Thursday, September 27, 2007

Running G.E., Comfortable in His Skin
Published: NYT June 9, 2007

This posting is a bit longer than normal, but I think it offers great insight into the challenge of leadership from the individual’s personal makeup to the tough decisions that rest only in the corner office..........

“When you put your foot on the gas in this company,” Jeffrey R. Immelt said a few weeks ago, with just the slightest trace of a satisfied smile, “the car goes forward.”Skip to next paragraph
Mr. Immelt, 51, was leaning back in a chair in a conference room that adjoins his Connecticut office, his legs casually crossed, acting as if he didn’t have a care in the world. He seemed utterly at ease, like LeBron James shooting a jump shot, or John Pizzarelli playing guitar.

Then again, Mr. Immelt always seems at ease. Never mind that as the chief executive of General Electric, a position he assumed a week before 9/11, he presides over one of America’s most storied companies, an incomprehensively large industrial conglomerate that employs over 300,000 people, generated nearly $21 billion in profit on $163 billion in revenue last year and ranks sixth on the Fortune 500.

Never mind, too, that there were enormous expectations placed on him from the start: he won the job after a well-publicized bake-off with two other prominent G.E. executives, W. James McNerney Jr. (now the chief executive of Boeing) and Robert L. Nardelli (you know who he is, right?), while replacing perhaps the best-known businessman of the age, Jack Welch. He then had to deal with 9/11, with a power turbine business that fell off a cliff, with NBC’s fall from first to last place in the ratings, and with the realization that the company’s insurance business was under-reserved by $10 billion.

And never mind that once he got through that, he has spent much of his time reshaping the leadership culture within General Electric — messing around with one of the things that G.E. does better than any other company in the world. And he’s been making a series of very big bets, selling off parts of the company, while doubling down on others, with no guarantee that the profits he is seeking will ultimately be achievable.

Oh, and one other thing: the entire time he’s been chief executive, the stock hasn’t budged. (It closed yesterday at $37.32.) In April, Jeffrey T. Sprague, the Citigroup analyst, called for “a partial breakup” of G.E., arguing that the company’s “size and complexity is working against investor interest in the stock.” During Mr. Welch’s 20 years at the helm, G.E.’s stock had a staggering 7,000 percent total return, including dividends. If the company’s share price doesn’t start to rise soon, Wall Street is going to be agitating for more than a breakup.

Mr. Immelt seems pretty much at ease about that, too.

Let me put my cards on the table: I think Jeff Immelt is the prototype of the modern chief executive. And a large part of the reason is his unflappable personality.

I’ve argued before that the age of the authoritarian C.E.O. is over, and that chief executives today need to have the whole range of “softer skills.” They need to be good listeners, consensus builders, ambassadors to the larger world, and leaders who others follow not because they have to but because they want to.

They need to be able to do really hard things — change a strategic direction, sell a long-valued division, lay off employees — with such a deft touch that nobody revolts. Informality is important. Charisma is important. Empathy is important. Admitting mistakes is important. The modern C.E.O. has to be, in sum, utterly comfortable in his own skin. These days that quality — “authenticity,” the management gurus call it — is what gives employees confidence in the boss, and makes them willing to ask “How high?” when he wants them to jump.

Mr. Immelt has those qualities in spades. He is not a clone of the blustery, impatient Mr. Welch, just as Mr. Welch was not a clone of his predecessor, the statesmanlike Reginald H. Jones. But that’s an amazing thing about G.E.: it has an uncanny talent for picking exactly the right leader for each different era. In its 128-year existence, it has had 10 leaders , and only one — the founder Thomas Edison, of all people — was a bust. Mr. Immelt’s quiet charisma, his self-confidence and his “emotional intelligence” make him the right man to run General Electric in this era.

Noel M. Tichy, the co-author of the coming book, “Judgment: How Winning Leaders Make Great Calls,” and a longtime G.E. watcher, spoke to Mr. Immelt not long after 9/11. Mr. Welch had made G.E. “faster-moving and more entrepreneurial,” the incoming C.E.O. said. “But it doesn’t have the heart it needs, and it doesn’t have the context it needs. That is what I want to do in the next 20 years.”

An advantage Mr. Immelt has is that he does indeed expect to stay in the job for 20 years; that’s just the way it’s done at G.E. Jack Welch used to say that it takes a C.E.O. five years to learn the job, and General Electric is the rare company that wants its chief executives to be around for decades in order to leave their mark. There isn’t another C.E.O. in the land who has that luxury. Another advantage is that, as with every other General Electric chief executive, he’s been there his whole career. He understands the company in his bones. And he loves it, to use his own words, “completely and deeply.”

For instance, the grooming of leaders has always been a core strength of General Electric. But as Mr. Immelt rose near the top of the G.E. ladder, he came to believe that the company focused too much on individual leadership traits and not enough on team skills. So he began the process of instilling a better team ethos. How do they do that at G.E.? They institute a process, first teaching the skills, then rating the performance of up-and-coming leaders, and finally promoting those who show the attributes the company cares about. It’s a kind of enforced culture change, but somehow, at G.E., it works.

Mr. Immelt also felt that G.E. needed to do a better job at what is called “organic growth,” that is, growth that is not a result of acquisitions. So he had G.E. study companies that excelled at internal growth, like Apple and Toyota, quantified the qualities that those companies had in common, and began teaching them at General Electric. Now, Mr. Immelt has told Wall Street that he wants the company’s organic growth rate to be 8 percent a year, twice what it used to be.

“Eight percent may not sound like much,” he says, “but it means we have to grow the size of a company like Nike every year.”

A statement like that one, delivered by someone else, might have a feeling of helplessness about it — an admission that with $163 billion in revenue, the company is bumping up against the law of big numbers. But when Mr. Immelt says it, it is clear that he views it as an achievable goal. And that’s because he has a tremendous belief in the power of large industrial conglomerates — or at least his.

You see, the way he views it, G.E. is operating in a gigantic world economy that is currently growing at a rate, more or less, of 4 percent a year. So “all” the company needs to do is grow at double the rate of the world’s economy. And if he places the right bets — if G.E. expands in the right countries, and focuses on the right sectors — he is confident the company can pull it off.
Hence, his decision, for instance, to stress global infrastructure and health care, both businesses that G.E. knows a great deal about already, and which are growing much faster than the other parts of the world economy. And thus perhaps his most controversial bet: to build a huge business around the environment.

“The first time I brought the idea to the company’s executive council,” he said, “there was rapt silence. Some people saw it as wimpy, caving into the enviros. But I saw that we already had two-thirds of the company working in some way on environmental technology, like water scarcity. And I thought it was worth a swing.”

The day before I interviewed Mr. Immelt, I saw him speak to a group of G.E. customers. “It was not universally loved by our customers and even less by employees,” he told them, referring to the company’s environmental thrust. “I have made a couple of hundred mistakes in my business life, but this isn’t one of them.” From a standing start, the ecomagination line of General Electric products has become a $10 billion business, a number the company expects to grow to $20 billion within three years.

Wall Street, of course, doesn’t much care about the law of big numbers either. It just wants to see the stock go up. “Yes, there is a mood of impatience,” said David Bleustein, who follows General Electric for UBS. But Mr. Bleustein also told me that right now at least, he’s buying what Mr. Immelt is selling — and currently has a buy on the stock. “More often than not, he’s made the right moves,” Mr. Bleustein said. From the Street’s point of view, it’s payoff time.

Most C.E.O.s whose stock hasn’t moved in five years would be in a world of trouble, of course. And Mr. Immelt is not going to get his 20-year run if he can’t get the stock to move. But he’s still got plenty of time to show that his repositioning is working; Wall Street may be antsy, but no investor is crazy enough to call for his ouster. And he’s adamant that the solution is to wait for the market to catch up with the company’s changing nature, rather than to execute a partial breakup just to please the Street.
“Investors go through cycles where they don’t like conglomerates,” Mr. Immelt said. “But if you want to be a lasting company, you have to know how to be a multibusiness structure. If Google is going to be a 100-year-old company someday, it is going to have to learn to do more than search.”

At one point in our conversation, I asked Mr. Immelt how he balanced the need to be building consensus with the need to make a firm decision and, in effect, show who’s boss. It struck me as a tricky issue, and it was clearly one he had thought about a lot.

When you run General Electric,” he said, “there are 7 to 12 times a year when you have to say, ‘you’re doing it my way.’ If you do it 18 times, the good people will leave. If you do it 3 times, the company falls apart. You want a team of leaders who are self-confident. But in the end it is not a democracy. There has to be clarity about decisions.”

Which helps explain why, if you’re Jeff Immelt, you can put your foot on the gas, and that amazing $163 billion car goes forward

Wednesday, September 26, 2007


I want to refer to the last posting of NBC announcing they will make their shows available free of charge to be downloaded and used for one week before the download disintegrates (like the Mission Impossible opening tapes)

"NBC Universal said yesterday that it would soon permit consumers to download many of NBC’s most popular programs free to personal computers and other devices for one week immediately after their broadcasts"

The caveats are you can not skip the commercials and that after the first week you can buy the download so it becomes yours forever.

The learning to be shared here is there are often underling drivers to strategy aside from the obvious –in this case combating Apple’s iTunes dominance. I had dinner with a close friend who is a retired executive from the Nielson Rating Company, and after describing this announcement he smiled – the reason for the free one week “trial” period as NBC calls it is that Nielson now rates viewer ship in the digital media and all their ratings must be done in the first week after the TV spot is shown. So, NBC is not only combating iTunes route to market dominance in this space, they are also going after the 20 to 30 year old listeners for the Nielson rating which is gold to them.

Thursday, September 20, 2007

NBC to Offer Downloads of Its Shows
NYT, September 20, 2007

I usually do not have two postings in one week, but this so closely aligns with our last discussion on content (NBC) and infrastructure (Apple) players in the struggle for control and pricing that I had to share it with you in a timely fashion. The key driver is influence over the relationship with the target customers, in this case young adults, in the context of an ever-changing market environment driven by technology.

NBC Universal said yesterday that it would soon permit consumers to download many of NBC’s most popular programs free to personal computers and other devices for one week immediately after their broadcasts. (free, but there are a few twists)

The service, which is set to start in November after a test period in October, comes less than three weeks after NBC Universal said it was pulling its programs out of the highly successful iTunes service of Apple Inc. That partnership fell apart because of a dispute over Apple’s iTunes pricing policies and what NBC executives said were concerns about lack of piracy protection. (the battle we just discussed in our last posting)

NBC’s move comes as companies throughout the television business search for new economic models in the face of enormous changes in the business. Networks continue to lose audience share, and viewers — especially many of the highly prized viewers under 30 years old — are increasingly demanding control of their program choices, insisting on being able to watch shows when, where and how they want. (the change and challenge facing the whole industry – a classic discontinuity)

At the same time viewers are finding more and more ways, like TiVo machines, to avoid watching the commercials that have long provided the bulk of television revenue.
Jeff Gaspin, the president of the NBC Universal Television Group, said, “The shift from programmer to consumer controlling program choices is the biggest change in the media business in the past 25 or 30 years.”

NBC makes many of its popular shows available online in streaming media, which means that fans can watch episodes on their computers. Under the new NBC service, called NBC Direct, consumers will be able to download, for no fee, NBC programs like “Heroes,” “The Office” and “The Tonight Show With Jay Leno” on the night that they are broadcast and keep them for seven days. They would also be able to subscribe to shows, guaranteeing delivery each week.
But the files, which would be downloaded overnight to home computers, would contain commercials that viewers would not be able to skip through (booo). And the file would not be transferable to a disk or to another computer.

The files would degrade after the seven-day period and be unwatchable (the twist). “Kind of like ‘Mission: Impossible,’ only I don’t think there would be any explosion and smoke,” Mr. Gaspin said.

The programs will initially be downloadable only to PCs with the Windows operating system, but NBC said it planned to make the service available to Mac computers and iPods later.
In a second phase of the NBC rollout, customers would pay a fee for downloads of episodes that they would then own, and the files would be transferable to other devices. NBC hopes to offer this service by mid-2008, depending on how quickly the company can put in place the secure software necessary to allow payment by credit card.(pretty cool!!)

The latter system is what is already available through iTunes.

Chris Crotty, an analyst for iSuppli, an independent firm that specializes in analysis of new electronic media, said of the NBC move, “I think it’s a stretch.” He argued that consumers have shown they are extremely happy with the iTunes service and that it would not be attractive to consumers to have to range far and wide over a number of services to find the programs they want to download.

“It’s not just a shift from a supermarket to a mom-and-pop story, it’s a shift to one store that only sells bread, another store that only sells dairy products. The consumers have decided they want to get their content from iTunes.”
(yet to be proven)
Mr. Crotty said NBC had come across to consumers as “highly greedy” in its dispute with Apple. Apple reported that NBC was insisting it raise the price of some downloads on NBC shows to $4.99 from the $1.99 iTunes charges for all programs.

NBC hotly denied that, saying that the disagreement was over what Mr. Gaspin termed the wholesale price that Apple was charging, not the retail price. NBC wanted a better wholesale price for its heavily downloaded shows, like “The Office,” the biggest seller on iTunes.
But, Mr. Gaspin said, “piracy was and is our No. 1 priority.” He said that the music industry had been devastated by the free exchange of music, much of it facilitated by iTunes.
Apple representatives did not respond to requests for comment last night.

Mr. Gaspin said that one important attraction of the NBC service was the option it would offer consumers to receive programs on a temporary basis free, but including commercials, as well as the choice to pay a fee for episodes without commercials and own the programs. (will this really create competitive separation from Apple-type systems or is it just a competitive “advantage” claimed by NBC but really is not desired by the consumer enough to impact their buying decision!!!)

NBC hopes to extract significant revenue both ways, though it is not estimating what kind of money the service may generate. Nor did NBC Universal project what the service would cost.
Mr. Gaspin noted that none of this meant that NBC was moving away from its traditional model of a nightly schedule of programs supported by advertising. He pointed to sales of television sets, driven by high-definition equipment, which are soaring to levels, he said, that surpass those of the biggest booms in color set sales.(another important trend)

"Our research shows that 83 per cent of the viewers would still rather watch on a TV than a PC," Mr. Gaspin said. But he acknowledged that the numbers were different for younger viewers, a trend stirring much of the concern about the business’s future. (the discontinuity)

"What we don’t know is if habits will change when people get to their 40s," Mr. Gaspin said.
But he added, "I don’t think anyone would argue with the idea that the customer is going to be in control."

Monday, September 17, 2007

Steve Jobs: iCame, iSaw, iCaved
NYT, September 10, 2007

We talked before about the battle going on among McDonald’s, Starbucks and Duncan Donuts for the breakfast business with some powerful learnings (McDonald’s seem to be doing quite well with their recent dividend increase --thank you very much!!).

Well, there is another battle going on right in front of us involving in the media world between the infrastructure and content folks and it is going to be fascinating to watch!

Right now, Apple seems to be in the driver’s seat as you will see from the article. When you read about their flat pricing strategy for downloads, keep in mind their current strategy seems to be a new twist on the invested base profit model (Gillette blades vs. razor) –they are using the iTunes network to encourage the purchase of iPods. At some time in the future, the situation may change and the ubiquity of the iPods will create the profit base for the on-going download business from iTunes. My question to you is what will then happen to the download pricing and will Jobs be able to contain the content folks? Also, a
fter reading the article, what would you do differently considering what I think apple's strategy is in this arena. Please share your thoughts. Enjoy.......

Let me get this straight: Steve Jobs insists that songs on iTunes cost 99 cents and television episodes cost $1.99 because consumers crave simple pricing.

Except, of course, when it comes to Apple’s own products.

On Thursday, I was at the massive Apple temple just off Central Park. From a pricing perspective, it was chaos — a very lucrative form of chaos. The day before, Mr. Jobs had dropped the price of the iPhone, introduced the iPod Touch, re-priced the original iPod, and introduced a new Nano with video capability.
The tables contained both new and old versions of the devices, but the signs listed the old prices.
“These signs are wrong,” said Bryan, a clerk in sort of general-announcement mode near the mob at the iPhone table late in the afternoon. “The price just dropped $200, and you should get ’em while the getting’s good.”

There were wrinkles created by all the dynamic pricing. Customers who paid $599 when the iPhone came out two months ago saw their status drop from early adopter to, well, sucker, after Mr. Jobs cut the price of the device by a third. After Mr. Jobs was crucified for playing it too cute on the so-called “Jesus phone,” he issued a non-apology apology and a $100 store credit to help those early buyers salvage some dignity.

A pricing error? Absolutely. And when you think about it, the media companies Mr. Jobs is fighting with want the opportunity to make the same mistake.

Earlier this summer, the Universal Music Group, owned by Vivendi, said it would not renew its contract with iTunes because it wanted more flexibility in setting prices. Last week, NBC Universal and Apple issued dueling press announcements, with Apple saying it would not carry television shows from the coming NBC season because the network wanted double the $1.99 price and NBC saying that was not true. (the battle between the infrastructure and content guys) .

“Apple is not telling the truth. We never asked to double the wholesale price of our shows," said Cory Shields, a spokesman for NBC Universal. “Our negotiations were centered on our request for flexibility in wholesale pricing, including the ability to package shows together in ways that could make our content even more attractive for consumers.”(My guess is Jobs really doesn't care about how attractive the content is; he wants to control the customer interface via accessibility and pricing of iTunes downloads to meet his strategic goals).

Content creators are supposed to hold all the cards, but in this shootout the advantage rests with Apple so far. With a ubiquitous installed base — iTunes has been downloaded 600 million times and there are more than 100 million iPods out there — Apple has the biggest media application on earth. Networks and music companies have some bullets, but Mr. Jobs owns the gun. (at least for now)

Paul Saffo, a Silicon Valley forecaster who has seen a few revolutions come and go, is not someone who feels the need to own an iPhone, but he thinks Apple is just reaping long-earned rewards. “They won this before the first iPod was sold,” he said. “They figured it out. And now he is getting monopoly rent.”

I’m less sure of that. When Mr. Jobs iTouched the shark this week with the pricing fiasco, he proved that he’s not infallible — despite what you might hear. And his continued insistence on controlling every aspect of the user experience, including the price point, has real risks.
You could speculate that Apple slashed the price on the iPhone to gain additional leverage in peddling songs and episodes of “Heroes,” but the company is in the tchotchke business, not the media business. ITunes, for all its ubiquity, is not a big profit center (at least not now--remember my comments on his strategy -- Jobs is probably looking at the profitability of the whole system, not each segment. He may change the relative profitability down the road between the iPod and iTunes businesses). Mr. Jobs wants to be the king of all media as a way of making sure that there is a cheap, rich source of software — music, television shows and movies — to animate his devices and drive further sales.

His arguments against variable pricing (flat rates draw new customers and lessen the appeal of piracy) may have worked a couple years ago, but they are starting to sound a little self-serving (Duh, why shouldn't it). The Web, after all, can easily enable infinitely customized pricing. eBay proved that people will not only track prices closely, but act in their own consuming self-interest.

Should buying media be any different than bidding on a canoe or last season’s Banana Republic sweater? It seems a stretch to believe that the iTunes version of “Stronger,” a breakaway hit by Kanye West, and “The Last Duet” by Barry Manilow and Lily Tomlin — an audio science project at best — are both worth precisely 99 cents. (clearly, his strategy is not value pricing for iTunes downloads at this point)
And as someone who travels a great deal, the opportunity to watch episodes of “The Office” on my iPod seems worth a great deal more than $1.99, and I would pay accordingly....
The networks are being squeezed on all sides — by customers who can watch “Lost” when it is broadcast, see a streamed version of it on the next day, TiVo it to consume ad-free at their leisure, download the paid version of it, steal a ripped version or wait and buy the DVD box set.

But NBC Universal has significantly more leverage in this fight than music companies. Fat file sizes have insulated video-content providers from the disruption that overtook the music business (though the clock’s ticking on that firewall). NBC already has many of the top-selling shows on iTunes: the company put its market share there at 40 percent, while Apple said it was 30 percent.

And Apple is not the only near-monopolist that media companies deal with. Wal-Mart, which used cheap media prices to draw people into its stores, will be none too happy to be undercut in the long run. NBC announced it would deal with another behemoth,, to get its media out there. The network’s coming partnership with Fox in something called may create a destination for popular streams. (the battle is REALLY starting)

Sure, versions from and won’t play on the iPod. But Mr. Jobs can only own pricing if episodes of “The Office” have nowhere else to play. Apple has built a hardware-based kingdom, rendered beautiful to the touch. But my love of the iPod is still driven by all the things I can put on it. If the gated community loses a lot of cultural real estate, will I need to keep my address there?

Tuesday, September 04, 2007

Leading Change: Why Transformation Efforts Fail
Leaders who successfully transform businesses do eight things right (and they do them in the right order).

HBR Reprint: R0701J
by John P. Kotter

This is another classic from HBR. We continually "preach" in our work on organic growth that leadership must play a hands-on role. This is an excellent example of what we mean. I strongly urge you get the reprint.

Businesses hoping to survive over the long term will have to remake themselves into better competitors at least once along the way. These efforts have gone under many banners: total quality management, reengineering, rightsizing, restructuring, cultural change, and turnarounds, to name a few. In almost every case, the goal has been to cope with a new, more challenging market by changing the way business is conducted. A few of these endeavors have been very successful. A few have been utter failures. Most fall somewhere in between, with a distinct tilt toward the lower end of the scale.

John P. Kotter is renowned for his work on leading organizational change. In 1995, when this article was first published, he had just completed a ten-year study of more than 100 companies that attempted such a transformation. Here he shares the results of his observations, outlining the eight largest errors that can doom these efforts and explaining the general lessons that encourage success.

Unsuccessful transitions almost always founder during at least one of the following phases: 1.generating a sense of urgency, 2.establishing a powerful guiding coalition, 3.developing a vision, 3.communicating the vision clearly and often, 6.removing obstacles, 7.planning for and creating short-term wins, 8.avoiding premature declarations of victory, and embedding changes in the corporate culture.

Realizing that change usually takes a long time, says Kotter, can improve the chances of success.