Hit the road Positive leadership for troubled times - ICAEW

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FINANCE & MANAGEMENT both ways’. You therefore need to ask yourself, the following two questions: ‘What will I do if the environment improves?’; and ‘How will I behave if things get worse?’ CFOs are accountable for the quality and internal integrity of the financial plan, as well as its achievement in the real world. Analysing any plan as to how it will perform in alternative environments, and being prepared to shift gears before one gets unduly strung out, is a necessary condition of the VUCA world. 2 ESTABLISH STANDARDS FOR THE NEW REALITY Second, one has to establish standards for the new reality. In this environment, budgets should be established using coldly realistic assumptions. It is always easier to add resources when one is ahead of plan than it is to cut back when one falls behind. At the same time you want your company to be ambitious and reach for the stars. The way we address this at Saatchi & Saatchi is to set a performance standard relative to the market, wherever it may end up, rather than just measuring performance versus the annual plan. We set realistic goals in the annual budget, but our on-going ambition is to outperform the market by 50%. This sets a very high standard and means we want continuous improvements in share of market. 3 THINK LONG-TERM, WHILE ACTING SHORT-TERM In the VUCA world, it is good to think long-term while acting short-term. At Saatchi & Saatchi, we have a ‘purpose’ document which tells our people everything they need to know about long-term strategy, beginning with our ‘Inspirational Dream’ which is: to be revered as the hothouse for world-changing creative ideas that transform our clients’ businesses, brands, and reputations. This has been our purpose for 15 years and is formally reviewed every year. Our words and long-term intentions have travelled well. However, our daily behaviour is governed by what we call ‘100-day plans’. These are the six to 10 things we want to accomplish in the next 100 days on the path to long-term progress. We cascade these plans across the company, and update them three times per year. In the VUCA world, one can only see so far out, and without a short-term, there is no long-term. It is always easier to add resources when one is ahead of plan than it is to cut back when one falls behind 4 EVERY TIME YOU THINK ‘ADD’, ALSO THINK ‘REDUCE’; AND EVERY TIME YOU THINK ‘CREATE’, ALSO THINK ‘ELIMINATE’ Another essential lesson is that every time you think ‘add’ you should also simultaneously think ‘reduce’ and, similarly, every time you think ‘create’ you should at the same time think ‘eliminate’. This is a basic tenet of Blue Ocean Strategy by W Chan Kim and Renee Mauborgne (co-directors of the INSEAD Blue Ocean Strategy Institute), and is a priceless exercise. Despite the state of the economy, it’s likely that your company will need to add some new positions and create some new capabilities in order to meet the demands of the marketplace. You should press ahead in these areas, but at the same time, you must have the organisation simultaneously thinking about how it can reduce and eliminate things as well. This refers not so much to headcount as to eliminating inefficiency, ineffectiveness, bad practices and decisions, and self-destructive organisational behaviour. The reality is that tough times force trade-offs, as do the competitive demands of global competition. In our business at Saatchi & Saatchi, we now live in the hyper-connected digital age. Steve Jobs and others changed the way people get access to information, connect with each other, and make purchasing decisions. In this world, we need people who are digitally savvy and are in touch with the dizzying array of new media alternatives. By the same token, there’s not the historical level of demand for other types of advertising. So as we think about adding or creating over here, we simultaneously have to be prepared to reduce or eliminate over there. 5 SET TIGHT PRIORITIES Finally, in the VUCA world, companies need to be sure to set tight priorities. In tough times it is more important than ever to decide what is core to your business, and what is non-core, and to focus time and attention on the critical few things that will make a difference. When I started with Saatchi & Saatchi in 1995, the founding Saatchi brothers had 20 MAY 2012 FINANCE & MANAGEMENT
COVER STORY IF THIS IS THE ANSWER, WHY DO SO FEW COMPANIES BEHAVE THIS WAY? been ousted by their board and gone across town to open a rival agency. Six percent of the revenue had walked out of the door with them, the company was losing money, it had too much debt at too high an interest rate, and it was all coming due too soon. Additionally, every client and every employee was asking, ‘Should I stay or leave?’ Talk about tough times! This was an early preview of what has become the VUCA world. For the first six months I was there I devoted 100% of my energies to two things: stabilising clients and staff, and refinancing the company. The reality was that if I didn’t get those two things done, nothing else would have mattered. Looked at in a positive way, given that we were successful on both fronts, accomplishing those goals set up all the good things that have happened to the company ever since. Bob Seelert is worldwide chairman of Saatchi & Saatchi. He is a graduate of Harvard Business School, has been CEO of five companies, built megabrands, been party to two megamergers, and enacted numerous turnarounds. bob.seelert@saatchiny.com You might be reading this article and thinking these five things make a good deal of sense. By the same token you might be asking yourself, ‘If that’s the case, why is it that so few companies and leaders behave this way?’ I believe there are three fundamental answers to this dilemma. 1. Failure TO EXPOSE the ugly truth The first stumbling block is that many companies and leaders demonstrate a consistent inability to take the first step. They simply fail to ‘get the ugly truth up on the table’. At General Motors, for example, this problem became systemic over a very long period of time, ultimately forcing the company into the position of requiring a government bailout to continue operations. During the Auto Hearings, GM management revealed they were losing money, burning cash, and that liabilities exceeded assets. They attributed all this to unduly expensive union contracts, excess capacity, bad acquisitions, too many trademarks, runaway health care costs, foreign competition, and the need for employee layoffs. However, management at the time failed to mention the ‘ugly truth’ – namely that for over a period of fifty years the company had consecutively lost 34 share points of the US auto market. What should this severe and consistent loss of market share have been telling management over these many years? Specifically, it was a tell-tale sign that the company was failing to design, build, and sell cars Americans wanted to buy, as evidenced by the fact that every time consumers voted with their chequebook, they consistently voted less and less for GM. Issues like excess capacity and the need for layoffs were symptoms of a deeper problem. Now with the government bailout behind it and under new management, GM is getting a second lease of life. It has successfully launched an IPO, there are signs of success in China, and it has regained the title of the world’s largest automaker. It is working to put the ‘ugly truth’ behind it. 2. Obsession with an unduly short time frame The second reason why is that people and companies become obsessed with an unduly short time frame. For political leaders, it’s all about the next election. For companies it’s the results for the current quarter. This shortsightedness often precludes taking the next logical step on the path to long-term progress. My belief is that this is a self-imposed problem. Political constituents in truth want sustainable solutions, and investors and analysts can always be convinced to support actions that have long-term merit. Leaders need to act accordingly. 3. Too much management, not enough leadership Finally, the biggest barrier of all is that today we have too much management and not enough leadership. Management is all about planning, directing, measuring, and controlling. Leadership, on the other hand, is all about standing for something, and then going into the fray under that banner. A leader has to know the values, beliefs, principles, and practices he or she stands for, and then adhere to them. For me, those things have always been a belief in the long-term, in growth, in continuous improvement, and in ensuring the organizations of which I am a part consistently are in a position to out-compete their peer group. Knowing who I am and having these kinds of guideposts are the things that have helped ensure I take the right actions when leading in tough times, and they are the things that let my people know where I am coming from and what they can expect. It’s a VUCA world. You may not like it, but that’s the reality. Get going, with passion and a wanting-to-win spirit. FINANCE & MANAGEMENT MAY 2012 21
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