by Pawel Motyl
GE sped forward, and Welch’s approach won greater and greater acceptance, even among his earlier critics. The 1990s did not see Neutron Jack resting on his laurels—instead, he constantly forged ahead, actively seeking out new business opportunities. The company bought up players that fit with its competitive model, and continued to rid itself of those units that were unable to achieve or maintain their position as leader.
GE shares at the beginning of the 1980s cost a little over $1.00. When, after more than twenty years at the helm of the corporation, sixty-five-year-old Jack Welch retired, the share price stood at over $50.00. The company’s market cap was at $12 billion when Welch took over and peaked at $596 billion in August 2000—a record for GE. When he left, it had dropped to $400 billion.
A similarly interesting story was played out in another American corporation, which for many years had been a symbol of the country’s business success, only to find itself in serious trouble and then become a fascinating story of rebirth driven by an exceptional leader.
At the beginning of December 2016, I flew to Phoenix for some workshops as part of the Marshall Goldsmith 100 Coaches program. I didn’t know that it would be a weekend that would alter my views on managing change. I knew I was embarking on an intensive couple of days in the company of fascinating people, but I was in no shape or form prepared for what happened on Saturday, December 3. That day, I met Alan Mulally, and the story he told me turned my perception of the role of a change leader in transforming an organization upside down.
Mulally was born shortly after World War II in Oakland, California. He studied at Kansas University and MIT. Though he spent almost his entire career with Boeing, where he was highly successful, particular attention should be paid to the years 2006–14, when he accomplished a seemingly impossible task: despite being an industry outsider, he not only led the Ford Motor Company back onto the straight and narrow after the 2008 financial crisis, but also repaid the government funds the company had received, making Ford unique among the country’s Big Three in this respect. His introduction to Ford had been less than auspicious, though. When William Clay Ford Jr., a descendant of Henry Ford, announced that his successor in the role of President and CEO would be someone who had spent his entire career with Boeing, few believed that the legendary company would survive. The internal organizational and financial problems were bad enough (in 2006, Ford lost $17 billion on its core business!), but the global crisis two years later almost tapped the final nail in the coffin, as it wreaked havoc throughout the auto industry. So how did an outsider achieve the impossible? He turned to radical change, of course 15—restructuring the brand portfolio, changing the management personnel, implementing major cost-cutting accompanied by tough negotiations with trade unions, and mortgaging almost the entire assets of the company for a sum exceeding $23 billion... and yet, it was Alan Mulally’s personality that proved to be the key to his extraordinary success. I summarized the lessons on leadership I took away from the December meeting in five points:
If you don’t believe in your people, you’ll get nowhere. People come first. If you can’t build a team characterized by open, honest communication, trust, respect, and genuine engagement, you will get nowhere, no matter how great your strategy is. Leadership is about building the capability of the team and its members. If you are better and know more than your direct reports, you are in trouble.
Truly including everyone is crucial. Compelling vision, comprehensive strategy, and a relentless implementation plan are key, and you should make sure that everyone understands and trusts them. If people know where the company is going and are up to date with its status, they feel safe. Uncertainty, gossiping, and lack of engagement are rooted in insufficient communication.
Emotional resilience comes from having a process you trust, whether you are a manager or an employee. If you have both a process and a plan, these are your support network when the going gets tough. Trusting in the process and the plan helps you sleep well at night. However, there are two important points to note about this approach:a.When organizations face a problem, their instinctive reaction is to say, “We have to change our plan.” Mulally’s lesson: don’t do this; instead, be more creative in your search for a solution.
b.Rely on facts and data. You cannot manage secrets, so honesty and transparency are fundamental. Data sets people free.
Have zero tolerance for those who violate norms and expected behaviors. This one might seem surprising: although individual performance is important, values and norms are what really matter. Mulally is okay with someone who has no idea how to solve a problem they encounter (see Lesson 5), but does not tolerate those who violate values and expected behaviors.
Having no solution to a problem is OK. In my opinion, this is the most powerful lesson to be learned from. We work in ego-driven organizations and environments in which admitting you have no idea what to do is tantamount to professional suicide. This is embedded in the managerial and decision-making culture: How many times have you heard, “Don’t bring me problems, bring me solutions”? Empowering people and making them accountable makes sense, but what if someone faces an issue they can’t find an answer to, despite their best efforts to do so? In such a situation, the “bring me a solution” approach encourages people to sweep problems under the carpet. Mulally’s lesson: it is OK to have no answer. The team is there to help—this is what teamwork is all about. This is common sense, but uncommon practice.
Alan Mulally’s achievement deserves special recognition, because the transformation of organizational culture is an extremely difficult type of change management.
The Leader as Architect of Organizational Culture
Organizational culture, as we saw in the previous chapter, is of fundamental significance for decision-making processes, and it is leaders who are responsible for shaping it. This responsibility is more important today than ever before, and if that weren’t enough, it is one of the most difficult processes of change to oversee in business, not only because people resist it, but also because the actual transformation concerns things that are difficult to measure. Changing the tools used in the sales process, changing the program for managing warehouse levels, changing purchasing procedures, and so on, all share one pleasant feature: they’re measurable. It’s not difficult for a project manager to define the criteria and parameters of such things, so it’s not difficult to find out fairly rapidly whether or not the change is having the desired effect, or whether the approach needs to be modified. In the case of modeling organizational culture, setting hard, measurable indicators is far more difficult, and frequently impossible.
Leaders are not helpless, though, as long as they apply a technique that until recently was treated as superfluous and typically pushed to one side: managing organizational values.
Values are basically beliefs and guidelines that an organization identifies as standards that they want to adhere to and be associated with. They set the tone of an organization and are part of its brand.
The foundation of an organization’s values is usually specific to its corporate priorities. For some, this will mean that innovation and constant change are key; for others, it will be stability and predictability. Every sector has a place for companies that back experimentation (like fusion restaurants), as well as those for whom uniformity and standardized service and product are key (such as McDonald’s). The important thing is that employees act in accordance with the values promoted by the company and that their leaders encourage such behaviors. Values should be a kind of lighthouse, helping to steer employees toward the right decision when conditions are uncertain—they answer the question “how,” unlike a strategy, which answers the question “what.”
Values are frequently at the root of vital decisions that will directly affect the success or failure of a company. An excellent example of this was the decision taken in 2009 by Hyundai in the United States. Like their rivals, the Koreans were struggling at the
time with the catastrophic collapse of sales in the US market, caused by the financial crisis and the massive uncertainty accompanying it. Americans, fearing for their futures and job security, and reluctant to take on more debt, decided en masse that their current vehicles weren’t so bad after all and put off buying a new car until more predictable times returned. This led to the collapse of the market in 2008. The year-on-year drop in new car sales was 18 percent, the worst slump in the sector’s history. Almost every brand was affected, the few exceptions being manufacturers of luxury and sports vehicles, where demand remained relatively stable. The slump hit the automakers hard—Chrysler, for example, declared bankruptcy, and many had to apply for support from public funds. That wasn’t the end of the crisis, though—in 2009, sales dropped even more, falling 22 percent year-on-year. Meanwhile, Hyundai (which manufactures neither luxury nor sports vehicles), like its competitors, lost sales in 2008 (-14 percent), but achieved the seemingly impossible in 2009. It didn’t just maintain sales levels from the previous year, it increased them by 8 percent! Industry experts couldn’t believe their eyes—this lowly Korean manufacturer was coping better than top-drawer car makers. The secret was simple: for years, Hyundai employees had been trained to put themselves in their customers’ shoes and to think like them. They had no difficulty, then, in understanding the decision to put off buying a car. This awareness was a common denominator in the decision-making process whereby they rapidly launched a campaign transferring the risk from the customer to the producer—all the dealers of the Korean brand declared that, in the event of a customer losing their job within the next twelve months, Hyundai would let them return the car and would reimburse them, taking into account the depreciation of the vehicle’s value so the amount customers received was fair to both parties. For purchasers, it was excellent news—you didn’t have to give up your dream of purchasing a new car because the seller was shouldering the risk for you. It shouldn’t come as any surprise to learn, then, that anyone who had previously intended to buy a Hyundai went ahead with their purchase as planned, and, on top of that, that the brand attracted a lot of customers for whom the Korean manufacturer hadn’t been their first choice but whose outstanding offer had encouraged them to transfer their brand loyalties. In this way, applying the company’s value of understanding the customer was a key factor in making and implementing a business decision, which in turn led directly to a significant success—Hyundai’s market share in the USA almost doubled in 2008–12.
So, values not only matter, they can also generate a real, bottom-line return on investment. But what should we do if other people don’t respect our values? The most striking evidence for the importance of values, together with the key role played by leaders in modeling organizational culture, comes from a somewhat surprising sector.
Though the birth of the Italian Mafia is lost in the mists of time and shrouded in mystery, one thing is certain: however strange it may sound, the Mafia (and in particular, the Sicilian Mafia, or Cosa Nostra), was and remains an organization built around a very precise set of values. In its history, of all the amazing stories it has to tell, three stand out: the building of a powerful market position based on a system of organizational values, followed by a deep crisis provoked by the transgression of those values by its leader, and, after losing its position, the implementation of an organizational culture change project.
Ladies and gentlemen, sit back and prepare to absorb some business wisdom from the underworld.
The Cosa Nostra is one of the four main Italian Mafias and is beyond question the best-known grouping. It was the subject of a series of novels by Mario Puzo that later formed the basis of The Godfather film trilogy. Although the films’ action is set mainly in the United States and the events presented in them aren’t a completely faithful or accurate depiction of the realities of the operations of the Cosa Nostra, the trilogy was a hit, reaping as many as nine awards from the Academy of Motion Picture Arts and Sciences. In this manner, a true classic among gangster films was created, and the Sicilian Mafia became global headline news. The success of the films led to the (obviously unintentional) popularizing of the Sicilians’ modus operandi all across the world.
The true story of the Cosa Nostra actually began over a hundred years earlier, although there are many traces of its activities dating back even further. Some enthusiasts maintain that the roots of the Sicilian Mafia lie in the resistance movement against Charles I of Anjou, a ruler of Sicily who lost power due to the actions of the Sicilian Vespers, when the local population rebelled against the French regime. According to one of the popular, but untrue, stories, mafia was an acronym of the chant shouted during the rebellion, “morte alla Francia, Italia anela” (death to France is Italy’s cry). Despite this story’s having very little connection with the actual facts, the Sicilian Mafia was in its own way a resistance movement—an attempt by locals to protect their interests when political games too frequently deprived them of the benefits of their hard work. Sicily passed from ruler to ruler. After the overthrow of Charles I of Anjou, the island fell under the rule of the kings of Aragon, who attacked the exiled Angevins. In the middle of the fifteenth century, it seemed that, thanks to Sicily having reunited with the kingdom of Naples, peace would finally prevail—but then the Habsburgs took power. They were replaced by the Bourbons, who remained in power until 1860.
Meanwhile, the legendary Italian hero Giuseppe Garibaldi was attempting to reunite a fragmented Italy, starting his march from Sicily. In May 1860, his modest, thousand-man division launched a desperate attack on Palermo—and to everyone’s surprise, emerged victorious. After three days of fierce fighting, the exponentially stronger Bourbon forces withdrew from the city, and soon after from the entire island. Garibaldi led his Redshirts toward Naples, which they finally took on September 6. The process of reuniting Italy had begun.
This didn’t signal the end of Sicily’s problems, though, as integrating the island’s 2.4 million inhabitants into Italy didn’t go smoothly. Further battles and minor revolts were the order of the day, leading at a certain point to the imposition of martial law. It’s hardly surprising that the population, tired of the repression, gradually began to organize in defense of themselves, and the more important local families became the fundamental unit of resistance and protection. However, no one had yet named these increasingly powerful families a “mafia.” The word entered the vernacular partly via Giuseppe Rizzotto and Gaspare Mosca, authors of a very popular opera titled I mafiusi de la Vicaria (in which “mafiusi” denoted a group of prisoners), and partly via the authorities themselves, who, in the wake of the opera’s popularity, started to refer to the Palermo families in this way. The word mafia probably comes from the Italian-Arabic slang that the inhabitants of Sicily used at the time and that contained such words as mu’afa (protection) or marfud (rejected, outside the law). The actual members of the Mafia didn’t use the term at the time, naming their organization at the end of the nineteenth century simply Cosa Nostra—“our thing.”
For centuries, the Cosa Nostra was treated by many locals as a power for good, or at worst a neutral entity. This resulted from Mafia members’ consistent observance of certain unwritten rules, constituting the basis of the code of shared values of the organization: the principle of not hurting local people without good reason, not engaging in unnecessary fighting with other Mafia families, not attacking the state authorities and their representatives (unless it was absolutely necessary), not earning money from prostitution, and the rule of omertà—absolute silence on matters related to the Mafia. The members’ adherence to these rules made fighting the Cosa Nostra incredibly difficult, and none of the inhabitants of Sicily had either the desire or the intention of cooperating with the authorities.
Observation of the rules was policed over the decades by the heads of the most important Mafia families, though the details of the structures of the organization and the decision-making mechanisms remained a secret up until the 1980s. Only then were inves
tigators able to use the testimony of former members to establish a clearer picture of the organization. It emerged that the Cosa Nostra was made up of cosche (families or clans) from all over Sicily, with those from Palermo being consistently the most powerful. The most important capi (bosses) formed a kind of consultative group called la Cupola, which basically functioned in the same way as a management board of a regular business organization—it served as a forum for discussion, a platform for the exchange of information, and a place for making the biggest decisions. One of the most important of these decisions was the choice of the capo di tutti capi (boss of all bosses), the person who could be regarded as top dog and who essentially ran the Cosa Nostra as the president of the board and enforced observance of the rules of the game by the individual families. The capo di tutti capi was invariably a member of one of the Palermo cosche.
Simultaneously, though, a curious tale was unfolding, one that went unnoticed, or ignored, by Palermo for a long time. During Mussolini’s dictatorship and later the war years, the significance of the Mafia family from the small town of Corleone, in the northwest part of the island, began to grow. At the head of the Corleonesi (the Corleones), as the family was called locally, at that time was Dottore Michele Navarra, a highly respected doctor in the community, whom the locals called U Patri Nostru (Our Father), the same words used in the Sicilian dialect to address God. Navarra demonstrated a fair degree of political flexibility—as one of the few important people in town, he decided in favor of discreet cooperation with the prefect Cesare Mori, Benito Mussolini’s emissary, who took decisive action aimed at eliminating criminal activity from the island and breaking up the most important old Mafia clans. Navarra’s involvement allowed him to kill two birds with one stone: it ensured the authorities left him alone and at the same time eliminated his most serious rivals. The arrival on Sicily of nearly half a million of George Patton’s soldiers was a mere blip for Navarra, who made masterly use of his family ties (his cousin, Angelo di Carlo, who had emigrated to the United States more than ten years earlier, was not only a Mafia hitman but also... a captain in the Marines) and began collaborating with the new powers.
