The BaldrigePlus Newsletter
Issue 17, Sunday May 7th, 2000
What is dotcom leadership?
Let’s start by thinking about ‘dotcom.’
Fortune magazine’s Brent Schlender calls the new economy a ‘herd of business phenomena kicking up dust all around us.’ It’s not a single trend, he says, and certainly not just the internet ‘itself a whole passel of beguiling and disruptive forces, both technical and commercial.’
There’s broadband – the internet on steroids, due soon to fundamentally change how we consume broadcast and recorded entertainment. There’s wireless – already changing the nature of telephony and the way many people work.
And underneath all the froth and gloss and NASDAQ headlines there’s the economics, manufacturing, commerce and plain business drivers that make the so-called ‘new’ economy the only economy – network effects; the evolution of information technology from a service to a product; build-to-order manufacturing; the sense-and-respond immediacy of real-time on-line business; and the emerging realisation that that if this is all one economy, then the old rules may just apply.
Behind the ‘flight to quality’ that underpinned recent world-wide stock market corrections (not ‘collapse’ – there never was a bubble – more a rough and ready subsidence to market fundamentals) is a realisation that ‘quality control and industrial-accounting strategies like Six Sigma and economic value added’ are actually important in the new economy.
There’s more. Coopetiton – partnerships among clustered competitors. Supply-chain integration. The cultural revolution stirred by empowered employees in a tight labour market, remuneration by ownership through stock options. Outsourcing. Project-hopping.
Fair to say that it’s more than just the internet? Sure. So what about leadership in this environment? If this world is so different, but so much the same, does it require different leadership skills? Or a whole new approach to leadership? Where better to look for a few clues than Forrester, the dotcom economy’s number one and much-quoted entrail-inspector.
George Colony, CEO and chairman of Forrester’s board, recently interviewed a number of CEOs about how the internet would change their business. Most were from the old-economy – people like Harvey Golub of American Express. But 20% were with the leaders of dotcom companies.
What did he find? Predictably, traditional CEOs were scared by the internet and scrambling to catch up. But – surprise, surprise – many dotcom CEOs are junk; lacking depth, experience, and common business sense.
They talked about their constantly changing work force, a highly fluid cast of characters washing in on the promise of more stock options and an IPO and then washing out, post-offering, in search of another pre-IPO company.
Their business thinking was simplistic and clichéd: “Be like Amazon!” “Advertise, advertise, advertise!” “It's a land grab!” “We don't want to be profitable too fast.” “B2B is the place to be.”
There was a fanatical focus on valuation – on going public and getting liquid – while value (what the customer eventually gets) was a back-seat discussion.
“In many ways,” said Colony, “these companies felt hollow, lacking some of the fundamental ingredients of long-term success.”
There are four dynamics driving this mentality, he believes. The first is history. Capitalists and entrepreneurs look backward at companies like Microsoft, Sun, or Cisco and perceive that first-mover status creates a tornado, in the words of Geoffrey Moore, that steals the air from competitors and locks up a market. The lesson: Go fast or die.
The second is jealousy. Entrepreneurs see riches all around them, and they want their piece of the pie.
The third is the flavour of current capital. Public markets are gullible and ready to buy equity in half-baked, or even quarter-baked, dotcom ideas. Venture capitalists appreciate the window for quick-flipping and encourage entrepreneurs to think in the short term .
The fourth dynamic is greed – Hey, why get rich slowly with a lot of work when I can get rich quickly with not much work?
The resulting ‘hollow companies,’ have limited experience, wisdom, commitment, long-term view, allegiance to the customer, or sense of construction. They’re not built to withstand competition, not built to deliver sustained value, and not built to last.
Some fantastic companies will be built, Colony contends, and they’ll be the ones which end up dominating the internet economy. But ‘built’ is the word – “it's going to take years; blood, sweat, and tears; developed wisdom; and enlightened business decisions to construct the truly stellar internet companies.”
The hollow.coms will get trashed, he says, along with a sinful amount of venture and day trader capital.
What does this mean in leadership terms?
First, an entire generation of business leaders will be corrupted. They will have great skills in designing obtuse ad campaigns, doing barter deals, negotiating with investment banks and venture capitalists, and doing secondary road shows. But no skills in marshalling sales forces, hiring executive teams, working out fair business contracts with customers, and building employee morale and culture that is sustainable beyond a two-year period.
The dotcom generation will get squeezed by more skilled baby-boom managers and aggressive Generation Y newcomers. Dotcom managers will end up working for their elders and their juniors.
Second, the strong will get stronger. The Internet economy companies with dedicated, wise management will obliterate the hollow.coms. Larry Ellison, Jay Walker, Jeff Bezos, Meg Whitman, and other high-quality, long-haul players will end up with a disproportionate share of their marketplaces, as the hollow companies disintegrate.
And third, the dotcoms can be beaten. Traditional companies have been intimidated with the new economy wealth and ‘we get it’ hubris, but Colony says that dedicated, focused, visionary, technology-driven, multi-channel campaigns will kill a hollow.com every time. But it won’t be easy, and that’s where leadership shows.
Welch, Idei and Ellison
Let’s look at three top-tier leaders – one from the old economy, one from a firm which spans the old and the new, and one from a newcomer that’s fast becoming the next Microsoft. General Electric, Sony and Oracle. All three have highly visible leaders, each of whom has confronted the leadership challenges of the new economy.
GE’s Jack Welch is probably the most admired CEO of his generation (Fortune, May 1st 2000), leader of a $112b holding company (from financial services to jet engines, medical equipment and, of course, light bulbs) with 340,000 employees and a leadership-driven obsession with product quality and customer service. He’s only been using email for two years, but is fast becoming e-Jack, spurring GE to become a leader among traditional old-economy companies in embracing the internet.
How is Welch’s leadership making this happen? For one thing, he’s turned GE upside down, pairing 1,000 web-savvy newcomers (mentors) with senior people to get his top teams up to internet speed quickly. His epiphany happened in 1998, when he noticed his office, and his wife, Christmas shopping on the web. “I realised that if I didn’t watch it, I would retire as a Neanderthal,” he’s reported saying, “So I just started reading everything I could about it.”
In practice, what does this mean? Getting close to customers. “When we turn, man, we know how to go,” Welch says. Now, internet-provided database information is used, for example, to deliver updated software, and benchmark the performance of customer’s equipment, driving GE’s e-service businesses ‘through the roof.’
The new economy can be pretty Darwinian. Direct links to customers and transparent, boundary-less supply chains throw light into all the dark corners, and “you’ve got to be good at the nuts and bolts, or your flaws will really show.” But that, says Welch, is why a company that’s got Six Sigma quality programs, rock-solid fulfilment capability, reliability and brand should be able to take on the internet and make it work. Once we got to understand that, he says, we realised the internet wasn’t rocket science.
Sony’s Nobuyuki Idei is in the midst of transforming a Balkanised, poly-talented enterprise that employs hundreds of thousands of people worldwide and is central to many of the hottest industries of our time – electronics, IT, telecoms and media (Fortune, May 1st). He needs, according to Fortune’s Schlender, to morph Sony’s creative culture so that software, online services and digital content drive hardware development and sales rather than the other way around, teaching Sony people “to think about their particular products second and the implications of the network first.”
Sony makes solid, if unspectacular, profits. The company was set up by founder Akio Morita to foster class warfare between the divisions. Internal rivalries are part of the company’s DNA. This has led to some marvellous products, but made a common purpose very hard to articulate, let alone achieve. A major challenge is creating a sense of organisation-wide urgency.
What’s Idei’s approach – where’s he starting? Everywhere! It may be the strategy from hell – a net age nightmare. There’s a risk that by heading off in all directions at once, Sony will get nowhere, but Idei probably has no choice. The revolution is happening. His choices seem to be to join in, or go under.
Far from being daunted, he “seems almost gleeful as he connects one after another of the new economy’s revolutionary trends to Sony’s multifaceted business operations …” And he’s not just working to keep Sony together – he wants to make Sony really matter, to be at the centre of the new economy with Microsoft and IBM and GE … to be “the number one company in the broadband network society.”
In Sony, change is happening fast, and happening everywhere at once. No-one is really in charge, and Idei is probably the only person with all of it his head. The challenge for his leadership is to express the big ideas in language and structures that the organisation understands … to allow and encourage and direct rather than make things happen.
Oracle’s Larry Ellison used to be Silicon Valley’s bad boy (Business Week, May 8, 2000). His dull but essential database software may have been a key component of many web businesses, but it was inching along at single-figure growth rates. Meanwhile his much ballyhooed ideas like interactive TV, linking Hollywood with Silicon Valley, and the network computer that would make PCs obsolete, sank like stones. There was the $20m Russian MiG, the near-fatal Sydney-to-Hobart yacht race, and the playboy rep.
Then, two and a half years ago, along came the web. Everyone needed a database. Oracle was away. Last quarter, sales surged 32%, to $778 million. Since November, the company’s stock has nearly quadrupled, giving the world’s number two software maker a market cap of about $205b – bigger than IBM. A few days ago, with Microsoft losing value, Ellison’s personal fortune ($52.1b) finally exceeded Bill Gates’.
With the database business on cruise control, Ellison is about to launch phase two of his assault on the web – e-business apps (known as Oracle Release 11i) that that will be the supply-chain, end-to-end equivalent of Microsoft Office, with a shot at becoming the biggest supplier of software that extends beyond the PC, out onto the web. It won’t be easy, of course. Microsoft, IBM and the other SAP heavyweights have the knives out, accusing Oracle’s sales force of a hyperactive PT Barnum approach (‘they’ll promise anything to make a sale,’ says IBM’s software strategy GM Steven Mills; while Siebel Systems’ chairman Thomas Siebel says Oracle’s e-biz suite is ‘vacuous’).
Oracle’s success is not all about being in the right place at the right time. Much to Business Week’s surprise, Ellison has been applying some old-economy, very Baldrige-sounding, performance excellence principles. Gone is the free-spending feudalism of the past – the workforce has been trimmed, and key processes in sales and administration have been tidied up. $500m has gone from expenses. Operating margins are up, from 19% to 31% in nine months, with another $1.5b to come off costs and margins to go to more than 40% in the next year. He’s been aggressive about establishing new business practices, only half-joking about sending a navy SEAL team to “blow up our Canadian data centre,” when local management proved recalcitrant.
The key point for a ‘leadership’ discussion? This is no collective activity. It’s all about Larry Ellison. How do we know? Listen to Oracle President Raymond Lane talking about the phone call from Larry that started it all. “My mouth just hit the table,” he recalls. “All of a sudden, Larry is in your mess kit drilling down for four hours. Some days, I’ll walk out of a meeting saying ‘I don’t need this.’ But then you look at the stock price. What Larry’s doing is working. There’s not a hotter company around.”
Lessons
What does all this tell us about dotcom leadership? Is it just old-fashioned leadership with email, or something quite different? Paradoxically it seems that the old characteristics of great leadership – like a heroic personality, charisma, skill and perseverance – are still necessary. But they’re no longer sufficient.
Great dotcom leaders have to ‘get it.’ Be e-savvy and switched on. Be able to live with ambiguity. To get a grip on just enough of the guts of their organisation to keep it together and going in the right direction, without stifling innovation or missing the day to day opportunities.
Being ‘old economy’ isn’t necessarily a handicap. Jack Welch shows that bricks and mortar skills can be applied to internet operations with great success.
The indicators and recipes of good business apply just as much in the new as they ever did in the old. Dotcom is not enough. Direction, ability and results do matter. It shouldn’t be a surprise, of course, but in the end, it is all down to leadership!
Footnote
Larry Ellison’s high-life rep surfaces in strange ways – a front page article in New Zealand’s May 7th national Sunday newspaper reports that award-winning chef Simon Gault is to leave Auckland’s Euro restaurant to become Ellison’s personal cook – at a salary of $NZ500,000.
Note on internet addresses
Rather than live links, we've included the adddresses to off-site resources in full - cut and past to your browser.