its long-term value for the benefit of its shareholders.
Herb Kelleher
23
I’ve worked for more than 30 years with Michelin, a great French
enterprise and a world leader in its domain. At first glance, Southwest
Airlines and Michelin seem to be very different. Southwest Airlines
was created in 1971, while Michelin was founded in 1889. But on
the subject of respect for employees, the two companies have many
things in common. Michelin is a company with irreproachable eth-
ics and it has cultivated values like progress and trust for over a cen-
tury. Very early on, the Clermont-Ferrand-based firm adopted a
sense of corporate responsibility and has, from the outset, encour-
aged its people to act autonomously and to take initiatives. Like
Japanese enterprises did decades later, Michelin has always given
its workers and factory directors carte blanche to, respectively,
look for ways of improving their machines and finding means of
increasing productivity and quality.
At Michelin, there is no “Director of Human Resources.”
The position is still described the same way that it was in the
19th century: directeur du personnel. The current directeur du
personnel is Jean-Michel Guillon. In an interview with Le Figaro, Guillon defended this title, even though he agrees it may sound
old-fashioned and, as he describes, a bit “cheesy.” Guillon also
said Michelin will never change it. “Resources,” he explained,
“are used before being recycled or thrown away.”8 This cannot
be the case with people. As he pointed out, the word personnel
contains the word person.
Forbes9 named Michelin America’s Best Employer of 2018.
Its category included the country’s top 750 large and mid-sized
employers. Michelin achieved a score of 9.90 out of 10. It was
the only foreign firm in the top 10. The same year in France,
Jean-Michel Guillon was elected Human Resources Director of
the Year10 (despite his actual title of directeur du personnel).
It is not surprising that, like at Michelin, the department
in charge of staff at Southwest Airlines is not called the human
resources department. Instead it is the People Department.
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the art Is in the Implementation
For many business leaders, setting the strategic direction is per-
ceived as the noblest task. Executing action plans and tracking
their evolution is often seen as an obligation that requires fas-
tidious diligence. Academics and business writers have always
given a preeminent place to strategy. Yet without operational
excellence, it doesn’t matter how clever the strategy is. What
turns a strategy into a winning strategy is, without question, the
operational quality—the execution.
As Peter Drucker said long ago, “Strategy is a commodity,
execution is an art.”11 It’s the execution over time that validates
the strategy. The most successful company leaders are often
acknowledged for their brilliant forward thinking. They would
better be congratulated for their tenacity in implementing the
chosen strategy and for the way they have piloted its execution.
Herb Kelleher certainly adhered to this point of view and
liked to say, “We have a strategic plan. It’s called ‘doing things.’”12
He never allowed himself to become bogged down by too
much strategic thinking or analysis paralysis. He believed that
all he needed was an overall framework. Nothing more. And he
came up with something very basic. For Southwest Airlines, his
vision and the basis for this framework was simple: low cost, supe-
rior service, people first. This framework approach gives a long-
term horizon. It liberates from the contingencies of the moment.
It allows you to think with more agility. Walmart’s CEO, Doug
McMillon, agrees. He noted that, in the past, an organization
like his “might have made big strategic choices on an annual or
quarterly cycle. Today strategy is daily.”13 But he added that, for
strategic thinking to be more fluid, managers needed to have an
overall framework in mind. It doesn’t need to be an elaborate
strategy, but a simple guide.
Herb Kelleher
25
Herb Kelleher’s vision anticipated the new economy’s way of
doing things. Companies today do not try to develop a near per-
fect prototype because it takes too long. Instead, they advance
step by step, through iterations. Strategy is no longer theoreti-
cal, conceived upstream. It is shaped progressively through the
accumulation of experience. That is at the heart of the famous
phrase “failing forward.” Failing is necessary in order to learn, to
progress, and to eventually succeed.
At a time when everything is created, deployed, and measured
in real time, strategy and execution are one. Sequential think-
ing, which requires putting strategy first and execution second,
is becoming more and more outdated, even irrelevant. Today’s
business relies on a constant back and forth between the two.
Herb Kelleher was among the first to get it—intuitively.
Chapter 4
Bernard arnault
ON THE MANAGEMENT OF CREATIVITY
AND BRAND BUILDING
nearly half of the luxury products in the world are bought by
the Chinese. This includes things they purchase domesti-
cally and during trips abroad. This attests to the success of the
“luxury for everyone” strategy adopted by LVMH, the world’s
leading luxury group.
LVMH Chairman and CEO Bernard Arnault is the third
wealthiest man in the world. That is not an easy status to assume
in France, where earning more than the average tends to raise
suspicions.
I wish to talk about Arnault for three reasons. First, he has
practically invented an industry, that of luxury. Second, it appears
to me that no company is more competent than LVMH in man-
aging intangible assets. Finally, he has created an organization
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that may survive all of the other enterprises mentioned in this
book, given the longevity of luxury brands.
LVMH brings together the greatest number of prestige
brands imaginable: Christian Dior, Louis Vuitton, Givenchy,
Guerlain, Moët & Chandon, Hennessy, Berluti, Chaumet,
Krug, Bulgari, Fendi, Céline, Emilio Pucci, Kenzo, Loewe, Loro
Piana, Rimowa, Fred, Hublot, Zenith, and TAG Heuer among
others—and that’s without mentioning Le Bon Marché and
Sephora. These brands have spent decades—if not centuries—
forging their identities and reputations. They trace the full
history of luxury. When Bernard Arnault acquired them, some
of these brands were already the most prominent in their field.
Others were sleeping beauties. Arnault breathed new life into
them, and in doing so, built an empire.
LVMH is a staggering success. Bernard Arnault has grown
an enterprise that it would be impossible to create today, given<
br />
the scarcity of independent luxury brands and the cost of their
acquisition, which is now exorbitant.
Sales of LVMH reached €42.6 billion in 2017, with a high
level of profitability. With a market capitalization of €175 billion
in March 2019, it leads the French Stock Exchange. The group
employs nearly 145,000 people. And the company’s philosophy
is encapsulated in this phrase, which appears in one of its annual
reports: “We are a natural alliance between art and craftsman-
ship where creativity, virtuosity and quality interact.”1
art and Commerce
LVMH’s brands are not just brands. They are called houses: the
House of Louis Vuitton, the House of Moët & Chandon, the
House of Guerlain. LVMH is a federation of 70 houses that are
Bernard Arnault
29
all, in their particular domains, ambassadors of a certain refined
art de vivre. Each possesses its own cultural identity, but they
share an aura of exclusivity, a sense of an elite offering, and an
image of distinction.
The luxury industry has always been close to the art world
and LVMH is no exception. The company forms partnerships
with the greatest artists of our time, such as Jeff Koons, Takashi
Murakami, and many, many others. LVMH’s designers are also
true artists in their own right. The group has become a cross-
roads where the great designers of the world converge.
To develop LVMH’s houses, Bernard Arnault has always had
the flair and sensitivity to find the right designer, the great cre-
ative talent who fit naturally with each house’s spirit. He also knew
how to create exceptional teams, partnering these great creative
talents with top-flight business minds. This, too, required real
know-how. When art and business come together seamlessly,
success follows. Many years have gone by since Pierre Bergé and
Yves Saint-Laurent showed the way at Saint-Laurent, a compet-
itive house. Ten years ago, John Galliano and Sydney Toledano
brought success to Dior and, today, Nicolas Ghesquière and
Michael Burke lead the way at Louis Vuitton.
All of this bears testimony to a unique savoir faire. It could be
described as the management of creativity and management of the
highest order, that of a very big group.
Bernard Arnault has created a specific organization in order
to deliver this. The company is both decentralized and verti-
cal, which might at first appear to be a contradiction in terms.
LVMH is made up of a large number of small enterprises, which,
before joining the group, were often family owned and very
independent, but lacking in resources to expand globally. To
succeed, Bernard Arnault has encouraged them to maintain their
entrepreneurial spirit, keeping them agile and responsive. Their
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limited size allows their management to stay closely in touch with
all the staff, in particular the craftspeople, who occupy key posi-
tions. Houses remain autonomous in their creative processes.
They appear independent, but, obviously, they are not.
While the group is not organized in a typical pyramid struc-
ture, Bernard Arnault has applied vertical integration in all the
sectors where it makes sense, from sourcing to retailing. One
analyst went as far as comparing the organizational structures
of LVMH and General Motors. The parallel between the two
may seem somewhat incongruous, but a closer look reveals that
they have much in common. Unlike Ford and Chrysler, General
Motors has succeeded in maintaining a stable of brands since
the 1950s. Like the houses of LVMH, GM brands like Cadillac,
Chevrolet, and Pontiac each enjoy a certain autonomy. To make
this possible, the group had invented new techniques of vertical
management combined with mutualization, a combination that
ended up being an example for industries all over the world.
As with Steve Jobs, Jeff Bezos, and Herb Kelleher, Bernard
Arnault is the keystone of his enterprise. He is the sole captain
at the helm. Even if each house believes itself to be master of
its own destiny, Bernard Arnault’s approval is paramount. He
will never sanction a project or idea that could damage LVMH
brands’ intangible capital. This explains his extreme attention to
detail, a concern that, in other companies, would not fall upon
the chief executive. He takes personal interest in the fabrics,
materials, cuts, and all those subtle characteristics of the pieces
and creations he endorses. And over time he has forged a very
discerning eye.
This attention to detail reminds me of Apple’s chief design
officer, Jonathan Ive. When Apple was building its first store in
New York City, Ive required the blocks of marble to be first sent
to the Cupertino headquarters so he could inspect their veining.
Bernard Arnault
31
All the minute details under the surface of an Apple product
indicate what craftsmanship means on an industrial level. The
insides of Apple’s products, the parts we never see, are given as
much attention as the outside. The uncompromising culture of
Swiss watchmaking has rubbed off on Silicon Valley.
Steve Jobs used to meet with our Los Angeles agency once
a week, each Wednesday, from 10 a.m. to noon. He insisted
on maintaining close involvement because everything we did
mattered to the brand. He was first and foremost interested in
ideas, but this did not stop him from scrutinizing the copy for
a print ad or from personally choosing a picture to be used in
Apple Stores.
Our Paris agency presented film projects to Bernard Arnault
on several occasions. Each time, he showed himself to be inter-
ested in not only the script and choice of models, but also in
the decor, the accessories, the lighting, and the music. I was
not always in full agreement with his comments, but his level
of involvement has always impressed me. It reveals the level of
implication required in the industry in which LVMH operates.
God is in the details.
In a word, I would say that Bernard Arnault gave to the
management of creativity its true status. In the book, La Passion
Créative, published 20 years ago, he said that his job consists of
“creating an economic reality out of the ideas coming from all
the creators in the group.”2 As such, Arnault also sees himself as
a creator, which he is.
the Luxury Industry as Model
Let’s now discuss the marketing of luxury brands. I do not use the
expression “brand building” here because most of these brands
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have been built over decades. I’ll consider rather how to make
them blossom, how to increase their value over time, and how to
render them ever more desirable.
A common trait among luxury brands is to embrace oppo-
sites. They navigate between paradoxes and they thrive on con-
tradiction. They must nourish themselves f
rom the past and also
look into the future, surrounding themselves with innovation
and inventing the currents of tomorrow. Luxury brands seek to
attract attention, yet at the same time remain aloof. They address
a narrow, elitist audience, but they want to be celebrated by
everyone. They produce limited-edition items to create a state
of rarity, whereas companies in other sectors do everything to
keep their products in stock. They raise their prices and, at the
same time, sell larger and larger volumes. Luxury brands have
hence increased their revenue to the level of mass-market indus-
tries, but they have never fallen into the trap of being ordinary.
So many paradoxes permit them to remain exclusive.
Luxury indeed possesses very different, if not antithetical,
characteristics from the mass market. And yet, I believe it could
be helpful for mass-market brands to understand how luxury
brands think. Traditional marketing employs positioning to best
exploit mass media. This approach reduces a product’s argument
to a single salient idea, something that instantly sticks in the
mind. Only one thought can be effectively communicated in 30
seconds, so brands have to choose a single direction, renouncing
other aspects. Luxury brands do not choose. They want to be
everything. They reside at the heart of a subtle web, where com-
plexity is a virtue.
To go further on this topic of marketing high-end products,
it is interesting to compare the approaches of LVMH, L’Oreal,
and Procter & Gamble. LVMH is one of the jewels of French
industry; L’Oreal is another. LVMH is the leading luxury goods
Bernard Arnault
33
company in the world, while L’Oreal is the number-one beauty
company. Both are very different, and yet they share certain
cultural elements. L’Oreal, like LVMH, knows how to blend
product performance—the efficacy of its skin care products—
with symbolic and metaphoric brand universes. In some markets,
such as fragrances, L’Oreal is in direct competition with LVMH.
And, thus, a mass-market company like L’Oreal is progressively
adopting the codes of the luxury industry.
Nearly 35 years ago, another consumer goods company,
Procter & Gamble, decided to challenge L’Oreal’s leadership
position. After acquiring Oil of Olay in 1985, P&G went on to
buy a number of beauty brands, including Betrix and Max Factor
Thank You for Disrupting Page 4
