Monday, October 30, 2006

Seven principles to launch leadership challenge
By Stefan Stern
Published: FT October 2 2006 16:17

This is a concise and insightful article on leadership. It was written in the context of the political dynamics in Great Britain but is pertinent to all of us. I edited it for your convenience.

How can the new prime minister avoid the mistakes made by his predecessor? And what lessons are there here for senior managers of all kinds who are about to embark on a new leadership challenge? Several key principles suggest themselves. Guess what? There are seven of them.

Make a strong start. “Leaders always face a clash of expectations,” says Michael Genovese, professor of political science at the Loyola Marymount University in Los Angeles. “It is important to hit the ground running, not hit the ground stumbling. If you prepare properly you increase the likelihood of early successes.” A strong start shapes the public’s perception of a new leader as a winner, and establishes the idea that this is someone who gets things done.

Draw on all the talents. Confident leaders are not afraid to surround themselves with the brightest people at their disposal, including potential rivals. “Hire as many capable people as you can, and then delegate as much to them as you can,” runs an old management saw.

Have clear objectives and prioritize them. “What are the two or three things that you really want to get done?” asks Prof Genovese. “Focus on them. You need to be disciplined, especially when events encroach on to your agenda. You have to react to events, but also be proactive at the same time.”

Managerial freedom. As Prime Minister, Mr Brown could end the excessive control from the centre exercised by Blair – if he can bring himself to do it. “This will be a hard test for someone who has such a firm command of policy detail,” says Graham Allen MP, one of the wisest observers of the UK parliamentary scene, and author of a pamphlet called “The last prime minister – being honest about the UK presidency”.

Just as large corporations have learned to give more power and authority to managers and teams close to their customers, the British prime minister needs to shed some of the enormous managerial burden he currently carries – having to answer questions, for example, on hospital waiting lists in far-flung corners of the country. “The new prime minister could release colleagues’ creativity and at the same time build a stronger organisation,” Mr Allen says.

Celebrate success. “. Successes must be acknowledged. Governments, businesses and organizations need to feel that they are making progress. “Success breeds success, and power breeds power,” Prof Genovese says.

Understand your weaknesses. Good leaders are aware of their weaknesses. Leaders) need to build a core of people around him who will tell it like it is

Be lucky. One thing that remains largely beyond the control of any leader is luck. “Leaders often feel that ‘the damn world keeps interfering with my plan’,” Prof Genovese says. But if you believe, like Seneca, that “luck is where preparation meets opportunity”, you may be able to do something about even this seemingly unpredictable factor.

Leadership is more difficult today than ever, Prof Genovese believes. Problems seem to be more complicated, more global. The lines of national sovereignty have been blurred. And yet the public wants fast, visible results. “Every day is election day in America,” he says.

Monday, October 23, 2006

Connecting the Dots between Innovation and Leadership --"Rifle-shot" Acquisitions
Published: October 04, 2006 in Knowledge@Wharton

This was a great article from Knowldege@Wharton covering among other things the issues between innovation from within vs. acquiring innovation. The panel moderated by Michael Useem includes:

- C. Robert Henrikson, chairman and CEO of global insurer MetLife,
- Alex Gorsky, head of Pharma North America and CEO of Novartis North America,
- Seth Waugh, CEO of Deutsche Bank Americas
- Connie K. Duckworth, retired partner and managing director at Goldman Sachs,
- Wharton professor of health care systems Patricia Danzon
- New York City developer Jeffrey Katz, CEO of Sherwood Equities, a major investor in Times Square
- Wharton finance professor Peter Linneman, founding chairman of Wharton's real estate department

The panelists were also asked whether it is better to buy business innovation through mergers or acquisitions, or build it from the ground up.

According to Waugh, it's always preferable to create new businesses internally because a homegrown enterprise is likely to fit better in the existing corporate culture. New growth from within also helps keep the organization flat. However, he acknowledged that in order to stay ahead of the competition, there are times when it is best to do a highly targeted "rifle-shot" acquisition if an opportunity fits well into the parent company's overall portfolio.

Henrikson noted that his company has a long tradition of internal development as a mutual company. When the firm went public in 2000, MetLife opened the door to the possibility of more merger and acquisition activity but, Henrickson emphasized, it's talented managers -- not necessarily acquisitions -- that drive innovation.

For Katz, build or buy represent two very different business strategies in the real estate industry. Katz is in the build-from-within camp. In order to grow, he encourages contrarian thinking. If a developer waits to see what the crowd is doing, it's too late, he said. To balance that risk, however, he also takes a conservative approach to business operations. Meanwhile, he stressed the importance of agility to reshape development plans over the months and years it takes to bring them to completion.

Gorsky again noted his industry's sketchy record when it comes to massive acquisitions. "The area where it does make sense is in complementary technology with new technology partners." He pointed to Novartis's acquisition of Chiron Corp., a biotech firm with a specialty in vaccine development and production, as an example of an acquisition that fits well with Novartis's broader strengths

Saturday, October 14, 2006


This will be a very brief posting.

The following quote from P.F. Drucker resonated in my brain as soon as I read it:

“An effective decision is always a judgment based on dissenting opinions rather than on consensus on the facts

I have seen too many leadership teams strive for consensus on the facts rather than sharing their dissenting opinions. The former always leads to indecisiveness. Having and then using a set of Ballpark Decision Criteria helps structure the discussion to bring out the dissenting opinions.

Monday, October 09, 2006

The Revenue Growth Gap and the Danger of Hurdle Rates

We have learned two important lessons in working with leaders when dealing with the specific performance gap imparted by their growth objectives:

0 Leaders routinely do not apply simple mathematics to their goals: they announce we will grow 10% per year top line but never do the math. A 10% increase for a $1Bn company means you need $100M of new revenue; for a $10Bn company, you need $1Bn!! The first thing we do in working with companies is ensure the leaders understand the scale of their challenge. It always amazes me how their eyes begin to glaze over when they see the math.

0 Creating decision criteria is critical-- we call them the Ballpark Decision Criteria. They should be clearly articulated and broadly disseminated throughout the company to create the conversation leaders want and to enable a rapid, transparent decision making. Leaders must wrestle with how they want their company to grow. As outlined in this article, a key component of the Ballpark Decision Criteria is the potential size of the opportunities. This article deals with this issue.

Refer to the August 6, 2006 positing on Whirlpool to see how they used the Ballpark Decision Criteria.

Now the article:

To achieve growth targets, most companies need to find new sources of revenue, either through expansion into new markets or developing new products. This can be a challenging task. 30 - 50% of commercial launches fail to reach their expected revenue and profitability goals, and only one in four development projects succeed (Source: R. G. Cooper (2001) "Winning at New Products: Accelerating the Process from Idea to Launch").

At the same time, industry consolidation has led to the creation of mega-enterprises who struggle to maintain the same growth rates as their smaller, more nimble competitors. The absolute numbers are staggering. A 5% target growth rate for a $400m company is $20m - high, but not unrealistic depending on the market. Companies like Procter & Gamble, however, face a more daunting task. With $40bn in 2002 revenue, they would need to generate $2bn in new revenue each year, equivalent to creating a company the size of Williams-Sonoma or Siebel Systems.

The Growth Gap (see Research Note on "The Innovation Gap") can be closed partially through standard business operations, such as expanding distribution, and through mergers and acquisitions (for example, P&G's recent agreed purchase of Wella AG will add $2.57bn annual revenue). However, studies conducted by Imaginatik Research have found that 25% and 50% of a company's target growth will need to come through innovation.

Apart from acquisitions, the main innovation-related approaches to closing the gap are either:

The Big Win
- A company embarks on a search for high impact winners that will cover the bulk of the growth target. P&G calculate that their very best new products typically generate $200m - $250m in the first year, which would mean that their 2003 goal would involve finding 2 large scale winners.

Portfolio of Smaller Winners
- A company creates a basket of opportunities with a mix of expected return, risk, resource requirement and timescale. The portfolio is optimized to deliver the highest overall return on investment, with an outside hope that at least one project in the portfolio will become a big win.
Companies tend to blend the approaches. The returns from a big win are significantly larger than a basket of small-scale successes. The pharmaceutical industry in particular has shifted its approach through the 1990s away from generic drug manufacture to the search for $1bn blockbuster drugs, with a fair degree of success.

The key to both concepts are hurdle rates: are the products or markets large enough for warrant serious consideration. Companies therefore put in place framing activities to spot large potential markets, and use the tools within the Innovation Pipeline to develop offerings to meet these needs.

However, the hurdle rate can create some perverse effects. A market may appear too small initially, and often companies cede such niche markets to competitors who are sometimes able to grow the small market into a much larger one (see "The Innovators Dilemma" by Clayton Christensen). Companies also tend to forget their history, and fail to appreciate that the leading products often took years before they gained market traction.

Companies need a range of approaches to closing the Revenue Gap and innovation plays a large part, particularly in organic growth. Fortunately there are many methods to help companies find these large scale wins, and develop a portfolio of opportunities that can potentially become the successes of the future.

Tuesday, October 03, 2006

Innovation Opens Up
IBM's Global Innovation Outlook - identifying and harnessing innovation opportunities and enabling the collaborations that matter

Mike Giersch, the Vice President of Strategic Planning at IBM was kind enough to share with us what IBM is doing in Open Innovation. In response to our last blog (IBM is a KIN member), Mike shared the IBM web site discussing their efforts. I wanted to reproduce it here to be sure you all saw it. I strongly recommend going to it and explore it more. I encourage others in our blog community to contribute their insights, experiences, best practices, or even questions they may have. After our next Exec Ed class for driving Organic Growth on 11/12/06, I will publish the list of companies in this community.

I read an interesting definition of an entrepreneur that I think is appropriate here. John Norberg, the author of “In Defense of Global Capitalism”, wrote an interesting editorial for the WSJ (10/02/06) titled “Humanity’s Greatest Achievement” citing the impact of entrepreneurs on the world. His definition is: “entrepreneurs are serial problem-solvers who search out inefficiencies and find more practical ways of connecting possible supply with potential demand”.

Open Innovation is the front of the entrepreneurial effort…….

Now to the IBM web site......

The nature of innovation is changing at a pace unheard of in modern history -- it is now increasingly open, collaborative, multi-disciplinary and global. And to reap the benefits of this evolution, an organization's processes and practices must adapt.

Enter the Global Innovation Outlook (GIO), where we have opened up our technical and business forecasting processes to include external leaders from business, academia, the public sector, NGOs and other influential constituents of the world community. The GIO takes a deep look at some of the most pressing issues facing the world and works toward providing solutions to those needs.

Now in its second iteration, the GIO has significantly expanded its efforts to seek the most fertile ground for innovation and attention, and is continuing to work with a wide array of participants to identify potential projects and initiatives to change business, society and the world for the better.

In 2005 and 2006, the GIO 2.0 gathered 248 thought leaders from nearly three dozen countries and regions, representing 178 organizations across four continents for 15 “deep dive” sessions to discuss three focus areas and the emerging trends, challenges and opportunities that affect business and society:
- The future of the enterprise
- Energy and the environment
- Transportation and mobility

Rather than thinking of these topics in terms of established sectors or vertical markets, the deep dive sessions approached them as broad, horizontal issues that could affect virtually every enterprise and organization on the planet.

The fascinating insights from these discussions will be released in March 2006 at two GIO Innovations Salons in New York City and San Francisco.

This initiative represents something that is uniquely IBM: A combination of world-class technology leadership and deep expertise in business and industry. Deep relationships with a broad range of clients, governments, universities and other ecosystem members around the world. A willingness to elevate the dialogue around important issues and examine the broad implications for the world.

To learn more about GIO 2.0, read the GIO 2.0 report, or ask your IBM contact for a copy and begin a conversation about what the changing nature of innovation means for you and your organization.

GIO 1.0

In 2004, over the course of 10 meetings in 24 days on 3 continents, more than 100 leaders from business, academia, government, and other organizations joined with IBM's top researchers and consultants to examine three areas that affect broad swaths of society and are ripe for innovation:
-The future of healthcare
-The relationship between government and its citizens
-The intersection of work and life.