When Leadership Matters

One of the most frequent questions I receive about the characteristics and behaviors of companies that have survived over 100 years is why I haven't identified any particular leadership behaviors. As I've said in earlier posts, the short answer is that no consistent leadership qualities emerged from the research. Most companies revere their founder or another leader who led the company during a critical juncture in the firm's history. And most of these companies have leaders who have "grown up" in the company, which usually produces some consistency in leadership style within a particular organization. But there was not any consistency in leadership behavior across organizations. What did seem important was that the leaders follow the principles of survival: have a strong core ideology and corporate values that drive your business; invest in experimentation and change while protecting those core values and building on your strengths; develop true partnerships with your constituents and learn from the relationships throughout your value chain; and practice conservative financing.

Of course leadership matters, and these companies thrive under astute leaders who make good business decisions. But they also seem to survive under poor leadership as long as these core principles are not violated. I'm writing today about one of the principles - drive for change while building on your core values and unique competencies. Following is a story about how two different organizations navigated through very difficult business transitions. The different approaches in implementing the necessary changes provide a good example of what a difference it makes when a leader follows this principle.

Both organizations had very strong cultures that were employee-focused: they provided good pay and benefits, including profit-sharing and a management style that included employees' opinions in the decision-making. As a result employees stayed with the firms and the companies had many employees with several decades of service. Both companies were going through a leadership transition with the retiring CEO having spent his entire career with the company. and both were also facing difficult industry dynamics resulting in a rather dismal business forecast. Company A brought in a young but well-respected leader who was president of a smaller company in the industry; Company B promoted their CFO - also young and well-respected. Both new CEOs believed their company had become too inwardly-focused and that the culture needed to change if the company was to succeed in the new competitive reality facing the firm. Both companies were more "differentiators" than "cost leaders" with products that were fast becoming commodity-like in terms of customer purchasing behavior. It is the difference in how they navigated the company through the changes they thought necessary that is the lesson.

Company A's new CEO's first action was to fire or retire much of the leadership team. Many of the people he brought in the replace them were young leaders who had worked for him in his previous company. His instructions to them were to change the culture of the company from what he saw as one of employee entitlement to one of operational efficiency. When falling sales drove the need for employee cut-backs, he saw this as an opportunity to remove many long-term employees whom he felt were barriers to change. He also shifted investments from the firm's traditional R&D focus to ones that would improve manufacturing efficiency. The people who remained in the company weren't quite sure how to be effective in this new reality: they became demoralized and lamented the loss of the company as they knew it. The new CEO never was able to turn the company around and it limped along until it was bought by a competitor.

Company B's new CEO also believed major changes needed to take place, but he went about it in a very different way. He built the case for change and presented the facts to employees. Then he used the culture of the company to drive the changes. Once employees understood the reality of the company's current situation, they were asked for their ideas and help in making the needed changes. The CEO promised he would continue to invest in the company's core competencies - that they would continue to produce new and innovative products - but that they also needed to find a way for their operations to become more efficient. Employee involvement was a long-standing tradition in the company and the new CEO used the culture to make the necessary changes rather than abandoning it. This company also needed to reduce their workforce because of deteriorating industry conditions, but did so in such a way that they still ended up on FORTUNE's list of best companies to work for. This company continues to introduce "disruptive" products, but it is also one of Toyota's prize TPS pupils.

The point of this story: Don't walk away from your past when change needs to take place. Build on it. The company's culture and core competencies are not things that never change or evolve: rather they are the building blocks used to make the changes. Change is absolutely necessary to survive over the long term - but how you change makes a difference: Drive for change by building on your company's core competencies and unique technologies rather than abandoning them. Yes, leadership matters. But it's not your particular style that makes the difference - it's your ability to practice the principles that enable company longevity.

Data Base at 1,000 Companies!

Our data base of 100-year-old U.S. companies now officially has 1,000 members. Though this represents just 0.01% of all U.S. businesses, it is a substantial group to research. Two-thirds of the companies are privately held - many are family owned. Half employ over 500 employees. Nearly 40% are manufacturing organizations and nearly 20% are banking and finance institutions; retail is the only other category coming in at over 10%. More info to come.... We will be sending out surveys soon.