Managing To Be Best

By Ram Charan

The main reason living standards have improved so much in the 20th century is that businesses have become so much more productive. And it is managers who have helped drive that evolution. The great ones do more than just run things efficiently; they develop and put into practice ideas that transcend their company, their industry, even their national borders. Their ideas survive to become vocabulary in the halls of management and often in society at large.

Alfred Sloan literally wrote the book on managing large organizations--My Years with General Motors. No large company is untouched by his concept of decentralized management. He came into a GM that was cash short, chaotic and nearly bankrupt--Ford had a 60% market share--and brought discipline to a sprawling company, clearly defining the issues of planning, strategy and organization. He mastered the concept of market segmentation--Chevrolets for Everyman, Cadillacs for the wealthy--to better target GM's sales and avoid internal competition, a strategy that left Ford behind. Sloan also understood what managers today call "consumer insight" by visiting Ford dealers incognito to learn about buyer behavior and competitive offerings.

At the beginning of the 1980s, 45-year-old Jack Welch became CEO of another giant, General Electric. Farsighted, incisive--and controversial--he recognized the threat of competition from Japan and elsewhere and had the intellectual and emotional strength to deal with it. He set the tone for U.S. industry. GE became highly productive by undertaking a complex reorganization that simplified the company into one with dominant positions in its carefully chosen businesses. Welch then remade GE into a boundaryless organization that encouraged, and got, participation from employees at all levels. He extinguished turf wars and the not-invented-here syndrome that stultifies large companies. And he spread the wealth with stock options. It was a monumental accomplishment in a company of GE's diversity and size. He was the force behind GE's Crotonville leadership-development center at Ossining, N.Y.--No. 1 in the world, a veritable CEO greenhouse. That's another reason why GE is so widely studied.

Roberto Goizueta, the late longtime CEO of Coca-Cola, proved that there is no such thing as a mature business. His critical insight was an ability to define exactly what business Coke was in--a task that is far harder than you think. For instance, he taught his executives that when they set goals for market share, they needed to focus on the share of stomach, not the share of carbonated beverages. His adversary was water, not soda. By this definition, Coke's 40%-plus market share became 3%, changing the company's view of growth. He then redefined the term global for a company that was already seemingly everywhere. By 1997 he pushed Coke's overseas profits up to nearly 80% of total earnings, from 65%. This global view was reflected in people too. Goizueta gave real meaning to the word diversity, developing a multinational talent pool. He also became an avid disciple of the idea of economic value creation--a gauge of success that eliminates accounting gimmicks. He used it to create more value in less time than almost anyone else.

Countries other than America have also grown superb business leaders. One legend in Japan is Konosuke Matsushita, whose company includes Panasonic and other well-known brands. Witnessing his father's bankruptcy as a small child prompted Matsushita to develop new values of how an enterprise ought to be run. Like Sam Walton, he paid attention to the consumer and sought ways to increase demand and reduce prices. He forced the competition to embrace this concept, making the market grow while creating more profit. He also showed that human well-being and making money are not inconsistent. In downturns he found other jobs for redundant workers and preserved their dignity. This is the Japanese way, and he used it to build one of the largest corporations in the world.

Do these four share common traits other than their leadership and superb business acumen? Yes. They were curious folks and hence lifelong learners. And they paid attention to people, realizing that the potential of any enterprise hinged on giving subordinates the maximum opportunity to succeed. Even in the 21st century, these characteristics will still be required of great managers.

Ram Charan is a Dallas-based adviser to CEOs and co-author, with Noel M. Tichy, of Every Business Is a Growth Business