The new buzzword in management is sustainability.
Sustainability is vital to the 60-year-old founder of a company that has grown to $200 million whose board members are continually asking her, “What would happen if you were hit by a bus?” It is equally important to the principal of a Bronx school for gifted children who is continually raising money and worried about losing a major donor. Likewise, it is important to the Newsday reporter who is experiencing the third ownership change in 8 months. Sustainability is a company’s ability to adapt and thrive over time. It is a new, sometimes painful reality in a world that has been for far too long over-focused on quarterly numbers.
The average life of a corporation on the Fortune 500 list is just 4 years. Only slightly more than 50 percent of CEOs last more than 3 years. Less than half of the CFOs stay in their jobs for 3 years. The lifespan of players, companies, and even industry sectors has changed in the linked world. And, according to a recent McKinsey survey, the American public has less faith in management today than at any time in the last 50 years. Less faith than post-Watergate.
The linked world transmits errors and successes instantaneously and makes cost structures much more transparent. The time period from when an industry is born of an innovative market idea until the landscape becomes one of cost-competitive commoditization with multiple players chasing a once “proprietary” market has shrunk, by a factor of 10, according to the Gartner Group.
Sustainability is a big challenge that cuts across all types of enterprises – not-for-profits, businesses, and governments. The enterprises that appear set to sustain themselves seem to share three characteristics, which are in and of themselves challenging: (1) being disciplined and innovative; (2) targeting results that both contribute socially and run with sound financial underpinnings; and (3) focusing on long-term and short-term financial results simultaneously.
This blog will discuss the first of these three challenging characteristics. Let’s start with two stories.
Corning Inc. has always been an innovative organization with a history of successful investment in new technologies that take advantage of the company’s deep knowledge of glass, glass ceramics, and inorganic materials. For example, it developed a process for producing colored and unbreakable railroad signal lenses that made railroad crossings safe. In the 1970s, it invented the core of the catalytic converter, the basis for most automotive pollution control systems. More recently, Corning pioneered the development of optical fiber capable of effective transmission of digitized data.
Despite its history of transformative innovations, between 2000 and 2002 Corning began to fail because of a lack of discipline, as well as over-investment in the telecommunications industry. Management fought to recover by bringing in discipline and “protecting” innovation.
The senior team’s focus has been on creating discipline that nurtures innovation around keystone components. The discipline includes a new strategy and strategic planning process focused on innovation and made real by a willingness to invest huge amounts of money to take advantage of an opportunity. The process routinely taps into knowledge and experience of outsiders (academics, industry experts, advisers, consultants). In other words, the company no longer relies on occasional feedback from customers for inspiration. There is also a disciplined tracking process that facilitates course-correction when new ideas are missing targets. Corning management has taken this mindset beyond planning. It modified the company’s reward system to encourage risk taking.
There is a new training program for project leaders that focuses on simultaneous discipline and intuition. At a recent session, Wendell Weeks, the chairman, commented that, “information transparency lets the leaders make more mistakes, because they can correct faster and hence be more innovative.” He continued, “You can’t really know how something works until you know why it doesn’t work. And I expect you to learn how a lot of things don’t work.” The group meets for a week every quarter to collaborate on being innovative and disciplined.
The second story is about how Muhammad Yunus, the Nobel Peace Prize winner and the founder of the Grameen Bank in Bangladesh, pioneered micro credit, a program that provides poor people with small loans to launch a business. He tried to get traditional banks to lend to the poor. He found that, “the idea of lending to such people flew in the face of every rule the bankers lived by.”
“Conventional” bankers’ discipline and risk-aversion would not let them try it. Muhammad intuitively knew this was an opportunity – knocking down institutional barriers that treat the poor as nonentities, but doing so with discipline. In 1983, he began building the Grameen Bank to have the discipline and innovation to be self-sustaining. Over time, what began as simply banking expanded to include training, exporting, and the provision of Internet, energy, and health care services. The system never collapsed. In 2006 and 2007, the bank paid $20 million in dividends to its owners, in this case the borrowers, while showing a strong sustainability profile.
We have all seen other enterprises struggle with this balance over the last few years. For example, at Bear Stearns, Ace Greenberg was both intuitive and disciplined. His handpicked successor, Jim Cane, ran a well-disciplined organization but appeared to lose the intuitive touch with the market. In 2008, the Fed and JP Morgan had to step in and rescue a failing enterprise. Steve Jobs was fired when discipline was required at Apple only to be replaced by John Scully who brought in discipline without innovation. That failed. Apple had time to adjust, and Steve Jobs returned as a more disciplined, seasoned executive. These are but a few examples of today’s reality – namely, sustainability of the enterprise needs both discipline and innovation.
Greg Brown, the new CEO of Motorola, is constantly reminded that neither of his two predecessors lasted 5 years – and, like Brown, every executive needs to build sustainability into his/her thinking and decisions. Sustainability is continually building tomorrow while solidly managing today. It is using discipline as a system of freedom and responsibility within a framework of innovation, intuition, and judgment.
The next blog will focus on the second characteristic shared by enterprises that are well positioned for sustainability – namely, targeting results that both contribute socially and run with sound financial underpinnings.