How did Ford Motor Company manage to turn a record $12.6 billion loss in 2006 into a $6.6 billion profit by 2010—without a cent of government aid? What did it take for then-new CEO Alan Mulally to slash the product line by two-thirds and double investment in the remaining third? For him and his team to make such complex, seemingly contradictory decisions—massive restructuring alongside big bets? And how did they manage to pay off half of the $24 billion debt piled on to propel the turnaround?
Simple: bold leadership.
If ever there is a call for bold leadership and decision-making, it’s in times of uncertainty or adversity. Opportunity is ever present, particularly in tough times. With bold leadership, companies can not only prosper, but they can also exploit their competitors’ paralysis and make important, even game-changing moves that position them for enduring success. During the Great Depression, for example, companies such as Procter & Gamble, DuPont, and even General Motors took contrarian positions that turned out to be wildly successful. (See “The Great Depression: Time of Opportunity,” below.)
Many of the most storied corporate brands gained their foothold during the Great Depression through assertive leadership moves—not just by seeking efficiencies but also by innovating. Between 1929 and 1940, General Motors grew market share by 50 percent; Chrysler more than tripled its market share and saw its profi ts jump 181 percent.
General Electric cut costs but retained top talent to ensure R&D and innovation. By the mid-1930s, the company had introduced lighting for the first nighttime baseball game, its fi rst electric washing machine, and several kitchen appliances—and had produced generators to power Hoover Dam. Procter & Gamble boosted radio ad spending dramatically and kept up R&D spending, producing three new brands and making seven acquisitions during the Depression (twice its rate of acquisition in the following decade). DuPont almost doubled R&D spending and introduced neoprene (in 1931) and nylon (in 1939).
So what does it take to change the mindset and behavior of the team at the top? To shake them out of their risk-averse wait-and-see attitude, even when they know that inertia itself is risky? To inspire the requisite boldness so that they act ahead of the need, ahead of the competition—and before hardship or crisis makes action a necessity rather than a choice?
Often, as in Ford’s case, a company will bring in an outside CEO. Or the existing CEO will reshuffle the team and reorganize management, recruiting new blood and “retiring” established heavy hitters. That may signal change, but it certainly doesn’t guarantee it. Although change from within can be difficult (and without guarantees), the payoff from changing leaders’ behavior is potentially far greater. From a practical standpoint, changing leaders’ behavior—and grooming future leaders to equip them to face the new realities—may also be smarter, in light of the growing leadership deficit that companies are facing: of the 3,500 companies worldwide that The Boston Consulting Group surveyed recently, 58 percent indicated that they were lacking leadership for critical roles. (See “New Leadership Rules,” BCG article, May 2010.)
Consider the stories of two large companies and the strategies their CEOs used to overcome paralysis at the top and bring about vital change—by changing people’s behavior.
After losing market share for some years, BigBank (not the company’s real name) needed desperately to grow and to raise profits. The CEO and board believed the answer lay in cross-selling and in managing costs more effectively. This strategy demanded unity from the bank’s five highly independent units—units that had operated as classic silos. Internal rivalry and lack of trust were rampant. So was disrespect, following industry stereotypes: retail banking saw the investment-banking unit as a capital hog, with compensation levels disproportionate to its risks; investment banking felt that retail banking didn’t appreciate the complexities of its business; and both units believed that the wealth division was paying out too much to the sales force and not enough to shareholders. Bringing teams and units together seemed an impossible task. But the CEO was firm: he did not want to replace senior management. So how did he trigger a change in behavior?
First, he instituted a 360-degree feedback program and made it a major component of executives’ variable compensation. He held facilitated sessions so that team members could work together to advance the new strategy while learning ways to foster collaboration and enterprise-wide unity.
It was during one such session that the head of one business unit (we’ll call him Wilson) had an epiphany. Until then, Wilson had seen little upside in the cross-selling strategy for his unit; collaboration meant only more risk with little reward. During the session, the facilitator showed a video of an orchestra conductor coaching a cellist to help her overcome her performance block and gain insight into an important composition. The conductor encouraged her to enjoy her playing more and put aside her fear of making mistakes. He praised his pupil generously to motivate her to keep raising her performance level. He gave her five positive reinforcements for every criticism.
At dinner that night, Wilson replayed the video in his mind. He thought of his son, a talented violinist who was studying at one of the nation’s top music schools. He remembered the succession of teachers who had pushed his son to ever-higher standards of excellence—in the process, dampening his son’s joy and amplifying his fear of making mistakes. As a father, he had regretted this development. Wilson now realized that his son needed to aspire once again in order to overcome his fear of failure and be willing to take risks. It also occurred to Wilson that he himself probably needed the very same attitude in his own efforts to lead the bank to success.
The 360-degree-feedback program turned behaviors around—most markedly in Wilson, who experienced the greatest improvement of any executive that year. The person who had been the most vocal in opposing collaboration was now its strongest proponent. More important, cross-unit sales started to kick in.
As BigBank’s story illustrates, a CEO can incite behavior change at the top by developing a strong plan, instituting a new performance-measurement tool, and linking the resulting measurements to a tangible consequence (compensation). But there must also be a moment of truth when the individuals on the team “get it”: when the change they seek becomes a change in their own understanding and, subsequently, their behavior. Without that internalization, would the linkage to compensation have worked on its own? Or, as is so often the case, would the leaders have eventually gamed the system, without any real change occurring? At BigBank, an external intervention (the video) shifted the frame of reference of just one team member. The change in Wilson’s mindset and performance ignited a chain reaction. Team discussions—about everything from financial goals to talent development—shifted from a unit-only focus to a broader enterprise concern.
For much of the summer, the executives of BigIndustrial Co. (not its real name) wrestled with the company’s strategy. The plan, which outlined a profit turnaround, faced strong resistance, largely because it called for closing the company’s Utah plant. The team knew it had to be done, but accepting that fact required admitting openly that the capital investment decisions they had made to build the plant in the first place had been a mistake.
One Friday in August, the CEO sent executives home with a weekend assignment: to write a short article—something that could be published in the Wall Street Journal five years hence—recounting the company’s stellar performance, the key decisions the management team had taken, and milestones along the way. The executives were instructed to name one family member to whom they would imagine reading the article. On Monday, all of them would read their articles to the team, identifying which family member they had chosen and why.
To a person, the stories ended with the same outcome: the Utah plant was closed early on, triggering needed changes and freeing up funding for critical investments. When asked to describe how they felt when the article “appeared in the paper,” the executives shared their family members’ reactions to reading the article and their pride at the company’s accomplishments—a result of the courage and fortitude the executives had shown early on in making the decision, and of the sound judgment and good timing they had shown later, as the new products took off.
The article-writing exercise shifted executives’ focus away from the painful decision (closing the plant) and toward the imagined positive outcome (renewed success). The CEO had forced his team to focus on the gain, not on the loss. And quite intentionally, he had brought their personal lives into the equation: how their families felt reading about the success. Exciting their personal aspirations provided a powerful emotional counterweight to the fear that had paralyzed team members all summer long as they faced the decision. Interestingly, this exercise did more than break the impasse and spur team members’ resolve: the glimpse into their personal lives and emotions, all within the safety of a fictional device, helped foster trust. They became more effective collaborators and more agile and decisive as a team. They each had their individual accountabilities—but they also knew that they were “all in this together.”
The future is inherently uncertain. Regardless of economic conditions, executive teams shouldn’t fear risk so much as embrace it—that is, after all, what they are paid to do. By acting boldly and clear-sightedly, as Chrysler, General Electric, and P&G did in the 1930s, as Ford did in 2006—and as “BigBank” and “BigIndustrial” have done even more recently—leaders can capture significant competitive advantage. Their ability to adapt to a changing environment enables them to boldly shape the future, not merely respond to it with hair-on-fire actions. (See Winning Practices of Adaptive Leadership Teams, BCG Focus, April 2012.)
Disrupting leaders’ mental models and helping them visualize positive outcomes can reframe their perception of context—and counteract the paralyzing fear of risk-taking. These tactics, when combined with resetting incentives, are effective ways to shake teams out of their inertia and free them to act. Injecting the personal and the emotional into the process is crucial, because the decision to act when the stakes are high is indeed personal and emotionally charged. There is no substitute for substantive, informed analysis; but sometimes, shifting the perspective is precisely what’s needed to help leadership teams get unstuck.
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