reminder of the eternal verities of the business world. ‘In turbulent times, an enterprise has to be managed both to withstand sudden blows and to avail itself of sudden unexpected opportunities. This means that in turbulent times the fundamentals have to be managed, and managed well’, wrote Peter Drucker.¹

Here, too, balance has to be struck between commonsensical commercial realities and the complexities of a global downturn.

Says Ed Dolman of Christie’s: ‘I think it has reminded everybody to go back to common-sense management, to really go back to having faith in what you believe. Everybody’s faith in anybody who tries to sit in front of you and predict what may be happening in two months, three months, a week has completely disintegrated. If you look back and listen to the protestations and advice given by financial advisers, pension actuaries, marketers, even other businesses, you realise that actually it all amounts to a hill of beans. My takeaway from all this is that actually there are some very simple basics on which our economies and every business depends, and no matter how clever you try to be, you can’t really escape from that. As a CEO I’m much less influenced now by proposals to seek profit and growth through complicated and sometimes overly optimistic models. I rely much more on my gut instinct and common sense now to guide me, and I’m much less secure in accepting the advice of outside advisers.’

There was a confident sense of certainty to much of what they said. We asked Kazuyasu Kato of Kirin Holdings how he believed Kirin would weather the storm. ‘We will shift the focus of group management from quantitative expansion to qualitative expansion and pursue a comprehensive beverage group strategy by ensuring: a good balance between domestic and overseas business; a healthy balance between our main businesses of alcohol, soft drinks/foods, and pharmaceuticals; stable cash flow; and a business portfolio that can create synergies.’

One leader we talked to envisioned a dashboard in front of him with a set of instruments asking basic business questions: do you have capital; do you have liquidity; do you have the right products; do you have the people; do you have the processes? ‘If you have all these things and they are showing a full tank or near full tank, I think you can say we can probably last this out and proceed on that basis. But if you find any of those dashboard instruments running short, then you need to look at what it is that you need to top up’, he explained.

Humility and strength

We were struck also by the balance between humility and strength. The leaders we encountered have egos and a generous measure of self-confidence. They are all successful and in powerful positions influencing large organisations and the well-being and livelihoods of thousands of people – sometimes hundreds of thousands. But, there was never a hint of complacency and all saw their organisation as a team. Typical was this comment from Nick Stephan, CEO of Phoenix Partners: ‘The bottom line is we have a great crew. I attribute the bulk of our success to my partners frankly. They are amazing at what they do, be it broking, be it finding talented brokers, or cultivating relationships. Also just the depth of their rolodex. It’s really off the back of doing a lot of recruiting of friends and of friends of friends and down that path, where it’s someone you know. And someone’s putting them forward, someone’s vouching for them.’

Ed Dolman of Christie’s International had an interesting take on the mix of personalities in his team: ‘I’ve always had a team around me that’s got a balance. I have hawks and I have doves. I have dreamers and I have people who are fantastically rational. For the last three or four years it’s been the aspirational dreamers within the business who have been probably the loudest voices and their decision making has been vindicated through growth and profitability. And now in my team the hawks, the rational people, the guys who’ve always got their feet on the ground, the defence line, are now much more to the fore. There’s been a big shift from the revenue-generating, aspirational, creative side of the team to the very functional, feet-on-the-ground realists, who are rolling their sleeves up and getting stuck in. Strength comes from having diversity in your management team. Different people can play more or less active roles, depending on what the business demands are.’

Humility outperforms charisma. Humility is based on genuine self-esteem not tiny grandiosity. In his book Good to Great, Jim Collins examines how a good company becomes an exceptional company. The book introduces a new term to the leadership lexicon: Level 5 leadership. Level 5 refers to the highest level in a hierarchy of executive capabilities. Leaders at the other four levels may be successful but they are unable to elevate companies from mediocrity to sustained excellence.

Level 5 leadership challenges the assumption that transforming companies from good to great requires larger-than-life leaders. The leaders that came out on top in Collins’s five-year study were relatively unknown outside their industries. The findings appear to signal a shift of emphasis away from the hero to the anti-hero. According to Collins, humility is a key ingredient of Level 5 leadership. His simple formula is Humility + Will = Level 5. ‘The central dimension for Level 5 is a leader who is ambitious first and foremost for the cause, for the company, for the work, not for himself or herself; and has an absolutely terrifying iron will to make good on that ambition’, says Collins. ‘It is that combination, the fact that it’s not about them, it’s not first and foremost for them, it’s for the company and its long-term interests, of which they are just a part. But it’s not a meekness; it’s not a weakness; it’s not a wallflower type. It’s the other side of the coin.’

Good mentors not only have solid self-esteem themselves but they are also able to realistically mirror the strengths and needs of their team members in a way that builds self-esteem throughout the team and ultimately the organisation.

Navigating a new route forward is, as we have seen, an incredibly difficult balancing act. Sam DiPiazza of PwC provided a pithy summary of what needs to happen: ‘Don’t change your dream, adjust it to a new reality.’

Resources

Jim Collins, Good to Great, Collins, 2004

Jim Collins, How the Mighty Fall, Collins, 2009

Peter Drucker, Managing in Turbulent Times, Harper Collins, 1980

Daniel Goleman, Richard Boyatzis, and Annie McKee, Primal Leadership, Harvard Press, 2004