Introverts vs Extroverts

Introverts vs. Extroverts: How to Identify and Develop Diverging Personality Types

Convention says one is better at listening, while the other is more attuned to courting strong business relationships. How can CLOs recognize and develop the two?

A quick look at the mainstream business press these days will yield plenty of evidence of what’s become a popular debate: which personality type makes for better leaders — introverts or extroverts?

Some would suggest that the answer is easy. Because of the front-facing culture of global business, which demands that leaders pair their intellect and expertise with the ability to deliver a visible and lively external brand, it appears as if the extrovert has a clear advantage.

As convention has it, people who are more extroverted have more outgoing personalities, are able to cultivate and manage strong external business relationships and revel in hyper-communication and media attention. They feed off other people, and these days, people are everywhere.

But lately some are arguing otherwise — that the introvert, in actuality, is the better leader for today’s business climate. A recent article in Time magazine by Bryan Walsh, “The Upside of Being an Introvert (And Why Extroverts Are Overrated),” spoke more broadly on the topic, save for a small passage suggesting “introverts are better at listening ... and that in turn can make them better business leaders, especially if their employees feel empowered to act on their own initiative.”

Meanwhile, Quiet: The Power of Introverts in a World That Can’t Stop Talking, a book by former Wall Street attorney Susan Cain published in January, says that U.S. culture is unfairly dominated by the “extrovert ideal” and that introversion shouldn’t be shunned but encouraged by parents, teachers and employers.

Susan Krauss Whitbourne, a professor of psychology at the University of Massachusetts-Amherst, recently made the case for introverts in an article in Psychology Today. To her, introverts make for better leaders for a simple reason: “They’re more likely to listen and pay attention to what other people are saying.”

In an era of great noise, it’s these quiet leaders who are more open to the ideas of others who will thrive. “They tend to be a little more attuned to the inner life,” Whitbourne said. Introverted leaders are also more reflective, a trait that enables some to be able to better evaluate business situations and think more critically and clearly.

This isn’t to say that leaders who are more extroverted aren’t good listeners, or that introverts are not personable, said David Belle-Isle, CEO and founder of InColor Insight, a leadership development and corporate learning consultancy. “Leaders can learn new behaviors based on their desire to be effective and improve performance,” he said. In other words, traits that are often paired with introversion and extroversion are adaptable and flexible, depending on the individual.

Whitbourne also offered a bit of caution for CLOs looking to evaluate high potentials based on personality type: Both introversion and extroversion are complicated creatures, she said. Neither is defined in absolute terms. Personalities can change over time.

The team working under that leader is also important. According to Whitbourne, introverted leaders may work better when steering teams of self-motivated people — those who are more likely to be productive with a quiet force pushing them. “They don’t need another loud, noisy person in the room,” she said. “They need someone who is going to bring out their best skills.”

Extroverted leaders might also work better with teams of self-reflecting, quietly strategizing introverts, Whitbourne said, though this framework is not necessarily absolute.

Both personality types may also have different learning styles, Belle-Isle said, something equally important for a CLO to consider when drafting leadership development programs. Someone with more extroverted tendencies might learn better through experience, role-modeling and observing others. “Their learning style and their ability to learn is based on how they engage in the outside world,” Belle-Isle said.

Introverts, on the other hand, might learn better in an internal world. “They learn through abstract reasoning and repetition,” Belle-Isle said. “The learning officer needs to be aware of who it is that they are assigning learning experiences for.”

Erv Lessel, director of human capital at Deloitte Consulting LLP and a former major general in the U.S. Air Force, offered that, to a certain degree, a CLO might be able to assign different leadership development approaches to each personality type. “The alignments would be introvert with a competency (task oriented) based leadership style and extrovert with a relationship (people oriented) leadership style,” he wrote in an email.

Still, Lessel, like Whitbourne and Belle-Isle, cautioned against relying on absolutes: “All of this assumes that just because a leader is an introvert that they don’t have people skills and that a leader who is an extrovert has strong people skills. This may not be the case.”


Frank Kalman is an associate editor of Chief Learning Officer magazine. He can be reached at fkalman@CLOmedia.com.Channel:

McKinsey conversations with global leaders: Dan Vasella of Novartis

The CEO and chairman of Novartis AG shares his personal approach to management and leadership and discusses health care reform, the economic downturn, and executive compensation.

July 2009

Dan Vasella, CEO and chairman of Novartis AG, leads off our video interview series McKinsey conversations with global leaders. This ongoing project explores vital management issues, industry insights, and topical analysis with CEOs of today’s leading global companies.

In this video, Vasella shares his personal approach to management and leadership. He also examines subjects including health care reform, the economic downturn, and executive compensation. Rik Kirkland, McKinsey’s director of publishing, conducted the interview in New York in May 2009.

Watch the conversation in our video interactive, or read the transcript below.

video

McKinsey conversations with global leaders: Dan Vasella of Novartis

The downturn: Looking ahead

Management lessons: The balancing act

The big picture: Health care reform

In the industry: Pharmaceuticals

On leadership: Leading through crisis

Business in society: Executive compensation

The downturn: Looking ahead

The Quarterly: We know looking in the rearview mirror that this has been the worst economy for the world since the Great Depression, at least that’s what they say. What is your outlook in the near term and, more important, for the medium term? And how’s that affecting Novartis—your strategy and your priorities?

Dan Vasella: Of course, we both know nobody knows really how the future will look. But, personally, I am not overly optimistic from a point of view of growth, respectively contraction. So if we have a contraction of 4 percent plus/minus something now in the US, in Europe, and much lower growth rate in Asia, in Latin America than previously, I anticipate that it will take two to three years until we come out of this.

Now for us as a company, I would say there are specific questions related to the specific industry we’re in. In health care, first of all, the good news is that the demand will not be really massively influenced by the economy. People get sick. They need treatments. They may change what kind of treatments they get, but, you know, they need something—and you give up a lot of things before you give up your health. Having said that, I would also anticipate that with less tax income because of a declining economy industrial—now the real economy declining—governments will have to be very cost conscientious.

And, with that, they will cut also health care expenditures; and that, in a second cycle, will touch the health care industry. And so I believe that these downturns in fact are opportunities also for companies. And the opportunity is to re-question what are the core elements which create value for society and then, secondarily, value for the company, its employees, and the communities in which we operate, and what is really a cost item where we can become more efficient, more productive, more effective. And that’s really what we’re looking at. So we are looking at capital expenditures. We are looking at questions: “What is really, really necessary? And what is maybe not so necessary?” And we have flattened the organization to be hopefully less bureaucratic, which is always a problem in a big enterprise.

So we are undertaking a number of things which you could say, “You can do this any time.” It’s true. But it’s much easier when the environment encourages you to do it.

The Quarterly: What are a couple of the big trends that you, from where you sit, think will really affect the overall business environment?

Dan Vasella: I would say some of the megatrends, of course, affect in some ways almost everyone. And I would say one (which also for us is very important) is aging—aging of societies. On the other side, we have declining birth rates in the developed world. So that in itself is a shift in demographics that has importance in consumption, what the goods are which people need and want. And for us, of course, then with aging you have much more health care needs.

So that is one of the key drivers, really. And with that you have a question about pension funds—you know, affordability. How long do we have to work? Shouldn’t it be longer and, you know, what we’re used to in the ‘60s when these rules were set up? All of these questions have, I think, deep implications. And then the shift of power, economic power as I mentioned, from the West to the East more than from the North to the South. And, you know, you have to create real goods and real value. You cannot just live from virtual value and virtual money.

Management lessons: The balancing act

The Quarterly: What do you think are the most significant lessons you’ve learned about managing, and particularly managing change and adapting? And what do you think are some of the advances, if there have been any, in the art and science of management that really register for you?

Dan Vasella: I would say: number one, you never can do it alone. So you’re also dependent on many others. But at the same time, you should not be shy about standing for what you believe. And in the long term, one of the conclusions I have drawn is you may not please all the time. But the fact that people say, “What he says he really believes,” I think is very important. And I believe you have to be first of all very respectful of people and, I would say, the broader environment too. The respect means one needs to be also very direct and tough when appropriate, because it’s an expression of respect. And it’s often not done because people are afraid. They are afraid. It’s not that they want to be particularly nice or care so much about the feelings of the other. It’s much more that they are afraid to confront with the other realities and then the response of it.

So you have to be able to be very tough and very supportive, if supportive is needed. And you have to give others room. But that doesn’t mean you abdicate authority, because you have been entrusted with authority if you lead something and then you have to exert it. You can not do as if you would not be in charge.

And some people will tell you, “Don’t get involved in this,” or, “This is too detailed,” and I think that’s wrong. You should understand what you are managing and what you’re leading. You should know the key facts. And you should know the people and then know when you let them totally do [it] and you can go to bed, close both eyes, and sleep deeply and well, and you know things are being really done extremely well—and maybe better than you could do it. And when do you have to say, “No. This is not sounding right. It’s not smelling right. And here, I want to understand. And I go deep in detail.”

And I think these give a certain tension also in the organization because they don’t exactly know when is he going to go deep or not. And some people will say, “Well, that’s unpredictability.” And that’s very negative. You should be predictable. And if unpredictability is predicable, it’s also a kind of a pattern which people will know.

If you’re fair and fact based when you intervene, it’s not a problem, because it’s all something which you will elaborate then maybe debate—because, very often, there’s not one right answer but two or three, and you have to choose. And I enjoy choosing together, after having had a kind of a discussion.

The Quarterly: Are there tools that you have found that have made this easier than it was 10 or 15 years ago? Or is pretty much the same tough thing?

Dan Vasella: No. My evolution and learnings have been that, in the beginning, I have tried to read, listen, assimilate massively, and then really to practice, and over time to internalize certain things. And others you forget. And so with the approach we have taken, continuous learning is crucial. We have also, with Harvard Business School, regular seminars where the top team goes—I go too. I sit in on the bench and go through the course.

And the question is, when do you become idiosyncratic? How do you get new ideas? How to rejuvenate? And at the same time, it’s a fact of life that you get older. And you have young people. And they are again with more energy, more skills, different skills. Then you need to give them room, and you need to enjoy seeing others grow.

So I think what you do [at age] 40 is different than what you do with [at age] 50 or 60. And so the styles also evolve. You asked about new management techniques, and I would say I have rather the opposite reaction. I go back and I read more in Peter Drucker’s books than on the newest kind of monolithic theme, because what we have watched and observed—and I know you know this in and out—we regularly have one theme which is blown up to a book, a new paradigm. But, frankly, it is just one element which has been specifically well investigated and then, you know, exposed and sold, but it always has been present. So if you go back to the roots, I think you see that most has been said and written.

The big picture: Health care reform

The Quarterly: Let me get you to a subject you know a lot about, which is health care and the challenges in terms of how innovation can address both the quality of care and the cost of care. Where do you see the opportunities? What are the barriers?

Dan Vasella: I would say access, quality, and sustainability—financial sustainability and affordability—are all three very important criteria. Now if we look at the overall health care costs we have, depending on the countries, between 7 to maybe 20 percent of the bill are medicines, pharmaceuticals. Then you have 25 to maybe 35 percent physicians. The biggest part is the hospital systems. That’s the most expensive in the developed world. In the developing world, drugs make up about 20 percent and hospitals much less, because the hospitals don’t exist. So the number one conclusion is that, with all this talk about pharmaceuticals being expensive and, you know, ruining the system, you could take away all the profits of the pharmaceutical industry—it wouldn’t fix the problem.

So I believe to recognize that not a single player will be able to fix it and not a single activity will be able to create the fantastic system is an important conclusion. If we look at the effectiveness of the system, I think we see a lot of areas for improvement from a point of view of coordination, from a point of view of understanding really what action has what kind of result.

Prevention is a whole other field. So if we would look at the spending today of one dollar, five cents [of it] are being spent on prevention. Now if you look at obesity and diabetes in this country and the link between them and cardiovascular disease and then add, you know, joint degeneration if you become older, these are humongous costs which obesity creates— I mean, humongous. It’s projected by 2025 to go over a trillion [dollars], diabetes also over a trillion, cardiovascular disease over a trillion. So you start to add these things. Then you have Alzheimer’s disease or dementia and cancer, which [includes] age-related cancer. Then you see that aging and poor balance of calories and metabolism create enormous costs in the future. And the most rational thing to do is really to enhance prevention as a first step so that you don’t get sick.

In the UK, for example, the doctors measure the body mass index starting at age 16. When they take care of diabetes patients, they are paid for preventing measures, preventing complications. Here it would be very different. You’re being paid for treating the complications. And so the whole incentive system needs to be reviewed. And we can of course only take rational action if we also know which intervention produces what kind of outcome. It will take a lot of hard work. It isn’t easy to do that. But we need to move forward.

In the US, if you look at Medicare and you look at the Medicare costs and the quality outcome, you see almost an inverse proportional system. In the South, Medicare is much more expensive, and the outcomes are poorer than in some of the northern states. There, very little is being done. If you look at the tort system, the tort system in the US is hundreds of billions [of dollars], around $125 billion spent, and growing exponentially year after year. This is multiple [times more than] the NIH¹ budget.

If I was the king of health care reform, I would attack first the waste and the quality and then look at efficiency and productivity. I think we have a lot of opportunities. But one of the central issues of reform is that if you have several parties interested in nonchange, it becomes extremely difficult. So if a hospital earns a lot of money on diagnostic interventions, which are being made in order to practice defensive medicine, and you have the tort system, which makes a lot of money through the whole litigation, then it’s very difficult to break this.

You know, with all the negative which I mentioned before, I’m deeply optimistic because I think society is smart enough that they will keep up incentives if you really bring advances. So I’m saying, let’s focus on one thing: we need to advance medicine, help to advance medicine. That’s our purpose in society. And we want to bring better therapies. The rest will be taken care of. I’m pretty confident if we do good stuff we will also be paid for it, and that already takes away a lot of distraction. And, from a point of view of the diseases—if you think of dementia or cancer—unless we have better interventions, the cost will be even higher because we have seen that, with every dollar spent in the systems, for example for effective drugs, you save overall costs from the system by shortening mostly the hospital stays and getting the patient back into productive life earlier. Frankly, that makes such a big difference.

So that’s how I look at it. And I don’t think we should overly complicate it. I also am a strong believer not only in intellectual-property rights and protecting them, I’m also a strong believer in generics. So I’m saying, once the monopoly of this know-how and knowledge and invention is over, well then, somebody can copy it and sell it very cheaply, which in turn saves a lot of money.

In the industry: Pharmaceuticals

The Quarterly: How do you see the industry? What are the major factors that will influence the industry?

Dan Vasella: We came out of a diversified business. Some would call it conglomerate—chemicals, agribusiness, nutrition, and health care. And what we did is we divested piece after piece and just kept the health care and expanded in that area more. So we became stronger in that field. Why did we do it? One is because the know-how and the nature of the business is different, and we didn’t see a lot of synergies.

In the beginning we launched a life science kind of concept which allowed us to divest chemicals with a good public rationale and to keep the seeds [of the] business, which had all the genetics and so forth together with the health care business. But frankly it was more an intellectual concept than it was something where we saw really big synergies among the businesses. And so we went to the next step and then divested the ag-business. And that was a period where everyone was talking about focus, and we were basically labeled as an unfocused company.

I would say, between the portfolio and the reality, there’s a big difference. I would argue we are and were a highly focused company, because our divisions were very focused on their business, measured on their business not the overall. And so the people who were running the different businesses were and are really focused on their business.

We see a different evolution now, which I find rather amusing. Now, you know, with the risk and risk awareness being bigger, with companies which were once the top of the industry having fallen deep down—not just from a point of view of growth but also market cap–wise—now people say, “Well, maybe that’s not the recipe. One should diversify.” And so we are seeing now competitors who said, “What? In generics? You cannot be in generics. It’s incompatible, and you can’t run these two businesses together.” Now suddenly we see more and more and more pharmaceutical players entering generics. Now, if you would ask me if I would enter generics if I wasn’t at all in it, I’m not sure I would. We have been in that business since, you know, decades. And what we have done: we have grown it. But it was something we knew already pretty well.

On leadership: Leading through crisis

The Quarterly: What is leadership to you? And how would you define your leadership style?

Dan Vasella: Peter Drucker said that the purpose of organizations is to make common men do uncommon things. And I would say and add, leadership is to make it happen. We are all plus–minus common men and women. And we have, as leaders, to make common people become very uncommon people: extraordinary people who can do extraordinary things, go beyond what we think is possible.

And it’s not every day, but occasionally, that we achieve really extraordinary stuff. And we do. If we look at what we are achieving—and when we have a new medicine which is a breakthrough which changes the practice of medicine—it’s extraordinary. It’s fantastic. And there’s so much knowledge. And not a single one person could have all of that.

And then translating this knowledge into a drug. And from the drug really producing it and then selling it and talking about it. These are all skills which need to play together. And in organizations, we have always people who shine and are able to move others. That’s leadership. Moving others where they thought they could not and would not move.

The Quarterly: I’d like to talk about an issue you’ve been outspoken on in the past, which is the role of the business leader in society. I wonder if you think that the crisis itself and how we come out of it is raising any new thinking or new model about what the relationship between business and society should be?

Dan Vasella: Well, we would hope so. Even if I don’t know what it will be. But, number one, I would say yes, it has been a crisis of leadership. If you had to stop and you would ask yourself, “Do I really understand what kind of risks we are running?”—not mathematical models on I don’t know what kind of assumptions with thick books—but to really understand, I think many people would have had to say, “No, I don’t. And I’m running just like everybody else.”

But that to me is not really responsible behavior. And then the greed. People say, “It’s the greed of managers, greed of investment bankers.” My view is: maybe. But by which and whose greed was it driven? And then I’m saying, by everybody’s greed. It was the little man. It was the pension fund. It was the investment fund, the portfolio manager. Everybody was running after quick and fast returns.

The Quarterly: The implication of your earliest comments is that we were focused on quick gains and transactions and not building things of lasting value. So do you see a shift coming? And how would you like to see that discussion framed?

Dan Vasella: I will be politically incorrect. In the sense that what I’m observing also, regarding the corporate-governance model, is that we believe that splitting power and responsibility and accountability into atomic kind of pieces will fix the issue—by installing new and more controls and more boxes to check, we will have less risks. And I adamantly believe that is not true.

The fact is that when you have a sheet of control with 21 signatures, nobody will feel responsible. And if you have boards who have advisers, independent advisers, and you have I don’t know whom giving input, no single board member alone will feel fully responsible—and no CEO will feel fully responsible.

So I think, give the responsibility back where it belongs. And also then, point toward this point person who cannot deflect it and make them really accountable. So the clarification of accountabilities, responsibility, and with that also decision power, I think is more important than splitting it.

I’m also doubting that a ton of new controls will improve it, because my observation would be, certainly in investment, in banking, the innovation is always, “How do I circumvent certain rules to make more and better returns?” And so this will not stop. It will just be somewhat different. But when one sees huge shadow economies develop and doesn’t do anything about it, you don’t have to be surprised if one day you have a big explosion.

Business in society: Executive compensation

The Quarterly: How can business leaders like yourself address, or at least partially close, this trust gap?

Dan Vasella: First of all, I think it of course has to do with integrity and transparency—and with respect. If you’re respectful of the environment, respectful of the society, respectful of your employees, your family, you do certain things and you don’t do certain things. And so that is one element. Of course, it means [one must] have certain value systems, and these value systems are not constant over time. They are being modified as society evolves. And new factors come into play.

One point I would make is certainly the inequality and the lack of perceived fairness and compensation is one important factor. And the problem is, how do you get out of the cycle we were in? It’s extremely difficult to say to somebody, “Well, you earned $10 million. And now, frankly, we think $800,000 is more than enough.”

And when can you make these retractions, these going back to what people would feel is still a lot of money but is fairer than what it is today? And I don’t have the answer, but I think it’s in transitions where you can do it, it’s the easiest, less painful. And then to exert restraint as you go forward and reason—the problem is the entities which have emerged are so much bigger, so much more potent, so much more profitable.

And then, you know, boards look at it and say, “Well, this is not important—if we pay $800,000 or $10 million. What’s really important is that we get the best person, because, even if it’s a 10 percent increment as to what we would get otherwise, the incremental value creation is such that it justifies this 100 times.” And that’s all rational, it’s all true, but you cannot communicate that. You cannot. How do you explain that to anybody? It’s not feasible. If you are in a farm and you barely make your month, or if you’re in a city and you’re a working family with kids and both are working and both are bringing home, I don’t know, $18,000 or $20,000.

The Quarterly: So it’s not just the issues of pay for performance, which is always a difficult thing and some places do it well and so places do it badly, but you do think that there will be a debate about the sheer levels?

Dan Vasella: Oh, absolutely. I mean, pay for performance is for me a nonissue. Anything which isn’t pay for performance is not defendable. Anyway. So you have to link the compensation, which is variable, to the results. And these results may be a combination between money and behavior. So I’m not saying it has to be just monetary terms. It’s broader than that.

But for us, for example, innovation, what kind of talent do you develop, how do you act toward the environment—an array of things, balanced score card in other words, I think is more reasonable. But then is the absolute level. And then you start really getting to an issue, because would I say voluntarily I’m foregoing this money? No. Why should I? And then the question becomes even more complex. For whom? For the shareholder? To make the rich richer? No.

And, is it a question of how much I earn or how I use it? I have come to the conclusion, I think it’s much more important to ask, “How do you use what you have?” It’s like with the talents you have, do you really use them for the best of society? Do you give something? How do you use the money you have? Is it just to have more zeroes on the bank account at the end of the year? Or do you do something right with it? And these are the true ethical and moral questions we have to ask ourselves. And nobody else, other than ourselves, will be able to give the answer.

http://www.mckinsey.com/insights/health_systems_and_services/mckinsey_conversations_with_global_leaders_dan_vasella_of_novartis

McKinsey conversations with global leaders: Paul Polman of Unilever

Unilever’s chief executive reflects on lessons learned at three major consumer goods companies, including how to manage people in a global context, the obligations corporations have to society, and why you should never waste a good crisis.

October 2009

When Paul Polman took on the role of CEO of Unilever in January 2009, during the eye of the financial storm, he brought with him years of experience from holding high positions at both P&G and Nestlé. Polman’s move to Unilever now gives him the rare vantage point of one who’s served as an executive at three of the world’s largest fast-moving consumer goods companies.

In this video, the latest in our interview series McKinsey conversations with global leaders, Polman reflects on the opportunities and challenges of being a new CEO in volatile times, the importance he places on corporate social responsibility and values-based management, and the future he sees ahead for the consumer goods industry. Adam Bird, a director in McKinsey’s Munich office, conducted this interview in London in September 2009.

Watch the conversation in our video interactive, or read the transcript below.

Interactive

McKinsey conversations with global leaders: Paul Polman of Unilever

Unilever's CEO discusses management, social responsibility, and making the most of a crisis.

• Pop out

The downturn: Never waste a good crisis

Adam Bird: The question on everyone’s mind is: where does the world economy go? How do you see it evolving over the next two or three years? And what does it mean for your sector and, more specifically, for Unilever?

Paul Polman: I think there’s a broad consensus that it has sort of bottomed out, but at the same time, I’ve been on the record for a long time that I think we’ll be in for a slow and long recovery, to be honest. You look at the deleveraging that needs to happen in the economy. And the US government—$20 trillion debt now over ten years, 70 percent of GDP. Companies need to deleverage. Financial institutions need to deleverage. So I think, personally, that we will be in for a long and slow recovery and we’ll plan our business accordingly.

What does it mean for us? Obviously, it’s a different business environment. Some people talk about a reset. We definitely will see slower growth in many of our markets and actually start to see that already. [How a] different role of government will affect us, different consumer expectations, and all these things have to be taken into account as we sharpen our business strategies moving forward.

Adam Bird: One of the overused phrases of this cycle is, “Don’t let a recession go to waste.” What are the silver linings for Unilever in these challenging times?

Paul Polman: Well, I think there are many opportunities in this, as you say. And obviously, you have to peel the onion and get very close to the consumer. And you see many opportunities for anybody that understands change and can actually lead that change, can turn it into a competitive advantage.

We clearly see different consumer behaviors coming out of this recession, which has been the deepest since the Second World War. And we actually turn that into an advantage once we understand those. It is clear that big-ticket items are being postponed in purchase. Fortunately, we’re not in that business.

We see changes in lifestyle—people not going to movies, but watching at home; not eating out, but eating at home—and that obviously benefits us through products like Hellmann’s or our savory products, and we capitalize on that trend. We definitely see a switch from discretionary items. People are not going anymore for the premium skin care products or perhaps Starbucks. Again, that benefits us. We’ve just started introducing in the US products like P. F. Chang’s meals at home or Starbucks ice cream.

And then last but not least are our own categories, which are the daily necessities, which is basically where we have the bulk of our business. And frankly, there, you really have to look at different parts of the world. The US and Europe require one set of actions. But in the developing markets, which clearly have seen a decoupling, I think we will need a slightly different strategy to be successful there.

As you say, never waste a good crisis. I think it could not have come at a better time for me, personally. Because long ago, I put myself at ease that I wasn’t the cause of this crisis. And coming in new as the CEO of Unilever, it’s an ideal chance to galvanize a little bit more the change that we still need to be truly competitive.

Adam Bird: You’ve commented many times about the need to increase the metabolic rate, or the execution ability, of Unilever. Many struggle with that. How are you going about it?

Paul Polman: I’ve always said execution is strategy in our business. This is consumer goods. I cannot speak for other industries, but for us, execution is strategy. It’s absolutely important. In fact, the strategies that we have as companies might differ a little bit, but that’s 5 percent or 10 percent of the work. And then the other 90 percent is execution.

I’ve seldom met a consumer—and I go to a lot of home visits or go around with shoppers—and I’ve seldom met a consumer who buys our wonderful Knorr products or Lipton or Omo or Skippy because they like our strategy. And so, our business is a very simple one of getting the right products at the right place at the right quality at the right price—all the time.

And in our industry, share movements are often happening because of lack of execution on the other side. So, this is a very, very important part of us. Now, organizations normally don’t tend to gravitate towards execution, because strategy is the sexy part of all of this. So, we make it very clear that execution is important here, and we celebrate that. Obviously, we drive in the discipline. We have the accountability as part of driving the performance culture. And I think all these elements that we’re putting in place right now will help us drive that executional element higher in the organization.

Adam Bird: For you as the CEO, how are you signaling the importance beyond communicating? Are there other tools that you’re using to drive home the importance of execution?

Paul Polman: You have to walk the talk here as well. So, when we go to store visits or in-home visits, we do roll up our sleeves. We talk to consumers, and we put the products on the shelf that are needed. Obviously, we rigorously look at some of the KPIs¹ that we find important behind the execution and follow up on those, hold people accountable. So, all these things you need to do. And not surprisingly, you’ll get results fairly quickly.

A good example of that for us would be customer service levels. We were at best average—we declared it absolutely a priority. If you cannot deliver the goods to the retailer, it’s unlikely that the retailer will work with you longer term. So we’ve put organizational structures in place, which obviously is where the CEO comes in, put reward structures and measurements in place. And then, rigorously following through and holding people accountable. And you see the results.

In the industry: The crystal ball

Adam Bird: Despite all the disruption that we’re seeing in the world economy, the sector has been reasonably resilient or relatively resilient. How do you see margin evolution—the profit pool, if you will—for the industry growing? Can margins continue to grow the way they’ve been growing?

Paul Polman: Well, first of all, this is a very competitive industry, despite what people think. But the pressure on continuous improvement—it’s never good enough—in this industry is higher than I’ve seen it anywhere else. I like that, personally. It’s a three-dimensional chess, and I like the competitiveness of it.

But the main reason I like that is, actually the consumer benefits from that. I’ve been to too many countries in the world where brands were not able to compete. And, without any exception, the consumer suffers. And we all know the countries or the geographies. And unfortunately, we still have too many of those in the world where that is the case.

I think if the industry continues to innovate well, there is no reason why you cannot have continuous margin expansion. This is an industry, I think, that gives a very decent return to its shareholders and has been good to its shareholders over a longer period of time. And there’s no reason why that should not continue.

The world population will be growing, if we like it or not, from the current six-and-a-half billion to about eight billion by 2030. And that will not only give you more people, but it will also—as they improve their standard of living—create other opportunities for products to expand.

The consumer will continuously look, even after today’s crisis, for products that are more convenient, that are healthier—“vitality,” we call it. Those trends are not going to disappear. And again, [products] that will provide opportunities to create value. And that should, ultimately, translate into margin expansion for the industry.

Adam Bird: A lot has changed for the average consumer over the last many decades. There’s an explosion of choice in terms of the products that you’re offering. But what’s also interesting is, the way that you communicate and engage with consumers has also changed. The media is completely different. What does that mean for Unilever? What does that mean for the way that you think about marketing and engaging with consumers?

Paul Polman: It is definitely more difficult to reach consumers now and engage with consumers. And marketing has rapidly changed from what you might call “the push model” to a model that you reach consumers when and where they are receptive. It is also true that there is quite a lot of choice out there, partly driven by the desire to innovate in this industry and segment the consumers, obviously. I think there will be a trend back, a little bit, toward fewer brands, bigger brands. Especially in this economic uncertainty, we see that gravitating back. I call it “cocooning.” A little retro to the brands they trust.

And interestingly, especially people that are most affected by this crisis—the people concerned about unemployment or their long-term wealth—actually tend to gravitate even more back to brands, simply because they cannot afford to take the risk to experiment with other things. So, I think there will be a premium on fewer, bigger global brands.

Adam Bird: To continue on the theme, though, of marketing, what does that imply for the marketing function? If you look at the brand manager as a key unit within a consumer goods organization, what does that mean for them with this explosion of choice and media and so forth?

Paul Polman: The job of a brand manager has become more complicated. There is absolutely no doubt about that. Different media to reach consumers. If you now look at a campaign like, for example, Axe, over half of our spending there would already be in digital. And the digital space is evolving so fast. You know, what was YouTube yesterday is Twitter today is an unknown thing tomorrow.

So, it requires a brand manager that is in tune with society; that is agile, very close to new technologies; frankly, increasingly more global, and doing that with a broader perspective than just selling the brand from the brand benefits. As we talked before, lots of the social missions of the brand coming in are different stakeholders. So, it is becoming a job that is a little bit broader and more of global scope. And that’s why we’ve created in Unilever the global categories now.

Adam Bird: In terms of Western Europe: it is, on the one hand, a very, very important market for you and for many of your peers. On the other hand, it’s been a very challenging market to capture growth, also for you and for your peers. How do you see Western Europe evolving?

Paul Polman: There’s absolutely no doubt that this is a region where we have to create and can create shareholder value. As I’ve said many times before, Europeans are consumers also. And they’re also human beings. And frankly, if you provide a consumer with a good value proposition, they’re also able to take that. And value is not only price. That’s obviously an important component of it, but value is overall performance and experience of a product.

So, I look at Europe as a gross market, to be honest. In one of my previous employers, one of their fastest-growing brands was an espresso, and it was doing that in Europe. And I can give you many examples ourselves. We just launched Magnum Temptation ice cream, and our Lipton pyramid tea bags. So, when we innovate and do that with the consumer in mind, also the European consumer, you can grow your business.

I’ve been in many presentations in the different companies that I’ve worked for and others where you first have to listen to how terrible the economic situation is. Then, you have to listen to how tough the government is. Then that the retailers are totally unreasonable. Then the private label, this or that, and then the chart comes up that your business is down 5 percent, and we should sigh a sigh of relief that it’s only 5 percent. That’s not the mentality, I think, that you need in Europe. And you can grow, and you should grow. But, you know, part of leadership is to look reality in the eye. So, I think you have to be realistic about the growth rates. And probably in the low end of the 2, 3, 4 percent range for companies like ours would be very good.

Management lessons: Values and people

Adam Bird: You have been a top executive, now CEO of Unilever. You were at the very top of Nestlé, and also had a long career and very successful career at P&G. What have you picked up from each one of those different places?

Paul Polman: I think the main thing is that these are all great companies, driven by strong values. And these are companies increasingly more appreciated for what they do to the economy, even more so than before. So, I think these values permit these companies: doing the right thing for the long term, operating with a high level of integrity and trust, investing in their people, wanting the communities [where they operate] to be as successful as the companies themselves. So, these values permeated.

Then obviously, you have differences. Differences depending on where the origin is, which often affects the culture. Difference in mix—of how you run it, organizational models driven by the brands that you sell. So these differences are there.

We try to benchmark not against one company or another; we just try to benchmark against the best in class. On manufacturing, I might look at Toyota. On supply chain, I might look at Federal Express. And likewise for some of our competitors, if it’s who we respect a lot.

Adam Bird: If you were to isolate a lesson—a key lesson—that you’ve learned as a manager, what would it be and how did you learn it?

Paul Polman: There are different lessons, I think, to be learned. I think the first thing is [to be] purpose driven and [to have] values—that, I think, is very important. And [what] I think over my career is, if your values, your personal values, are aligned with the company’s values, you’re probably going to be more successful longer term than if they are not. If they are not, it requires you to be an actor when you go to work or to be a split personality. If these values are totally aligned … We all know that work–life balance has more and more become a life balance of which work is part of. So, it’s very, very important.

The second lesson, I think, that permeates all of this is the importance of people. At the end of the day, especially where we are sitting right now in positions of leadership, it is the quality of the people, the investment in people. And long ago—I think I have understood perhaps a little bit later in my career than you normally want—in the beginning, you’re self-centered. But at the end, you understand that if you invest in people, they invest in you, and your business is going to be successful.

Business in society: The statue of responsibility

Adam Bird: A key element of a values-driven corporation is contributing to society and a broad range of stakeholders. And you, personally, are also very engaged in a number of social causes. How do you see that role evolving?

Paul Polman: Well, I think it is absolutely crucial, and even more important in today’s environment. I think you’ve learned the lessons from the last year and a half—what greed and mismanagement, to some extent, can lead to. And here, in some sectors, how it can affect society at large and, often, people that cannot do anything about it themselves.

It was Viktor Frankl who was an unfortunate victim of Nazi Germany and survived, and he wrote his book Man’s Search for Meaning. And in his book he said, “What we forgot to do when we erected the Statue of Liberty on the East Coast is to erect a Statue of Responsibility on the West Coast.”

And it is very clear that this world has tremendous challenges. The challenges of poverty, of water, of global warming, climate change. And businesses like ours have a role to play in that. And frankly, to me, very appealing. We have every day, in our business, about two billion consumers that use our brands, and so [there is] a tremendous opportunity to touch many consumers. And if we do the right thing, leveraging that tremendous skill, we can actually make major progress in society.

At Unilever, we’ve translated that very simply into our brands. Because at the end of day, our brands need to grow, but we think it’s very important that our brands have what we call “the social missions.” Ben and Jerry’s is a good example of that—a key fighter against climate change and nuclear weapons. But we have other brands: Lipton with the Rainforest Alignment on sustainable tea, and Dove with women’s health awareness, so the list goes on. So, brands have a very important role to play. And increasingly, obviously the organization itself, the brand Unilever—or for other companies, their brand—is becoming increasingly important as well.

Sidebar

Toward meeting consumer expectations

And we see the consumer asking for this, to be honest, in today’s environment. Again, the consumer’s trust in business, unfortunately, is lower than we would like it to be. And the standards that the consumer sets—the expectations, her own proactiveness and influencing with her purchase decisions, and her own beliefs—are only going to increase as we move forward, I believe (see sidebar, “Toward meeting consumer expectations”). So, companies with a strong social mission will be companies that are more successful long term.

Adam Bird: And you see that as a long-term process? Getting trust back is often a painful, extended effort.

Paul Polman: Well, I tend to believe that we start from a strong base in Unilever, but it’s true that you cannot talk yourself out of things you’ve behaved yourself into. Trust is easily destroyed and takes a long time to rebuild. We’ve clearly focused on a few areas that we believe we can make a difference.

We focus on sustainable sourcing. We’ve made a commitment to go to sustainable palm oil. We’re sourcing all of our vegetables sustainably. That’s a major need to ensure that we have continuity of sourcing. But palm oil, sustainable palm oil, deforestation is 15 to 20 percent of the global warming. So, there you have a broader influence than just our products. We focus on nutrition and hygiene, for obvious reasons, and then we focus on water. And those are the areas that affect our business, but also the areas where we think we can make a positive contribution.

Adam Bird: You have a number of interests outside of work, one of which is marathon running. How has marathon running affected your leadership?

Paul Polman: I just get an incredible amount of motivation out of running, and not only running a marathon but talking to other people that run it. It’s incredibly inspiring. And then I run it for a charity that we’ve started ourselves as a major fundraiser—which keeps me going as well—which ensures that every blind student in East Africa has a Braille machine in his class, which is often for them the only chance for advancement. What for us is the pen and pencil is for a visually impaired person the Braille machine. And thanks to the marathon running, we’ve been able to place about a thousand Braille machines in East Africa.

So, that’s where I get my energy. I call it the difference between being a half person and a full person. I hate to have, the day when I pass on, people talk about me building market share. I’d rather have them talk about me making a difference in society, and running helps me do that.

On leadership: Look to Gandhi and Mandela

Adam Bird: Some say leadership is a learned skill. And when you think back also to mentors that you’ve had, mentorship is a key part of that. Who have been great mentors to you as you’ve evolved?

Paul Polman: Well, I’ve always been fortunate to be able to bounce off ideas with people that I respected. And obviously, you have your family members. My first boss, who unfortunately passed on, was a tremendous mentor. I’ve had people that I looked up to, but obviously also history is full of mentors.

I think if you look at the Gandhis or the Mandelas and the Mother Teresas, I think they exhibit a form of leadership that is very appealing to me, which is to put the interest of others ahead of themselves. It’s obvious leadership. Jim Collins talked about level-five leadership in his book, Good to Great.² And I think that that these people are actually able to make it come alive.

I’m very inspired by, for example, the Dalai Lama, who said once, “If you seek enlightenment for yourself just to enhance yourself, you missed the purpose. If you seek enlightenment for yourself by helping others, you are with purpose.” And I think that’s the style of leadership that we increasingly need in today’s world.

Adam Bird: And that is how you would define leadership? That’s your personal definition that has emerged for you?

Paul Polman: Well, I don’t have a personal leadership definition, because, as I said, there are different styles of leadership. But actually, everybody is a leader, as far as I’m concerned. And my definition of leadership is very simple: if you positively influence someone, you are a leader. I was in Kenya last week, and there was a girl—12 years old—starting a program in her school for the HIV-infected students, which there were quite a lot of. She was a leader.

At the same time, the teacher who took on these responsibilities—often there are less in those places, [people who earn] $100 a month—she is a leader. And so, there are many, many leaders that we have, that make our society work. And I think the main thing is that people can be themselves. And I do it by a strong, as I said, inner compass and guidance. That is more important than anything else.

Adam Bird: Although you’ve had many senior leadership positions, this is your first stint as a CEO. What’s changed?

Paul Polman: Well, a lot. A lot. At least I’m enjoying it, though, and that makes it easier to work 24 hours a day. But it is very clear that, you know, a teacher becoming a headmaster—it’s a different profession. And being ultimately responsible obviously brings other pressures with you. I think I’ve had to learn to set priorities clearer and better, and that’s something that comes with the job.

You have a broad range of stakeholders that try to get a share of your attention. You’re getting into external activities. That is important. And obviously within the company itself, there is even more of a pressure on you to walk the talk and talk the walk. Your shadow casts quite far, and that brings with it a lot of responsibilities.

Adam Bird: How would you say the folks at Unilever would describe you as a leader?

Paul Polman: I’d leave it up to them, to be honest, but I hope that the wordintegrity comes into that. I hope the word long term comes into that. I hope the word caring comes into that, but demanding as well, at the same time.

http://www.mckinsey.com/insights/strategy/mckinsey_conversations_with_global_leaders_paul_polman_of_unilever

McKinsey conversations with global leaders: John Chambers of Cisco

The CEO and chairman of Cisco Systems explores approaches to decentralized management and leadership and also offers perspective on the future of Web technology and the opportunity that an economic downturn provides for strategically minded companies.

July 2009

John Chambers, CEO and chairman of Cisco Systems, leads off our video interview series McKinsey conversations with global leaders. This ongoing project explores vital management issues, industry insights, and topical analysis with CEOs of today’s leading global companies.

In this video, Chambers explores approaches to decentralized management and leadership. He also provides perspective on the future of Web technology and the opportunity that an economic downturn provides for strategically minded companies. James Manyika, a director in McKinsey’s San Francisco office, conducted the interview in San Jose, California, in May 2009.

Watch the conversation in our video interactive, or read the transcript below.

Interactive

McKinsey conversations with global leaders: John Chambers

The first in a series of CEO interviews on vital management issues.

• Pop out

The downturn: Positioning for opportunities

The Quarterly: Let me start with a topic that’s probably on everybody’s mind right now: the downturn and the current crisis. How do you see it?

John Chambers: Lots of people say, “What are you going to do in the next month or the next quarter?” And this is my fifth downturn over the last 20 years. We’ve always gained market share and emerged stronger than we went into it. Part of the reason that we did that is we don’t look short term. No one knows for sure. But we’re preparing ourselves for how we look, whether it’s six months out or 24 months out. Strategy doesn’t change. But if you push me, I’d say it feels like it’s starting to level out. My customers, for the first time, have something firm underneath their feet. That’s no guarantee that it won’t drop off again or stay flat for a long time, but you have to have a leveling off before you have an upturn.

The Quarterly: What are you telling your customers? I imagine your partners are probably quite anxious, your employees are probably quite anxious—what are you telling them?

John Chambers: Well, the most important thing I tell them is, don’t make your decisions on the next month or the next quarter, because your observations are likely to be wrong. Secondly, as tough as this is, this is when you have a chance to make change. And, while I always wish we had avoided it, how you handle what we call market transitions—and part of that is economic challenges—determines where you are in the future. And unfortunately, the more disruptive they are, actually, the more opportunity they offer.

So we just communicate very openly and transparently with our customers, our employees, our shareholders. We’re very upfront that we talk to almost every major government and business in the world and key economists—no one knows. And we say, if you had to say what’s the most likely scenario, here’s how you outline it, and how do you build flexibility into that? So that’s what I tell the customers.

The Quarterly: If you look around the economy and the sectors, you’re seeing businesses hunkering down; you’re seeing companies cutting back on research and innovation. Most innovation initiatives are on hold in most companies. You introduced something quite the opposite to that. Can you explain what you’re doing?

John Chambers: Let me put it in context first. In 1993, 1997, 2001—which was life or death for our industry—again 2003, and now in 2009: those are the five major economic challenges we’ve seen. In each of those, we went into them with kind of a playbook, if you will, of what we run our plays on during economic tough times. And we’ve tweaked them over the years but haven’t changed it dramatically. Then we develop a game plan for the uniqueness of the given economic challenge.

So where we are today is we are at a time that, having learned from 2001, we go into this one with $34 billion in cash. We go into this structure with an innovative management structure that is more around empowering groups—with a very disciplined process behind it—and empowering groups in a way that allows them to move across into market adjacencies with a speed and efficiency and, hopefully, a much higher hit rate than we’ve ever been able to do.

We see all of these market transitions going on at the same time; so, instead of doing 1 or 2 a year, like we did during each of the economic slowdowns—the four that we’d seen before—we’re going to do 30. And it sounds impossible. But without the structure that we started on in 2001, and without the discipline we added to that structure in 2003, it would be impossible. And it’s all around technology enabled by collaboration and network technologies, called Web 2.0. So, without the technology, even if you had the organization structure and the business models right, you couldn’t do this. A nice way of saying, “Yeah, we’re going to be the most aggressive we’ve ever been in our history.”

The Quarterly: What have been the hardest lessons you’ve learned about how to survive, innovate, break through? What have you learned?

John Chambers: Well, I might break the answer into several pieces. First is—make no mistake about it—while we sound like we move fast, we are very disciplined on how we move. And so, the first part is that there are rules for an economic downturn. The first is, be realistic: how much did the macroenvironment cause, and how much of it is self-inflicted? And you’ve got to address the self-inflicted part as you get ready to come out.

The second is, determine how deep it’s going to be and how long it’s going to last. And cannily, you set your plan appropriately. It will usually be deeper and last longer than you think. The third one really ties back to concepts about how you get closer to your customer at a point in time and how you use these downturns really to move into the market adjacencies. So we have a very disciplined approach on it.

It is that type of combination of discipline with process, with innovation of willing to try things and then, if it works, building the strategy around it. And that ties back to mistakes. You were very kind, but we’ve made a lot of mistakes. But the two that repeat are when we don’t move fast enough. And you might say, “Well, John, you all move at tremendously fast speed.” May be true, but almost all the windows of opportunities I’ve missed—areas that got ahead of us that we couldn’t get back into without doing big acquisitions or something—have been when I’ve moved too slow.

The second element, however, equally important, is if you try to move too fast without a process behind it that can scale, have flexibility, and be able to be replicated, that’s equally as bad as not moving fast at all. And so, it’s building on those with today’s models we talked about, et cetera, that I think represent the future.

The big picture: The future of Web technology

The Quarterly: You said you’re going to be aggressive. What does that mean?

John Chambers: Well, aggressive means we’re going to be aggressive in moving into new markets that we traditionally might have moved into slower. It isn’t so much just the economic downturn that causes that; it’s when opportunities open up windows, if you will. You either get through and the window comes shut behind you, or it prevents you from getting through.

And we’re seeing a large number of opportunities open up with tremendous speed, whether it’s virtualization of the data center, where serving technology and storage technology and network technology and software come together—if you don’t move now, you get left behind. It isn’t about the data center, it’s all the way to the home; video architecture, which may take you from a single device, like a flip company we just recently bought; all the way through telepresence. But it isn’t about individual products, it’s about how it plays together architecturally to change business models or entertainment; or the approach on how you move in the sporting arenas, wire the stadiums, but take that experience straight into the home.

It really talks about catching these transitions or getting left behind. And so, we’re fortunately structured in a way that we believe—and time will tell if we’re right or wrong—allows us not to do one or two priorities, like we had done before, but almost three dozen. When we were entering orders online and doing customer support online—when Cisco did that in the early ’90s—they said, “Oh, that’s just you high-tech guys. You’re a little bit weird anyhow.” And we, in fact, know that within about three years, every industry followed this, and it [lead to] productivity and growth not just for Cisco, but for our customers and for our peers, for almost a decade.

We now think you’re entering the second phase of this productivity growth. It’s all going to be around collaboration and network-enabled technologies called Web 2.0 that enable collaboration. And what you’re seeing, to the first point of your question, is a tremendous explosion in terms of the utilization of these technologies.

And it’s not top down, where I’m telling people to use it. I just show what’s capable and then, cannily, it’s like a virus that grows. So our Web blogging, if you will, which if you’d have told me I was going to blog three or four years ago, I’d have said, “Take it to the bank. That’s not going to happen.” Blogging is the way I communicate with our employees—almost all video. Our utilization of discussion forums, you have ongoing topics you deal with, is not up 160 percent over the last year, it’s up 1,600. Taking YouTube capabilities and bring them internal—we call it CiscoVision—is up 3,100 [percent], with 54,000 employees out of 66,000 using it in the last year. Using Webex capability, where you collaborate both internal and external through firewalls, utilization is up 3,900 percent.

Those are clearly numbers that indicate a new market transition. And it enables these new organization structures and the new business models that we talked about. That’s probably the most revolutionary thing going on. Investing in IT the last couple of years didn’t necessarily get you the productivity or the standard of living change. It’s these new technologies that will drive the next wave of productivity. So that would be a statement of concept two years ago, but we’re now seeing it ourselves in how we’re using it; and government leaders, as well as business leaders, are beginning to grasp what is possible here. So I’m pretty optimistic on what this means for this country but, clearly, also for countries around the world.

The Quarterly: What does this mean for your customers? If you’re a company—so I’m a bank, or I’m a retailing company—tell me what this allows me to do and what the potential impact of these collaborations will be?

John Chambers: Well, let’s assume that driving productivity at 5 to 10 percent a year is doable. So, the first thing the CEO says: “What’s doable in my industry? Where am I leading, where am I falling behind? And walk me through an example.” You could take, basically, when a customer walks into your store: you can identify who that customer is by a security camera. And people often use those cameras not for security as much as they do for treating the customers in a way the customer wants. If the associates and the management team recognize me when I go into a store and they know my buying patterns, they’re able to help me more effectively. They can say, “Do you want any special service?” They’re able to automatically take some digital signage and—say they know that I perhaps might like fishing gear in Wal-Mart and they also know that I like Wal-Mart’s deal on nice wines at a very good price—so they watch my buying behavior and then, suddenly, as I go past the digital sign, say, “The fishing gear—we’re having a special sale over here. And by the way, here’s a wine that you may want to look at.” And you look at that, and you say, “How is that possible?” That’s going to come.

And in the electronics area of a store, where suddenly an associate might only be needed one or two hours a day because of the level of complexity of the questions, suddenly that associate can be beamed in from any Wal-Mart store anywhere around the area. Or the store manager can suddenly take a look—“Here’s what my aisles look like.” They can watch what customers are being attracted to or not. You suddenly can change supply chain, next-generation supply chain. Instead of taking 18 months from the idea of a fabric to translating it through into clothes in the store, it could perhaps occur in 3 to 6 months.

It can cut your travel budget with telepresence. Ours went from $750 million a year to $350 million a year, sustainable. And we’ve actually, under the economic challenges, dropped it to $240 [million]—and it will never come back past $350 [million]. So our average expenditure per employee has been probably 65 percent lower than what it was at the start of this and will not come back.

All businesses will have this. It doesn’t matter if you’re a bank doing the similar scenario—with your security cameras and telepresence in the store to give unique capabilities to connecting the regular customers or new customers, what they want to do—or a retail store, or manufacturing, or a high-tech company.

Management lessons: Remodeling for collaboration

John Chambers: I always believe you deal with the world the way it is, not the way you wish it was. And what has changed is, the segment of the industry I’ve moved in has moved from being “plumbers.” And I’m proud to be a plumber. First, it’s a very honorable profession. Secondly, you make a lot of money doing plumbing on the Internet.

But the future’s about, how do you add intelligence to that plumbing? And how do you do it architecturally from a technology point of view, going from any device to any content over any combination of networks and data, voice, video? Sounds simple; really complex with security and predictability. But how do you change the business process?

So we’ll move from a company that sold plumbing and routers and technology, which customers kind of integrated, to a company that, if we do our job right, will be the most trusted business adviser as well as the most trusted technology adviser to the top companies in the world, be they enterprise or service providers, to the top governments, et cetera. That is the biggest transition. Now, the challenge is, you couldn’t do that without different organization structures.

And I’m a command-and-control guy. It clearly has worked well for me. I say, turn right, 66,600 people turn right. But that’s not the future. The future’s going to be all around collaboration and teamwork, with a structured process behind it. And that’s the key. You can’t move fast without a replicable process. So it’s about speed, combined with technology enablement, combined with a replicable process.

The Quarterly: Traditional management theory would say, “Cisco, John, you have too many priorities, way too many. Pick a few, prioritize. How you’re going to run a company without a straightforward organizational structure. This doesn’t make any sense.” How do you respond to that?

John Chambers: Well, first, they could be right. Any time you take yourself too seriously and think that critics may not be right, then you’re already in trouble. However, we started modeling this in 2001. That’s when we moved to social communities with a great deal of discipline, which we called councils, $10 billion opportunities; boards, $1 billion opportunities; working groups on what you do on a transaction or how you enable those.

And, over the last eight years, we’ve done things right and we’ve made some mistakes and we’ve adjusted, including the management team and what are their skill sets and how they’re rewarded. And then we put behind it a very disciplined vision five to ten years out of what you want it to look like; what your true, sustainable differentiation [is, which] you’ve got to implement in two to four years; and then, execution-wise, what are you going to do the next 12 to 18 months? So you’re able to play a portfolio, like I just said, with tremendous speed and efficiency, where I might be involved in only two to three of the councils and boards and working groups. Each of our key executives will do the same; and instead of 10 people running the company, with a very heavy leaning toward the command, [we have moved to a structure with] the top 500 people running it today.

The Quarterly: But how does it actually work? These councils and boards, are they empowered? Do they make decisions?

John Chambers: Well, they’re empowered, but they have to know where they are. The classic question is, “Well, if I’m going to lead, I’ve got to have people reporting to me and I’ve got to control budget.” And the answer is, “No” and “No”—because that’s not what cross-functional leadership is about. Cross-functional leadership is about doing a replicable process with a business model that can be enabled by technology, and each of the functional groups being able to implement that. So whoever serves on each of these councils and boards and working groups, from each functional group, has to be able to speak for the whole group. Not go back and ask permission, but has to be able to speak for the group.

Secondly, they’ve got to understand the implications of their decisions across all the functions. That was a learning curve for us, because we developed our people in silos. And third, you select who goes on these councils and boards by the leaders of the group, which originally were my executive VPs and senior VPs. And all of a sudden people will try to be on every one, if they were the leader of the functional group. And it took about four councils and boards, and they couldn’t keep up. So they had to delegate, they had to empower, they had to train. And it took us a while to change compensation, reward systems, but now it’s a machine.

The Quarterly: But it also sounds like a lot of meetings.

John Chambers: Yes. Virtual, physical, and ongoing. It’s to where my senior execs will probably spend 30 percent plus—not in meetings, because the definition of a meeting has changed—in collaborative sessions and execution sessions. And so, you are talking about how we spend our time being dramatically changed. Theoretical eight years ago; started to work about four years ago; replicated with tremendous speed today.

And for the first time, there was a tipping point with my customers in the last four months. What has occurred in the last 120 days is that leading-edge customers—I’m not talking 5 or 10, I’m talking 50 to 100—have said, “We understand this innovation business model. We understand how you’re innovating on the organization structure, and we understand how you’re using collaboration Web 2.0 to innovate on the new business models. And we think you’re going to be able to do it, with all the appropriate caveats, across not just five areas but across several dozen.”

The Quarterly: Do you think this is a model that most other companies can also do and replicate?

John Chambers: I think it is actually much more replicable than the command-and-control, top-down [approach] I did before.

The top-down that we did before was based upon really growing up within the company, being a part of taking it from $70 million to about $35 billion, being able to watch one product go to two, being through five economic downturns, developing the game book and the game-planning playbook for the approaches.

That is command and control, and it is tremendously dependant upon your top leaders. This is an organization structure that I think is built for the future and is much more built upon, “How do you gain the power of the human network to really move on decisions and directions?” Sounds like nice marketing, but most of our nice marketing usually has happened even though we might have been a little bit early or a little bit late. So I think, when we talk five years from now, this will be the future of business models.

Business in society: Public–private partnerships

The Quarterly: Can you talk a little bit about what you see as the role of technology and businesses like yours working with city and national governments?

John Chambers: Okay. I’m going to break it into two pieces. The first is what we see working with governments, in terms of traditional business and how do you really prepare for the future. And the second is more in corporate social responsibility and public–private partnerships, if you will, being, I think, a model for the future around collaboration.

So, to the first part, when you talk about the future, you can talk about smart, connected communities. Intelligent urbanization: 500 million people moving into cities of the future. Traditional cities: how do they evolve? What I call towns or small communities, and then all the way down to the rural environment.

Let’s just deal with the first one. When you talk to President Lee [Myung-Bak], of South Korea, or Mayor Ahn [Sang-soo], who’s the mayor of Inchon, which is really the economic city built outside of Seoul, they’ll talk about how do you combine a structure with the direction of government; with a developer, really enlightened developer who knows where they’re headed, how they’re doing it; with a Cisco, to be able to say, how do you create perhaps as much as 200,000 sustainable, incremental jobs? How do you contribute as much as somewhere between a half a point to the whole point of GDP growth for all of South Korea? How do you combine an architecture—which addresses everything from green initiatives, smart electricity, productivity, government services such as education and health care—to tie them back to other government services, to intelligent transportation, smart buildings. How do you do this architecturally? And the answer is, intelligent plumbing, combined with a visionary government leader, combined with a developer who would build it in. And that’s able to go all the way down through what’s going on in China and the Middle East, et cetera, and it gives you speed of an ability to move into that area.

You could then transition and say, “Well, John, I didn’t even know you knew what smart grids were.” Well, maybe six months ago I wasn’t even focused on it, but it’s one of our top priorities. And yet here, in a series of positioning, using councils and boards and working groups, we’ve moved from a player often people didn’t associate with smart grids to the top announcement that’s been done—in my opinion, world to date—which was with GE’s leadership and with Florida Power & Light’s leadership, with local government, in terms of the city of Miami, [when they] announced Energy Smart Miami, where they’re going to go in terms of, “How do you really use grid technology to make the cost of electricity over time cheaper for the employees?” To do it in a more environmentally friendly [way], to generate what they said is a 1,500-person job increase just in the one city, that could expand throughout the state and throughout the region? These organization structures allow for speed of change, which did not occur before, but they’re often with groups that have not worked together.

Then, over the corporate social responsibility: your ability to make a difference. I started in the Middle East with King Abdullah of Jordan, an outgrowth of the World Economic Forum, where King Abdullah said, “John, I need partners to help me transition the country.” When Katrina hit Louisiana and Mississippi: how do we transform the education system? We put $90 million into the area—purely corporate social responsibility—21st-century schools, wiring the areas. Terrible earthquake in Sichuan province: it wasn’t just about giving back. It was, “How do you partner in a way that can change education and government?” We put $45 million into it. I’ve been back there twice physically, including just about three weeks ago, and once virtually.

It is those types of programs that, first, are the right thing. I’ve always believed those who are most successful owe an obligation to give back. But also—what I can now articulate—it’s just plain, good business as well. Wherever we’ve been good on corporate social responsibility, we’re almost always in the top ten places to work, which we are in every major country in the world. But also, the better we are in corporate social responsibility, it’s amazing how it transfers over to business success.

On leadership: Adapting as a leader

The Quarterly: As you think about your role as the leader—the CEO—of Cisco, what do you find to be the limiting factor?

John Chambers: I’m the roadblock. In command and control, the enabler is the CEO. Where the industry’s going, in every industry, will be about how do you change. How do you get outside your comfort zone? How do you basically catch your marks, transitions, and move on? Let’s use the current economic downturn. When you have an economic downturn of this challenge, 20 to 40 percent of the companies will never get back to where they were before. Never.

And the key is, how do you focus that opportunity in a way that not only allows you to return to where you were before but to continue to grow? And so, part of it is the ability to paint a picture of what’s possible. Part of it is also to manage inside our own minds and our hearts a combination of opportunity and [a sense of] if you don’t move, you will get left behind.

The Quarterly: But how do you motivate the employees? You’re obviously very excited about the vision. It sounds like you’ve got leaders, and these boards and councils, that are also pretty excited about the vision.

John Chambers: If they weren’t excited about the vision, they probably aren’t here any more. Everybody thinks about what you do as a direct result of the most recent quarter or the most recent year, including the stock market. When, with all appropriate consideration, the results that we got today—and they’ve been very good versus our peers—are what we did three to five years ago. The results we get three to five years out are what we made decisions on today. So the first thing you do is paint the picture of a vision where you want to go.

Secondly, you’re realistic on your sustainable differentiation to get there—and that’s visions, five to ten years; sustainable differentiation, two to four years. Now, what are you going to do in the next execution, next 12 to 18 months, to get there? You sell to your employees, and you’ve got to communicate, communicate, communicate. You do the same with your customers, shareholders, in a very transparent fashion. What’s possible, why you’re doing this, here are the milestones they ought to watch. By the time everybody agrees, or a majority agrees, it’s too late. You either have already won or you have already lost.

So, it’s having the courage, as leadership, to change and realize—back to my earlier comment—it’s often the best leaders that are most resistant to change. And about 20 percent of my leaders didn’t make the transition. They were command-and-control, wonderful leaders but wanted to stay command and control and couldn’t transition over. And I had nothing against that. It’s like a basketball player who can score 30 points a game. But if you’re going to go into a real, unique style of team offense and team defense, if a person can’t adjust, it’s probably better that they get traded to another team. And so, all of us have to change. And the leader has to not only say the talk, she or he has got to walk the talk. Got to be the best example.

The Quarterly: How do you change personally? Where do you get your ideas from? Where do you get your energy from? Where do you get these radical concepts from? How do you change?

John Chambers: Well, it’s unique in that one thing has not changed about Cisco in the almost 19 years I’ve been here: we are driven by our customers. Customers tell you about transitions, you must then drive it down through the organization. But, realizing the speed at which these transitions are coming at us, I have to change the organization structure. I have to change my style. I have to listen differently. I now attend telepresence sessions with industry analysts and probably 12 different locations that were in the same room. I listen to what they think we’re doing well—listening, most important, to what they have to do differently.

How do you no longer listen to customers about a router or a switcher? I get excited about it, but most of your audience: not too excited. But how do you listen to them in a way that goes across routing and switching, data centers, home, mobile networks, security, sports and entertainment, video, all coming together in a logical fashion? And the answer is, you have to change to do that. And you’ve got to make it replicable. Because if you plant a thousand seeds and let a thousand seeds bloom, you get a weed field. You’ve got to build it in a structure that ties together with a common vision of where you’re going to go.

It isn’t just about speed or innovation. It’s about operational excellence, combined with the capability to scale and to replicate. So I had to change. And I had to realize that I would either be part of the future success, or I would be the one that would slow us down. And you’ve got to get people around you, customers and twenty somethings, that really challenge you. Because when my team told me I ought to be focused on Web 2.0, as opposed to collaboration and telepresence, my answer was, “Why?” And they said, “Well, John, it’s the future.” And I said, “I don’t necessarily agree.” And then, they said, “Try.” Including blogging—and video blogging. If you had told me I was going to do that, I would have said, “Not a chance.” And yet, once I tried it a couple of times, I got very comfortable with it. And it’s the way I now communicate. So you’ve got to, especially during major, violent economic or market disruptions, you’ve got to move fast. And you’ve got to be willing to listen and try new things. And I realize that you can be part of the solution, or you can be part of the problem.

If you think that you cannot be left behind, you’re wrong—regardless of what position you’re in. But also, if you adopt the philosophy of “I have no choice; I’ve just got to hunker down and survive,” your survival rate goes down dramatically, and you will probably miss the biggest opportunity of your business career on what’s occurring now. So it’s the balancing. It’s not a “or”; it’s, how do you do the “and”? How do you do innovation and operation of execution? How do you behave financially, conservatively, during the toughest economic challenge we’ve seen in our lifetime, yet use this challenge in a way that repositions you for the future? And then, how do you use technology in ways that you’ve probably not thought of—that are easy to use, video based, network enabled—to change your business process and to change what you do for society? Sounds high level, but it’s remarkably effective. 

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