6 Learning to tack
‘In the face of this unprecedented challenge, the single most important quality that every CEO, banker, portfolio manager or politician should possess and display is agility.’
Tom Glocer, CEO, Thomson Reuters
Nimble giants
‘Agility has been a major theme and a competitive advantage in our company in the last nine months’, Henry Fernandez told us when we talked. ‘Prior to the financial crisis, our business lent itself to long and studious deliberations given the longer term, steady and subscription nature of our business. By October of 2008, we realised our clients, mainly only asset managers and pension funds globally, were undergoing incredible changes in their purchasing decisions due to the enormous declines in their revenues (asset-based fees dropping substantially in a very short period). Some clients and prospects needed our tools and had money to spend. Others had the demand but did not have any budgets to purchase. The problem was we did not know which was which. Sorting this out within weeks or a few months was a challenge. We needed to act fast. Otherwise our sales would drop precipitously.
‘Our sales force was organised to call on clients like a conventional army conducting a conventional war. What was needed were guerrilla marketing tactics and a rapid transformation of the way we called on our 3000 clients and another 3000 prospects in over 60 countries. We also needed to rapidly change our new product delivery schedule by postponing some less urgent ones and accelerating others dealing with risk management.
‘We had never really confronted this kind of situation before. We realised we needed speed and to utilise leverage through other firms in order to produce agility and react to the crisis. We also knew others were facing the same issues. Therefore we embarked on a transformation of the way we conducted day-to-day business. We approached investment information providers (Bloomberg and FactSet) and other kinds of intermediaries (custodians and broker dealers) and proposed a series of joint actions for both of us to discover where the demand and the money was among clients and prospects. We developed sales campaigns by bundling products together. We also actually increased prices for certain products to protect margins and reduced prices of other products to generate volume. We blocked out Fridays as cold calling days. And we accelerated our hiring in lower cost, emerging market centres to help us cope with our higher volume of activity but lower revenue growth. These changes were initially hard to implement but as the financial crisis accelerated, our staff realised they needed to change. I also started the theme of ‘a crisis is a terrible thing to waste’ to help mobilise our staff and rally them to the cause of rapid change.
‘We clearly have not been immune to this crisis, but I believe our light-footedness and guerrilla marketing tactics have helped us cushion the negative impact of this downdraft. A lot of what I implemented I had learned as a child watching a conventional army trying to fight a guerrilla war, where the guerrilla forces were much more agile than the regular army. The former won and the latter lost. By October 2008, I realised this could happen to our company and we needed the agility of a rapid and mobile force. Funny how an experience from my childhood has helped us cope with this crisis! Life has many turns and circles.’
Corporate boating
The executive and paper-laden organisations of not so long ago moved at the sedate and considered speed of supertankers. They could turn eventually, but were not designed for swift changes of directions and a nimble turn of corporate foot.
Now, there is a premium on speed and the willingness to change direction as time and opportunities dictate. The agile organisation is no longer a pipe dream but a commercial necessity. ‘This crisis will allow a new set of leadership companies to emerge globally’, anticipates Victor Fung. The new breed are likely to be agile by instinct and habit.
‘In this kind of environment, it is impossible to come up with an accurate mid-range forecast, and inadvisable to fix any strategy around such a forecast. Therefore, I think it is essential for management to take action with speed above all to shorten the PDCA (Plan/Do/Check/Act) cycle,’ Kazuyasu Kato of Kirin Holdings told us.
This message was brought home to us particularly in our conversations with Indian business leaders. They display an impressive willingness to change and adapt with the times. As anyone who has visited the country will attest, chaos and turbulence are facts of everyday life in India. It is a tumultuous nation and this breeds certain characteristics – an ease with complexity and change is just one of them.
K.V. Kamath at ICICI provided a particularly persuasive case for agility. KV = speed. Under Kamath the company has introduced what it calls the 90-day rule.
This was something Kamath encountered a decade ago at a seminar in New York. (Lesson one: leaders learn as they go along and learn from a variety of sources – the seminar was nothing to do with banking.) ‘We looked at a model where people were describing how people in Silicon Valley, typically start-ups, would in a very short period of time bring a product to market’, Kamath remembers. ‘Somebody used a phrase – the 90-day rule – how you brought something from concept to market in 90 days. At the time we were implementing a lot of projects and which were typically two years in length. We thought why not change it to 90 days, why not re-examine what it would take to do it in 90 days and then push it through?’
K.V. Kamath combines urgency with bold and positive thinking: ‘We have painted a fourth horizon of growth which we will execute in the coming years. A total of 600 million people in India are unbanked. So, we call it bank the unbanked. That strategy is being slowly worked on. Each strategy has a cost, initially it is looked at as an overhead or something that is not contributing, but in the course of time the market gets excited about it and starts rewarding you. So that is how we have been looking at the market, and trying to deliver – I would say – to the best of our abilities.’ Again, turbulent times call for agile organisations and agile minds. K.V.’s brilliantly simple and commercially smart leap is to identify a vast new marketplace.
This is the strategic equivalent of a moon-shot – what Jim Collins called a ‘big hairy audacious goal’. Such targets are immensely attractive and persuasive – even when times are tough. It also echoes Chan Kim’s and Renée Mauborgne’s notion of ‘blue ocean strategy’. In their eyes companies need to focus not on the competitor-filled red oceans but on creating their own blue oceans.
Old dog, new tricks
One organisation which has worked hard at making itself more agile is PricewaterhouseCoopers. ‘We have made a conscious effort to create a much more collaborative structure in our organisation’, Sam DiPiazza told us. Getting 8000 partners on board is a challenging task. But when they were asked about a new decision-making structure which puts greater emphasis on teams rather than individuals, the PwC partners were overwhelmingly in favour – 96 per cent voted for the changes.
Says DiPiazza: ‘We took that partner vote right in the middle of the Fannie Mae, Freddie Mac and Lehman collapses. So when we got into October 2008, and saw our clients were struggling around the world, we were able to build responses faster and were more aligned than before. It wasn’t a hierarchical top-down response, it was a shared collaborative response – a different model of leadership.’
Sam DiPiazza also referenced the Charles Darwin quote that we included right at the start of this book about the fact that it is not the strongest species that survive, but the one that can most adapt to change. He continued: ‘Sometimes, our desire to be collaborative has been an issue to our agility. You have to do both, seek input, listen and then move with the changing environment. When we did our merger 11 years ago, we were operating in a huge boom period. Then the market collapsed and we were slow to move not because we did not see it coming but because we were not agile enough to change. It hurt our performance. This time we were ready and also willing to make decisions quickly.
‘Being agile suggests that you always know the right answer and only need to create momentum for change in the organisation. All leaders know that “the right answer” is not always so obvious. But a great leader knows when to call the question, when to make a move. Even if all the facts are not known – something that is often the case.
‘A great leader has prepared his or her organisation for the change even before it comes.’
The agile Infosys
As an exemplar of the agile organisation, India’s Infosys takes some beating. We talked with Kris Gopalakrishnan, the company’s CEO and one of the seven founders of the global consulting and IT services company. Kris became CEO in June 2007 having set up the business in 1981 – a brave decision when most ambitious Indians were pursuing their careers by leaving the country.
‘Everything is instantaneous. In fact there are a few things that are different today from the way they were before. One is the speed at which you need to get things done’, he observes.
The first thing you notice when you visit is that Infosys is a very young organisation. The average age of its employees is 26 or 27. During the dot-com bubble burst of 2001 Infosys had around 10,000 employees; now it has more than 100,000 employees. ‘For almost all of them this is the first downturn. They have been used to a compounded annual growth rate of 35 per cent, fast-track promotions, increments every year. Now, the world has changed’, reflects Gopalakrishnan.
Infosys is a great example of what Tom Peters and Robert Waterman labelled ‘simultaneous loose–tight properties’ in their book In Search of Excellence. It manages to combine business discipline with freedom of thought and action. This is corporate nirvana, what has been more recently labelled the ‘ambidextrous organisation’.
‘The company is very tightly controlled and managed in spite of the size of the organisation. There is a lot of focus on minimising expenses every day, day in and day out. We had already set in place a rhythm of how we manage the business. We had built all that before, so we could react fast, but we still had to overcommunicate to employees and explain to them the situation, where we are and how we are going to face the future. It puts us in a good position. We have almost US$2 billion of cash. We are growing and highly profitable. There are a lot of positives, but of course the longer the situation lasts, the more it will affect us, because our clients are affected, and we have to explain that to our people. We have to become slightly cautious in our approach to how we run the business and what investments we make in the business. We have to reduce the number of initiatives we are taking for the future and things like that’, says Kris Gopalakrishnan. ‘We do not manage the company by looking at share markets or stock price. We do not worry about that. We say let us look at revenue, margins, cash flow, growth. Those are the things we can influence. Share price is what the market decides.’
We explored with Kris how Infosys is actually managed in practice. We learned from him that Infosys creates themes around each of its strategic initiatives. Around 300 people have been identified as tier one leaders. Then it has a number of department heads and an executive committee. Infosys assigns teams to each of the strategic themes under a programme managed by a central team called Corporate Planning. Kris reviews this periodically and once a quarter there is a detailed review. For the leaders of each of these teams part of their bonus plan is linked to how well the strategy is implemented. As part of the measures to determine the bonus Infosys includes action on strategies.
‘They see that the strategy is created as a team exercise. They participated in creating the strategy, they own that and they get to lead it. They get to benefit from doing that on the business side as well as directly on their bonuses,’ says Kris.
Most of the strategic teams are cross-functional and across the company. Their work usually bears little relation to the day-to-day responsibilities of those involved. ‘People see it as an opportunity to go beyond their normal responsibilities, and it gives them understanding of and visibility to other parts of the business. It works both ways. They get visibility and to understand other parts of the business. It is part of our leadership development process. We expect all the tier one leaders to do something cross-functional or corporate work.’
It is interesting to note that such planning processes are alive and well in such a thoroughly contemporary organisation as Infosys. The disciplined side of Infosys is combined with Google-like activities which build a culture of inclusiveness and passion for what the company is trying to achieve. On Saturdays and Sundays employees can bring their families to the campus. They come to walk around, take photographs and have picnics – though all of the Infosys cafeterias are operational during weekends. Once a year Infosys has what it calls Petite Infosys Day. Families come and there are various games and competitions, prizes and an entertainment programme. The investment in employees is significant. Just on education and training alone Infosys spends about US$100 million a year. The downturn has not affected this investment in the future.
The result is what Kris Gopalakrishnan describes as an ‘open and inclusive work culture. People feel that they can give ideas and that they will be listened to, and that their ideas will be acted upon if they are good ones. There is a lot of participation in innovation and coming up with new ideas and initiatives. We encourage our employees to volunteer time for good causes. There is commitment and passion. They feel that the company has a purpose. In fact our tag line is, Powered by intellect and values. I think we have created a global, world-class organisation.’
There is no hubris in Kris Gopalakrishnan’s statement. His belief is that if you are to compete on the world stage you must create a world-class organisation. Mediocrity is not an option.
The organism
Over 12 years, ICICI Bank has gone from an organisation of around 1000 people to a group now employing close to 100,000 people directly. Along the way structures have had to undergo continuous change as new companies came into the fold and the way it did business was reassessed, and new products came onto the market. ‘To me this has also been a challenge’, says K.V. Kamath. ‘And it is an even bigger challenge to an organisation during turbulence or headwinds if you have a rigid organisational structure. An organisation’s structure has to be like a living organism, able to change shape and character. In headwinds organisations need to look at their structure as much as the businesses.’
Kamath describes the most important elements of structure as ‘the ability to basically mould itself to opportunities and to disband as those opportunities change. For example, as a business matures, you need to take out managerial layers otherwise you will very quickly have silos which become unmanageable. During the headwinds, one of the things we are going to look at is every area of cost, and this goes back to when we felt the headwinds start to build. Then we have started looking at the structure. Even if you are lean you will find areas to delayer and redo and so on. If you don’t have a culture ready to accept this sort of a change, then you will have rigidity.’
Best foot forward
Agility is not only a question of organisation, it is also a state of mind. The leader in turbulent times has to be constantly alert to new opportunities – however small and fleeting they might be.
Keeping up to date with fashion trends, Sir Stuart Rose, CEO of the UK retailer Marks & Spencer (M&S) was leafing through Vogue when some shoes caught his eye. Next day, he went into the footwear department and asked why M&S didn’t have similar style shoes in their range. On the next afternoon, the head of operations for footwear let Rose know that the shoes had now been designed and the factory in China was ready to begin production. The shoes arrived ten days later. ‘I used him a lot as an example at the time’, says Rose. ‘It was about showing people this is a problem we can solve. A couple of youngsters were suddenly starting to say, ‘Stuart, by the way I’ve done this.’ It was sort of exponential. One guy did something I made an example of, then another guy wants to see if he can do that, then a couple more. Steve Rowe in homewear is a very aggressive trader and he began slashing the prices. We used to sell a towel rail for £21 or £22; the same towel rails of the same quality are now £9.50. That’s in the space of 24 months and we’re selling tens of thousands.’ In any leadership role, your duty is to plant the seeds of tomorrow’s value.
Fast first
When the music starts you better begin to dance. The leaders we talked to sometimes found it hard to foresee turbulent times, but all reacted quickly. Mitsubishi Corporation, for example, created a financial crisis management task force in October 2008 which involved the company’s corporate management having a weekly meeting to share important information. The meetings are run by President and CEO Yorihiko Kojima.
One of these was Anand G. Mahindra, vice chairman and managing director of Mahindra & Mahindra. Founded by Anand’s great-uncle and grandfather and now with revenues of US$6.7 billion, Mahindra & Mahindra is among the top 10 industrial companies in India. It is involved in automotive, farm equipment, financial services, trade and logistics, IT and infrastructure.
Anand Mahindra took a slightly circuitous route to the family business. He studied architecture in Mumbai and then film and photography at Harvard. He first joined the Mahindra Group in 1981, became the managing director in April 1997 and vice chairman in 2003. Under Anand the company launched India’s best loved SUV, the Scorpio, which today has gone global.
As the headwinds hit in late 2008, Anand Mahindra moved quickly. At the company’s annual conference – the Blue Chip Conference involving 500 of the company’s most senior global leaders – Anand proclaimed his powerful take on the crisis. When we talked, he remembered his words:
‘What does it mean for our company? I asked. We all try and use catchy acronyms or create mnemonics, but I said, there are three things we need to do.
‘The first is to reboot. Essentially, a crisis means you have to go back to factory settings and re-boot. We had to go back, re-examine all our cost bases, find where we had built up fat, go back to all the low-cost platforms we had, and so on. That’s hygiene.
‘And the second thing we needed to do was to reinvent, to use innovation as a very strategic lever during this phase of the downturn. India’s real advantage is not lowest cost to output, but lowest cost for a unit of innovation. We have to try and make sure that we are excelling at this low capital cost kind of innovation.
‘The final thing I said we needed to do was to re-ignite. This is not a time to simply shut the door and wait until the storm blows over. We have to keep strategic aspirations very much in mind. We ought to be window shopping so that if the right opportunity presents itself then we will be ready to move very swiftly to consolidate our position or increase our market share. Those are the three simple things: re-boot, re-invent and re-ignite.’
This sort of sloganising is very powerful. It is a rallying cry, a shared language for the new agenda which will help create the company’s future.
Taking control
Are you a rabbit caught in the headlights or in charge of your own destiny? There is no choice. Re-boot, re-invent and re-ignite would serve as a common trinity among many of the leaders we talked with.
Says Ed Dolman of Christie’s: ‘I do feel very much we’re in charge of our own destiny, as an individual and as an organisation. We’re managing for the worst and hoping for the best. We are hunkering down and working extremely hard to retain our profitability. Are we alone going to be able to restart interest in the art market and inject confidence back into that market? No. We are trying, but obviously we need lots of other things in the world economy to fall into place. But in terms of being able to adapt our business to the current climate, I do feel very much as though we’re holding all the cards in our hand and we’ve got to play them as we see fit, and I don’t feel hamstrung at all. I think it would be odd for a CEO to say that he didn’t have control of his own company.’
Again we are back in crisis equals opportunity territory, but really what we’re talking about is a willingness to take control, to seize the moment. As Ed Dolman put it: ‘I don’t think our agenda’s changed. I think we may have paused, and I think that when we’re able to resume and we get back into growth mode, I think we’ll be in a much, much stronger position to deliver than we perhaps may have been a year or so ago, because this crisis will wipe out a hell of a lot of businesses and competitors locally and in small markets around the world that were competing against us.’
Willingness to learn
‘I still believe I have a lot of areas for improvement’, says Alexey Mordashov, the young CEO of Severstal. At the heart of agility is a willingness to develop and learn – individually and organisationally.
As Stephen Miles, a partner in Leadership Consulting at Heidrick & Struggles, told us, ‘It’s what you learn after you know everything that counts.’ Other leaders we talked to were also keen to emphasise their own commitment to learning. ‘Almost everybody I’ve worked for did a few things exceptionally well that I felt I could learn from and I’ve tried to have the approach that if I picked up their best characteristics it would make me a better manager and leader’, said Caterpillar CEO Jim Owens. Equally frank was McDonald’s CEO Jim Skinner: ‘You’re only as good as your last P&L, or your last performance. That’s why continuous improvement is so important to me.’
Jim Skinner and Jim Owens are highly experienced global business leaders, at home in their top jobs, yet they are impressively restless to do more and to learn more. In our experience, most leaders fail because they think they know everything.
One and all
This restless sense of always going onto the next objective and constantly acquiring new insights and knowledge is infectious. What links the agile leaders and organisations we have encountered is that they are able to bridge the gap between individual and organisational performance. They are teams in the true sense of the word.
This has its origins in the makeup of the organisation. There is no denying the simple truth that the more diverse your team, the more creative it will be. Diversity has become business shorthand for the inclusion of women, ethnic minorities and people with disabilities. We run empowerment projects for these groups within Heidrick & Struggles but we also believe diversity should be reframed more broadly to factor in varied international and functional experience and age. True diversity should reflect the growing realities of globalisation, in all of its complexity. It should be the driving force of organisational performance. Diversity is at the heart of agile organisations.
This should hardly be controversial, but it is and progress is slow. Company boards acknowledge the need for varied international experience but improvements have often been negligible. In a survey of the UK’s Most Admired Companies in 1996, 33.8 per cent of directors had international experience. By 2007 the number had only risen to 40.4 per cent.1 There are two female CEOs in the Fortune 100 and three female CEOs in the FTSE 100; 39 per cent of European companies still have no women on their boards.2 The number of women in the boardroom has increased to 15 per cent, from 8.4 per cent from a few years ago.3 In 2003, Norway passed a law that requires companies to have boards where women make up 40 per cent of members. In the European context, if we remove Norway, Sweden leads the way on female membership with 21.3 per cent, while Portugal comes in last with less than 1 per cent.4
Asia has seen a rise in the number of women in leadership and in business, especially in Singapore, Malaysia, Hong Kong and China. Our data shows the proportion of women placements at 27 per cent in China, 30 per cent in Singapore, 33 per cent in Taiwan and an average of 19.6 per cent for all of APAC (Asia Pacific). If Australia (15 per cent), New Zealand (3 per cent) and India (10 per cent) are removed from that equation, the average increases to 23 per cent.
What all this means is that too often talent is being defined in a very narrow way. If we are to stand up to the challenges of the future, and the need for organisations to strike an agile balance between people, profit and planet we need to rely on a whole range of talent – young, old, from all over the world, with different skills and experiences. The trick is in knowing how to identify it, and then unlock it.
Progress is being made:
Releasing retirees: In the US alone there will be an estimated 56,000 senior executives reaching age of ‘retirement’ every year for the next 10 years. Boomers are more likely to decelerate their work than fully retire. Reasons include financial, healthcare, rising costs, and desire for intellectual engagement.
Acknowledging this trend, Heidrick & Struggles has established the Chief Advisor Network, a service to help our clients access experienced and knowledgeable talent to increase productivity, and enhance the performance of current leadership teams. Heidrick & Struggles’ CAN consultants work with qualified executives who no longer wish to work 24/7. Scenarios include project management, project consulting, interim or flex-time positions, advisory board, and business coaching.
Unlocking the Facebook generation: Heidrick & Struggles is a member of think tank nGenera. An organisation established by Don Tapscott (author of, among others, Wikinomics and Growing up Digital) to investigate the needs, ambitions and attitudes of Generation Y.
nGenera’s latest research project examines how young employees can be properly engaged in the workplace to help drive revenue.
The female side: We believe the argument for more women in the boardroom and on top executive teams needs to be reframed as an economic, not a gender-based consideration. New fund Naissance Capital is studying 170 companies, to explore how female leadership affects the performance of companies. The initial results tell us that companies that have more women at the top are outperforming companies that do not. Based on this research, Naissance will create a fund that invests only in companies where gender diversity is a driver of business.
Sceptics might suggest that all of this is a hill of righteous beans. Not so. At the heart of the corporation of the future will be a commitment to balance in all aspects of an organisation’s activities. From balance springs agility.
Resources
W. Chan Kim and Renée Mauborgne, Blue Ocean Strategy, Harvard Press, 2006
Nirmalya Kumar et al., India’s Global Powerhouses, Harvard Press, 2009
Tom Peters and Robert Waterman, In Search of Excellence, Harper, 1982
Don Tapscott, Growing Up Digital: Rise of the Net Generation, McGraw-Hill Inc, 1999
Don Tapscott and Anthony D. Williams, Wikinomics: How Mass Collaboration Changes Everything, Portfolio, 2006