June 2005 Leadership Now More Than Ever

One morning in the early part of June, the business headlines featured a couple of related and perplexing stories. GM announced the layoff of 25,000 people over the next few years as part of an attempt to cut $2.5 billion in costs, and Delta's CEO was in front of a Senate panel, along with counterparts from Northwest and United, pleading a case for relief from their pension commitments in order to ward off bankruptcy.

Delta is certainly not the only one squirming on the pension issue. United has already blazed that trail for airlines and cases like it have put severe stress in the U.S. Pension system. Bradley Belt, executive director of the Pension Benefit Guaranty Corp, the federal agency that insures private pension plans, recently estimated that under funding in the pension system has reached a record $450 billion, with auto, airline and retail industries at most risk. Think for a moment about the number of people who stand to lose on that deal. Probably people in your own neighborhood or family.

Like many companies, GM is under the gun to cut costs. Part of their predicament is their claim that worker health care costs alone contribute $1500 to the cost of each car produced, which makes them less competitive in the world marketplace. A number of "Blue Chippers" along with GM are feeling the pressure of health care and pension costs, with people living longer and the growing quagmire of health care that is a fact of life today.

A day or so later another story appeared in which Federal Reserve Chairman Alan Greenspan gave an upbeat assessment of the country's economic health, citing the recent pickup in economic indicators. His comment was that the economy is on "reasonably firm footing." (Some might say that's about as enthusiastic as it gets from the Fed Chief!)

In support of Greenspan, there have been several reports of a very robust economy over the past months. For example, after examining traditional indicators of economic strength such as high corporate investment, rapid productivity improvements, strong overall growth rates, and low interest rates, one of the managing partners at the noted private equity investment firm Warburg Pincus commented, "You would think that 2004 was the best year of the past twenty."

Kind of makes one wonder how much greater the pension-funding deficit or other operating costs would be soaring at places like GM and Delta if the economy had been dismal.

We all understand that just because the economy overall seems to be doing well does not mean every single company or industry will be prospering. But at the Senate hearing on airline pension fund relief, Sen. Jim Bunning did pose a rather interesting question of the airline's top officers when he asked, "Should we reward you for bad management?"

Before you get the impression that the point of all this is to once again attack high paid executives whose companies are floundering, it is not. Rather, it is once again to reaffirm the need for more leadership, because management by itself is proving to be insufficient to successfully compete in today's world.

Executives of huge companies in tough industries like autos and airlines have incredibly difficult jobs-no doubt about it. They are facing some enormously complicated and challenging problems, pensions and health care being just a part of the mix. These are the kinds of issues that are going to take more than traditional, by-the-book management techniques to work through. Solutions are going to require some innovative thinking, new kinds of relationships and, above everything else, real growth in the business. Profitable growth can curb a lot of problems, and although costs can often be controlled through management, growth requires leadership.

There are some companies that over the years have earned the reputation of being well led. Stop and think for a moment about ones that come to your mind. Was GM one of them? How about Delta, Northwest, or United? Most of these companies are no longer admired as being well managed let alone well led. Perhaps Sen. Bunning was not just being preachy in his remark after all.

In commenting about the GM cutback, one analyst said if they were selling a million more cars each year, health care costs would not be that big of a factor. The same could probably be said of the airline companies if each was flying a million more fare-paying passengers each month. Yet achieving those kinds of numbers takes more than waving a magic wand.  Growth is hard, hard work.

The challenge to the "leaders" of these struggling companies in the news, and for the rest of you who might also be struggling to survive, is to examine what you are doing differently - everyday - to attempt to grow your business. What are you doing to:

• stimulate learning for everyone?
• expand new ways of thinking by everyone?
• encourage people and make it safer for them to experiment and take risks?
• get all associates more engaged and passionate about the business, so that they can help find solutions to the problems of the day?

Leaders work on creating environments where people can accomplish great things. So take a look at your circumstances. What kind of an environment have you created? Do you have people who are putting their brains and hearts to work on breakthrough ideas for your organization? Do they ever come to you with well thought out, new opportunities for growth? Is there even a forum for them to advance those kinds of ideas? Deep down, do you really believe that people lower in the organization even have the capabilities to conjure up growth opportunities?

There are managers out there in some of these troubled companies that, had they been at Apple at few years back would have likely thundered, "our business is computers not portable music devices. We need to continue to stay focused on the business we are in and continue to cut costs so we can make more on each unit we sell." Thank goodness for Apple-there was an environment where an iPod could be born! The financial returns on that family of products and what it has done for Apple's overall financial health speaks for itself.

Could an iPod-like product or service ever see the light of day in your organization?

Breakthroughs like this always require a degree of risk. The best market research will seldom, if ever, assure success. But that is the nature of the beast in innovation and growth, and leaders accept it. Will hybrid automobiles ever become a rousing success? With improved battery technology and dramatically rising fuel costs, one would think it would be on the table for consideration. Yet in this arena, the American auto manufactures are already far behind the curve relative to their Asian counterparts. My guess is it will take more than upscale but safe innovative features like On-Star or satellite radio to generate new growth markets.

And is there nothing the major airlines can do to attempt to grow besides continuing to confuse passengers with convoluted pricing schemes? Is it any wonder so many are on the verge of bankruptcy! Like automobiles, the airline business is a harsh, unforgiving industry and without a doubt, managing the price/cost relationship is critical for airline companies. But for the big three or four airlines, like the Big Three automakers, focusing solely on price and costs will not be nearly enough. It has not been up to this point, and with the future being only more difficult, innovation will be needed for growth.

My bet is there are a lot of ideas flourishing in peoples' heads that could produce a remarkable return for their companies. Maybe not big enough by themselves to solve the pension crisis or health care dilemma, but enough to move the company forward toward making a measurable dent in those kinds of problems. Those successes would also give people more hope and a continuing reason to believe in the future. The question is: are those with grand opportunities percolating in their brains too frustrated or disillusioned with their management to do anything with them? What is the answer to that question in your organization?

There is the old adage that management doesn't determine the size or prosperity of a company, customers do. And although you might manage customer accounts, you cannot manage customers. You have to inspire them to want to do business with you and prove your worth back to them every single day. Prosperity comes from finding the ways to substantially grow both the number of customers you serve and the overall profitability or value of each. And profitable growth in an ever-changing, ultra-competitive marketplace is one of the ultimate tests of leadership. And growth is everyone's responsibility in an organization, not just a handful at the top.

I want companies like GM and the airlines to win. And so do their respective employees, suppliers, shareowners and customers. Let us all hope that more and more people in all levels of "management" positions in these companies, and in all companies for that matter, will come to understand and accept more and more readily their responsibility as leaders to grow their businesses. Then perhaps they will provide more and more of the kind of leadership that is so desperately needed of them. And with the committed support of their people, they might just discover a wide variety of different ways to substantially grow profitable new business revenues, and start knocking some real holes in those enormous, costly obligations that are suffocating their organizations today.

Reflection Questions:

1. How much actual time do you devote to discussing and exploring real, sizable growth possibilities compared with the time spent on reviewing and discussing current results?
2. What are you doing to encourage thinking about and experimenting with potential breakthrough growth ideas in your organization?
3. What processes do you have in place that enable people to get great ideas surfaced to the right people for a fair hearing?