Friday, November 21, 2008

Some Lessons for Nigeria CEOs

By Olu Akanmu

This article was written in March, 2005 and was published by leading Nigeria newspapers. It remains relevant today for leaders of business in Nigeria and elsewhere.

On the 7th of February, this year, highly celebrated CEO of Hewlett Packard (HP), Carly Fiorina was asked to step down by her board. While the event in the US, looks remote for us in Nigeria, it holds important lessons for corporate leadership and management anywhere in the world. As we enter a new period of mega-corporations and mega banks in Nigeria, where public savings are being mobilized as investments on a scale without precedents, it is imperative that corporations run well, grow shareholder wealth and continue to win public trust. Boards and CEOs can learn important lessons from the six-year leadership of Carly Fiorina at HP.

Carly Fiorina had been invited to revamp a non-performing HP stifled by a consensus management culture, which stifled the efficient execution of business programs. This culture also sidelined performance management and created a bureaucratic monster. She had arrived from Lucent with excellent track records. Five and a half years after her appointment, HP’s stocks were worth less than its value in 1999. The human cost of achieving the non-performance has been very high. Tens of thousands of HP's employee had been laid off. Organization morale declined to its lowest level. The best of HP’s engineers and management had to find pastures in other places. There are four important management lessons to learn from the saga.

One is that operational excellence is not strategy. Carly was a cost-cutter, very excellent in slashing corporate fats. She slashed more than $3 billion dollars cost in the merger with Compaq. This did not however increased HP and Compaq shareholder value on a sustained basis. Costs can only be cut for a limited time. A program of how markets can be uniquely exploited, better than rival firms, must replace it. It is important to be operational excellent. A business should however be operationally excellent in the right things. Those “right things” are the elements of strategy where an organization elects to compete and win in certain markets because it can exploit those markets uniquely based on its unique capabilities better than its rivals. It is different from competing like others, a me-too, or worst still, a commodity where there are many players serving the same markets in the same way. HP’s leadership did not deploy a clear strategy of how it could compete uniquely in the markets it elected to serve. It tried to be like IBM in the enterprise solution market without the depth of the relationships and enterprise experience of IBM. The direct low-cost efficient model of Dell could not be matched by HP in the personal computer business, a function of its successful legacy system in its printing business which supports the use of indirect channels. Analysts have said that HP tried to be everything to everyone and in the end could not stake a clear business position on which it could build lasting advantage.

When corporate leadership fails to define a clear strategy, they can become obsessively focused on cutting cost largely out of desperation. They turn cost-cutting into a mission. They forget that it cannot sustain corporate performance in the long term especially if the business in not competing in its right markets based on it unique capabilities. And if a business does not have a unique capability that can help it to exploit certain markets better than its rivals, it is the task of corporate leadership to focus on building that unique capability in the shortest possible time. Cost-cutting focus could have been justified in HP in the first two years. It could however not be justified as the mission of the business over the five years that saw thousands of HP workers being retrenched. The board of HP allowed the leadership of HP to visit its sins of lack of clear competitive strategy on HP workers by making them the victim of its (board) failure to manage its CEO. This is the second lesson of the HP saga. That corporate board must dispassionately manage their CEOs around the issues of strategy and its execution. Executive leadership must define its corporate strategy based on which markets it has elected to participate with a clear view of how it will exploit those markets better than its rivals. This should be tied to a clear program of “how” this will be done with measurable performance milestones at corporate and operational levels. It is not clear if the HP’s board has managed Carly Fiorina this way. The HP board shares in the responsibility of the destruction of wealth of HP’s shareholders.

Learning from the above, corporate boards in Nigeria must become more than association of mega-rich shareholders. The shareholders must combine their mega-financial interests with an ability to critique and engage its executive management on deeper issues of strategy and implementation. It they don’t, they could be easily bamboozled (at their peril) by smooth talking executives who are masters of persuasive rhetoric, good politicians but with very little to show in results.

The third lesson of the HP saga is that change management must be people focused. Carly Fiorina had great and noble intentions. She introduced a performance management system without the critical element of inspiring the commitment of HP employees. Performance management is not a simple mechanical issue of decreeing targets, rewards and bonuses. The modern organization of today is more sophisticated than the days of Frederick Taylor, who postulated that organizations could be largely run like a machine. Machine organizations could look like they are performing for a short while. In the long run, the complexities of the internal and external environment, which demands employee initiatives beyond the exercise of command and control, create “zombie” organizations where the collective brain of the organization is narrowed to that of the CEO alone. And the CEO cannot be wiser than a rival firm where thousands of smart employees are engaged in a collective dialogue on how to out-compete its rivals.

How do leaders inspire the commitment of employees to the change agenda? They must engage them in a constructive dialogue using facts and figures of corporate performance. Leaders should demand from employees what it has first demanded of itself. They must be accessible and have the right level of emotional intelligence for tough dialogues, know when leadership must show it listens and when to be decisive and firm. Leadership with the right level of emotional intelligence recognizes that it is people that get things done. Leaders must build that emotional connection with employees, celebrate and praise, create organization rituals that reinforce the desired culture and participate actively in these rituals. Yet, they must correct issues without getting personal or demeaning the self-esteem of individuals around them. It is doubtful if Carly Fiorina managed this way. To say the least, she was hated by HP staff. A leader does not need to be loved. She must however not be hated. Hated leaders cannot inspire the organizations of today, where employees have to use their heart and soul to out-compete rivals on a long sustainable performance.

The fourth lesson of the HP saga is best illustrated by the African proverb that says that if one puts too many firewood in the cooking fire at the same time, the fire will not burn well. HP has been described as the broadest technology firm in modern history competing in virtually everything from PCs to enterprise solutions, software, printers and consumer electronics. One of the critiques of HP under Fiorina’s leadership is that she took on too many things at the same time. A cardinal rule of successful strategy execution is understanding the capacity to execute and limiting programs to that execution capacity. HP might have been stretched too thinly over many markets, competing with giants like Dell, IBM, Canon and Sony. The array of management programs needed to win and compete in these markets could largely overwhelm any corporate leadership.

Corporate leaders in Nigeria can learn a lot from this HP saga. We need businesses in Nigeria that are efficient in doing things well but are also pursuing the right strategy by doing the right things. The tendency to be all things to everyone in the emerging financial service industry will be very high. There will be too many resources flying around that the industry managers may not be conventionally used to. Yet, this can on the medium to long term destroy shareholder value and public trust in capital markets. Leaders of the emerging financial service industry must therefore define clear non me-too competitive strategy that will lead to sustained wealth creation. The emerging firms must appoint strong corporate boards that can engage their executive teams on deep strategy dialogues and hold them accountable for its implementation. Leadership with strong people orientation, in which performance management is a sub-set will largely outperform its rivals. And of course, execution of strategy will be critical, that leadership capacity to make performance happen and win in the market place.

Olu Akanmu
March 2005

1 comment:

Kamilu Omokide said...

You did this in 2005? How propheti!. I hope you maintain the foresight.