Straight from the CEOreveals the practical, far-reaching insights of the world's top CEOs, including:Royal Dutch/Shell'sCor Herkstroter, mastermind of the most ambitious makeover among the world's energy behemoths;British Airways'Sir Colin Marshall, the market genius who powered the carrier's celebrated turnaround;Chase Manhattan'sWalter Shipley, architect of one of the largest mergers ever to take place in the financial sector;Monsanto'sRobert B. Shapiro, who has raised the hurdle bar on growth and profitability goals, although the company is at the peak of its form;British Aerospace'sSir Richard Evans, developer of one of Britain's biggest and boldest corporate-change management programs;Compaq Computer'sEckhard Pfeiffer, who has transformed himself from a successful turnaround artist into a hard-driving champion of continuous corporate renewal.Straight from the CEOis a major event, providing the rare opportunity to hear directly from the world's greatest business leaders. No ivory-tower theorizing, no speeches, no "consultant speak," these are the practical insights of leaders who every day must find ways to test and validate new ideas, implement change to improve the bottom line, and ultimately focus on the core ideas that will truly reshape their corporations.Straight from the CEOis an invaluable tool for managers at every level.

G. William Dauphinais is in charge of Brand Management Marketing and Communication at PricewaterhouseCoopers and is the senior author of two previous books, The Paradox Principles and Better Change.

Board of Contributors

9

(2)

Foreword

What We Can Learn from CEOs

11

(4)

Klaus M. Schwab

Introduction

CEOs Demand the ABCs-Awareness, Belief, and Conduct

15

(8)

G. William Dauphinais

Colin Price

Part I GLOBALIZATION: THE TEMPO HEATS UP

23

(56)

Carlsberg Group

Flemming Lindelov

The Best International Brands are ``Glocal''

31

(6)

ABB Asea Brown Boveri Ltd

Percy Barnevik

Creating a Federation of National Cultures

37

(10)

Swisscom Poised for the ``Big Bang'':

Felix Rosenberg

Winning in the Deregulation Game

47

(8)

Vulcano-Termodomesticos

Mario Pais De Sousa

Smart Shopping in the World Supermarket of Management Ideas

55

(5)

Itochu Corporation An Agile Giant

60

(19)

Minoru Murofushi

Bajaj Auto Ltd

Rahul Bajaj

Bajaj: The New Face of Emerging Market Competition

65

(7)

Price Waterhouse

James J. Schiro

The New Phase of Globalization

72

(7)

Part II RADICAL CHANGE: TURNING UP THE VOLUME

79

(50)

Royal Dutch/Shell

Cor Herkstroter

Royal Dutch/Shell: Rewriting the Contracts

86

(8)

Changing Supertankers into Speedboats

94

(35)

Dr. Heinrich Von Pierer

Siemens A.G

Northern Ireland Electricity

Patrick Haren

Conjectures on Change: A Letter to the CEO

99

(7)

Alcatel Alsthom

Serge Tchuruk

Driving Fundamental Change at Alcatel: A New Prism on Customer Focus

106

(6)

U.S. Department of Veterans' Affairs Health Care, Not Hospitals:

Dr. Kenneth W. Kizer

Transforming the Veterans' Health Administration

112

(9)

British Aerospace

Sir Richard Evans

A Benchmark That Brought Managers in from the Cold

121

(8)

Part III LEADERSHIP: GIANTS OF VALUE CREATION

129

(52)

British Airways

Sir Colin Marshall

From Apprentice Ship's Purser to CEO: A Journey in Search of the Customer

135

(6)

Compaq Computer Corporation

Eckhard Pfeiffer

Future Tilt: How and Why Companies Need a Culture of Continuous Renewal

141

(7)

LSG/SKY Chefs

Michael Z. Kay

Memo to a Turnaround Boss

148

(8)

The Office of the United Nations High Commissioner for Refugees

Sadako Ogata

Stakeholders Are a Reality Check for World Refugee Group

156

(6)

Monsanto Company

Robert B. Shapiro

Sparking the Crowth Engine at Monsanto: Using Shareholder Value as the Driving Framework

162

(11)

Pitney Bowes Inc

Michael Critelli

Communicating in the Information Age: The Leadership Factor

173

(8)

Part IV CULTURE: FIFTEEN GLORIOUS YEARS!

181

(50)

Warner-Lambert Company

Melvin R. Goodes

Transforming the Culture of a Global Enterprise One Employee at a Time

189

(10)

National Australia Bank Group

Don Argus

Focusing Leadership Through Corporate Values: A Key Driver for Success

199

(8)

Chase Manhattan Bank

Walter Shipley

The Art of the Inclusive Merger

207

(6)

Fairway Filamentos

Dirk Blaesing

A Joint Venture That Found More than Synergy

213

(5)

Iberdrola

Javier Herrero

Shaping Culture with Activity-Based Management

218

(8)

Bakrie & Bros

Tanri Abeng

From ``Dynasty'' to Rule by MBAs

226

(5)

Part V INNOVATION AND CREATIVITY: NO FINGER PAINTING, PLEASE

231

(52)

Dana Corporation

Southwood J. Morcott

Igniting a Firestorm of Creativity

238

(12)

Enron Corporation

Kenneth L. Lay

Coming Soon to Your Home and Business: The New Energy Majors

250

(8)

Philips Australia

Justus Veeneklaas

Reinventing Philips Down Under: Customers Seek Systems Solutions, Not Black Boxes

258

(7)

MIT Sloan School of Management

Glen L. Urban

Strategic Roots of Innovation

265

(6)

IDEO Product Development

David M. Kelley

Performing Rapid Innovation Magic: Ten Secrets of a Modern Merlin

271

(12)

Part VI CUSTOMER RELATIONSHIP: THE BRAND IS DEAD. LONG LIVE THE BRAND!

283

(25)

Young & Rubicam

Peter Georgescu

Creative Marketing Is the Core Strategy for the New Millennium

288

(6)

CoBank

Douglas SIMS

Creating Competitive Advantage Through Customer Loyalty

294

(8)

OshKosh B'Gosh Inc

Douglas Hyde

New Products That Remain True to Core Values

302

(6)

Acknowledgments

308

(1)

Index

309

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From Part One: Globalization

Globalization is a term that triggers strong emotions. Depending on one's point of view, it is dreaded or admired, perceived as a great leap forward or a stumble backward. It contains many references wrapped in a single word, including: the recent and projected expansion of world trade; the greater flows of direct investment to the formerly less-developed countries of Asia and Latin America; the lightning speed of technological transmission; the giant sucking sound of European and North American jobs lost to the emerging economies; the global dominance of such power brands as Toyota and Coca-Cola, CNN and Nescafé; and the wholesale deregulation of telecommunications, air transport, and energy utilities -- to name but a few of its many ingredients.

Not surprisingly, experts are divided on the importance of globalization. Certainly the majority agree with British economist Martin Wolf that it is "the great economic event of our era," while a dissident minority, including MIT economist Paul Krugman, believes that its impact has been overhyped. "What explains this propensity to overstate the importance of global markets?" he mused in theNew York Timesof February 13, 1997. "In part, it sounds sophisticated. Pontificating about globalization is an easy way to get attention at events like the World Economic Forum in Davos, Switzerland, and Renaissance Weekends in Hilton Head, S.C."

From present-day facts, Klugman is less than half right. As he pointed out in theTimesthere are no Asian airlines offering local service in the U.S. But contrary to his views, there is a lot of crossborder activity in telecommunications. However, belief in the power of globalization lies not in its present reality, but in the perceived strength of its potential.

The great power of globalization can be seen in the strength of its lifeline. As a report of the International Monetary Fund dryly stated, globalization reflects "the growing economic interdependence of countries worldwide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology." This hydra-headed growth is more than another macroeconomic trend. It is shaping a new epoch where the tempo and breadth of change in the international economy both alters the character of the multinational corporation and makes porous the economic frontiers of the state. Result: a different paradigm of opportunities and interdependencies, as well as new terms and conditions for competitive success.

Just as water changes to a solid when the temperature drops one degree at the 32° mark, so there is a threshold (if humankind hasn't crossed it yet, we will soon) where the addition of one more degree of globalization will create a totally different reality in which corporations as the agents of capital and technology must adjust. This is why the subject of globalization resonates at the World Economic Forum at Davos and similar conferences and seminars, and why it has the air of historical inevitability despite the continuing vigor of trade protectionism and the spread of regional trading blocks. No corporation can run the risk of ignoring its opportunities and dangers. A company's failure of anticipatory intellect, or a lack of vigilance and preparedness, could have terrible consequences.

Big corporations in advanced countries haven't been slouches at foreign expansion in this century. However, they have been constrained by local protectionism and by a conservative approach to geopolitical risk -- a reasonable stratagem while the Cold War was in progress and domestic growth was sufficient to keep shareholders happy. While those geopolitical risks are still real, the abundant capital, technology, and overcapacity in home-base countries have made those risks more palatable than they were a decade ago.

The old multinational corporations were quasi-colonial institutions that used the less-developed world as a dumping ground for secondhand technology, and often for second-rate executives. They can't profitably do that today because of the democratization of technology, capital, and management know-how. The new factories going up in Asia and Latin America have the benefit of low wagesandstate-of-the-art technology. Five years ago a prediction that Bangalore, India, would become a world-class software center would have been absurd. Not anymore. In the future, we can expect centers of excellence in other technologies to crop up in many formerly unlikely places.

The properties of the truly global corporation are still in the early stages of evolution. Most CEOs are just breaking out of the old Euro and U.S.-centered values and mind-sets. They're groping for ways to make their companies more flexible and responsive to differing local environments, while preserving the advantages of global reach and scale. It's as if they're hoping to invent an amphibious octopus with another brain at the end of each tentacle.

Big oil companies are old hands at globalization in terms of geographic reach and in the ethnic diversity of their leadership. But the way even they approach the world is changing in response to a more competitive market in developed countries. Faced with a forecast of demand growth of a mere 1 or 2 percent in OECD nations, the petroleum giants are hoping to benefit from recent and prospective deregulations of state-run monopolies in other parts of the world. As a result, they're vigorously making new downstream investments in emerging economies. But for them, globalization has yet another dimension -- the quest for true enterprise integration via big investments in new communications and information systems. By reengineering their back offices, and integrating the information and business process functions of hitherto independent subsidiaries, they expect to capture economies of scale that have eluded them in the past.

Here is another important facet of the globalization phenomena: the way companies are reshaping their cultures, organizations, and systems in a quest for "seamlessness" -- melding the characteristics of centralization and decentralization in a new global synthesis. In 1996, Price Waterhouse began a bold initiative of this type. In chapter seven, on the new phase of globalization, chairman James Schiro details how this premier accounting and professional services firm has reorganized itself. While retaining the valuable attributes of the decentralized partnership form, Price Waterhouse has evolved a new global structure with superior responsiveness to client needs, and a more finely tuned service delivery of its knowledge resources. As Schiro points out, "It is no longer a compelling point of pride to declare: 'Our company has offices -- or factories -- in X countries worldwide.' All the best competitors meet that mark, and so much more is expected. Genuine points of pride have to do with global coordination coupled with well-accepted local identities."

"Think global but act local" has become the mantra of globalization discussions. Unfortunately, its frequent repetition tends to make it sound easy, when in reality it is fraught with contradiction. Complex and subtle paradoxes confront those who apply it rigorously. Just how local should "local" be in product features, image, and service delivery? Where and how does the global approach add to or detract from the local?

These are not new conundrums; as Flemming Lindeløv, Carlsberg's CEO, observes in chapter one, Carlsberg has been international for over a hundred years, because it had to leap over little Denmark's borders in search of growth. For Carlsberg, globalism comes down to projecting the image of a foreign-born premium product into local markets where taste preferences are distinctly different from Denmark's. The trick is to produce and market a local formula that nevertheless has the "feel" of a foreign product. The power of the Carlsberg brand has to be maximized in both dimensions. And its organization must move adroitly between these separate realities, each with its different needs and claims.

What makes the global economy different from the merely international is not simply the greater intensity of trade, technology, and capital flows, but the levels of complexity and the number of variables that managers must deal with. Whether it's deciding where in Asia to build a new plant or whom to team up with for Latin American distribution of a packaged goods product, the number of options are many times greater than a decade ago. So too are the interdependencies across technologies, markets, organizations. To think globally these days is to take a quantum leap in complexity. And for the time being, anyway, some facets of a company may not quite fit into a seamless whole.

So far we've talked about the good news -- the promising developments and plans and intellectual chartings. But there are areas where progress has been frustratingly slow. A requisite skill for globalization, and one in which most multinational corporations are deficient, is the need to be politically integrated into the fabric of local society, which includes countries with very different political histories and institutions than those of OECD nations.

Imagine you're the CEO of a Japanese company that four years ago built four offshore factories in South Korea. Now you want to shut two of them down and shift their output to a new factory in Kuala Lumpur. How are you going to justify your acts in Seoul? And what's the likelihood that the two remaining factories will be allowed to chug along as if nothing had happened? Yes, the global economy is more open, but it has many areas that are mined with uncertainty and danger.

The dynamics of globalization are like those of oceanic tides: There is an overall direction, but embedded within them are separate streams moving at different speeds and at different angles to the main thrust. According to an OECD study, by the year 2020 a third of world output could be accounted for by China (with the biggest economy), Russia, India, Indonesia, and Brazil. Over the intervening years, all developing nations could raise their Gross Domestic Products (GDPs) by an average of 270 percent, compared to 80 percent for OECD nations. Translating these large change forecasts into corporate strategy is no easy task. However, it's equally dangerous to get too far ahead of the present into the unrealities of futurism as it is to get too caught up in day-to-day battles that obliterate the future from corporate consciousness.

Managers don't need a perfect crystal ball to forecast the timing of globalization. But what they do urgently need is vigilance and preparedness in developing capabilities and aptitudes for globalism. A global business requires global systems for the transmission of information and knowledge, yet most global systems in existence today are still very rudimentary. Corporate information systems remain predominantly domestic in origin, orientation, and functionality. Similarly, it could be argued that few in the upper echelons of most multinational corporations have adequate international exposure via travel or attendance at seminars and conferences offshore. Their boards of directors almost never include a nonnational -- although it should be noted that the logistics of getting directors from around the world to a monthly board meeting are insuperable.

The fundamental management challenge posed by the new global environment is this: Corporations must seek out value-enhancing interdependencies that were simply not technologically or geopolitically possible in the past. Many are responding with a ferment of experimentation in new types of linkage and nonhierarchical relationships, forming transient ad hoc organizations that can interact, perform a "handshake" (for example, a knowledge exchange), and then break off.

ABB CEO Percy Barnevik perceived these needs nearly a decade ago when he pioneered such now-accepted practices as centers of excellence and internal benchmarking. In chapter two, Barnevik tackles a number of globalization issues facing a $36 billion firm operating through more than a thousand legal entities in federations that span 140 countries. According to him, since new products have only a short life span before being imitated or surpassed by the competition, the path to global supremacy is via "a lasting competitive edge through the excellence of your organizational structure. ABB is far from fully exploiting the advantages of its organizational structure. But I believe this is the winning recipe in the long run."

Excerpted from Straight from the CEO: The World's Top Business Leaders Reveal Ideas That Every Manager Can Use by Colin Price
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