insigniam quarterly spring 2015 - pathways to growth

VO L U M E 3 , I S S U E 1 | S P R I N G 2 015

SPECIAL FORCES Arcadis U.S. CEO and turnaround expert John Jastrem on transforming disaster into success.

COFFEE WITH AN ACCENTThe CEO of The Coffee Bean & Tea Leaf on expanding your enterprise overseas.

AN INSIDE PERSPECTIVE ON DRIVING GROWTH AMID THE DISRUPTION OF THE GLOBAL HEALTHCARE MARKET

™

FORWARD FACINGCardinal Health

Medical Segment CEO Donald Casey Jr. is

leading his company into the future.THE HEART

OF THE MATTER

The corporate culture acts like DNA, it holds the instructions and protocols that can drive dramatic

growth. When organic growth is hard to achieve and growth strategies wither and die, look to the corporate

culture. Transformational leadership sees to it that the corporate culture contains the elements that continually support a stream of dramatic growth.

— NATHAN O. ROSENBERG FOUNDING PARTNER, INSIGNIAM

LETTER

INSIGNIAM QUARTERLY 1

NFINDING THE FACTORS THAT FUEL GROWTHNo one disputes the science behind Mother Nature’s growth process. For plant life to flourish, the necessity of sunlight, water, and nutrients can’t be argued.

So why would we go about enterprise growth with any less certainty? After all, we have conducted thorough research to unearth the factors that lead companies to not just survive, but thrive. These prerequisites to growth can then be incorporated at every level.

Take corporate culture, for instance. Some may think that culture is too intangible to be molded. Yet our research, described in this issue, outlines nine specific facets of corporate culture and how they must be oriented for abundant growth. This, in turn, provides a clear road map for executives.

The same can be said for leadership. When executives fight inhibitory factors such as corporate myopia, and embrace risk and creative processes, growth through innovation is around the corner.

A quick glance at Fortune 500 companies reveals some truly exemplary case studies in growth, such as that of Cardinal Health, which ranks No. 22 on the esteemed list. Our in-depth interview with our cover subject, Donald Casey Jr., the CEO of the company’s medical segment, reveals how Cardinal Health has positioned itself for expansion during a time of unprecedented change in the healthcare industry. In many ways, Casey’s approach has taken into consideration the 10 disruptive forces in healthcare we identify in this issue, and Cardinal Health is now excelling into the future.

Even when an organization is riddled with apathy, suffering from dwindling profits, and facing a seemingly inevitable demise — we’ve found a fertile breeding ground for opportunity. We visit with turnaround expert and Arcadis U.S. CEO John Jastrem, who outlines what to do when it seems like the enterprise is out of options.

The truth is that, given the right tools and information, any company can take decisive action that will lead to expansion. And in that vein, I present our spring 2015 issue, which considers the many sides of corporate growth from multiple perspectives. Dramatic growth only appears to be just out of reach, and here at Insigniam, we eagerly look forward to partnering with you in the journey to achieve new corporate goals.

SPRING 2015

Shideh Sedgh BinaFounding Partner, Insigniam

SPRING 20152 INSIGNIAM QUARTERLY

46 10 DISRUPTIVE FORCES IN HEALTHCARE Insigniam Extensive research has unearthed the factors most affecting healthcare and the related steps companies can take to succeed.

48 GROWTH THROUGH ADVERSITY Stacey ClosserTurnaround expert and Arcadis U.S. CEO John Jastrem explains how you can transform disaster into untold success.

52 GROWTH WITH AN ACCENTJoe GuintoFrom cheeseburgers to lattes, The Coffee Bean & Tea Leaf CEO John Dawson understands how to transform domestic brands into global enterprises.

58 ORGANIC GROWTHRob CalderinAn in-depth look at the pathways to achieving organic growth, a top priority of C-suite executives in 2015.

FEATURES

THE HEART OF THE MATTER Chris WarrenAs the CEO of Cardinal Health’s Medical Segment, Donald Casey Jr. has positioned the company for dramatic growth through an innovative approach to the changing healthcare market.

COVER STORY38

TABLE OF CONTENTS

SPRING 2015 INSIGNIAM QUARTERLY 3

EDITOR-IN-CHIEF Shideh Sedgh Bina

[email protected]

EXECUTIVE EDITOR Nathan O. Rosenberg

[email protected]

CHIEF FINANCIAL OFFICER Ralph Gotto

DIRECTOR OF WORLDWIDE Karen Turner

CLIENT SERVICES [email protected]

DIRECTOR OF SPECIAL PROJECTS Alexes Fath

GENERAL MANAGER Jas Robertson

PRESIDENT Paul Buckley

EDITORIAL DIRECTOR Amy Robinson

[email protected]

MANAGING EDITOR Brian Keagy

CREATIVE DIRECTOR Kyle Phelps

[email protected]

ASSISTANT ART DIRECTOR Emily Slack

PRODUCTION MANAGER Pedro Armstrong

IMAGING SPECIALIST John Gay

ACCOUNT DIRECTOR Cory Davies

EDITORIAL QUERIES

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Insigniam Quarterly is published by D Custom, 750 Saint Paul Street, Ste. 2100, Dallas, Texas 75201. Copyright 2015 by Insigniam. All rights reserved. Letters to the editors may be sent to Insigniam Quarterly c/o D Custom, 750 Saint Paul Street, Ste. 2100, Dallas, Texas 75201. No part of this publication may be reproduced in any form or by any means without prior written permission of the publisher and Insigniam. Printed in the U.S.A. Magazine patents pending. For subscriptions, please visit www.insigniamquarterly.com.

QUART E R LY

VOLUME 3, ISSUE 1 | SPRING 2015

“We talk about it a ton. What are we doing to help our customers with their biggest challenges every day?”

— DONALD CASEY JR., CEO, CARDINAL HEALTH MEDICAL SEGMENT

THE TICKERInnovating your way to growth.

TOP LINEIndustries and markets experiencing explosive growth.

BLOOD, SWEAT & TEARSImplementing a global shared services department to produce international growth at The Hershey Company.

THE BOARDROOM Is your company using an outdated model for board of director involvement?

IQ BOOSTBuilding a passion for growth.

040810

14

64

18

24

28

32

DEPARTMENTS

On the cover:Cardinal Health Medical Segment CEO Donald Casey Jr.

VO L U M E 3 , I S S U E 1 | S P R I N G 2 015

SPECIAL FORCES Arcadis U.S. CEO and turnaround expert John Jastrem on transforming disaster into success.

COFFEE WITH AN ACCENTThe CEO of The Coffee Bean & Tea Leaf on expanding your enterprise overseas.

AN INSIDE PERSPECTIVE ON DRIVING GROWTH ADMID THE DISRUPTION OF THE GLOBAL HEALTHCARE MARKET

™

FORWARD FACINGCardinal Health

Medical Segment CEO Donald Casey Jr. is

leading his company into the future.THE HEART

OF THE MATTER

Insigniam and its publisher, D Custom, distribute this editorial magazine to share the opinions and insights of companies and their leaders on impactful global business issues. Insigniam Quarterly’s inclusion of a company or individual does not indicate that they are a client of Insigniam. Remuneration is not provided for editorial coverage. Individuals appearing in Insigniam Quarterly have done so with direct consent, or provided consent by a designated authorized agent in addition to being disclosed on the magazine’s audience and purpose.

MINI-FEATURES

™

LEADERSHIP FOR EXPLOSIVE GROWTHHow executives can build on enterprise strengths to create a process that leads to innovative growth.

UNLEASH CULTURE TO FUEL GROWTH Aligning the nine facets of corporate culture to prime any organization for success.

GROWTH FACTORS: TOP 10 EMERGING MARKETS An analysis of the major factors fueling the growth rates in these top emerging markets.

INVENTING GROWTHMove past traditional means of acquiring growth by developing an organization geared toward innovation.

THE TICKER

NO TOYING AROUND: LEGO’S ALL-STAR COMEBACK

esearch shows that children are spending less and time playing with LEGO bricks every year. Thankfully, LEGO corporate leaders are well aware of this trend — and that’s exactly why creativity is flourishing at the company, sales are booming, and the business surpassed rival Mattel to become the largest toy manufacturer in the world by revenue and profit in 2014. A firm believer in experimentation, LEGO has given its executives a simple mission: to routinely reinvent the business from the bottom up. Through the introduction of films, video games, apps, and augmented-reality experiences, senior leaders have quickly embraced that mandate.

It bears remembering that disruption didn’t always come naturally to the company. Thirteen years ago, LEGO was on the verge of stagnation, culminating in a disastrous 2002 holiday

season when 40 percent of its retail stock went unsold. So the company decided to slash costs and get back to basics. It doubled down on its core competency: mastering the mechanics of play. Conducting groundbreaking research on how children play, LEGO quickly gained insights few companies possessed. It parlayed these insights, along with its flair for design and cutting-edge R&D, into a rapid-fire barrage of new ventures and quickly staged an all-star comeback.

Recently hailed by Fast Company as “the Apple of toys,” the organization no longer sees itself as being in the business of playthings. Rather, recognizing that children no longer make meaningful distinctions between physical and digital interactions, it has repositioned itself as being in the business of “play experiences.” Poised to unleash an onslaught of groundbreaking new ventures from free motion-tracking games you can play with a wave of your hand to massive internet-ready apps, it just goes to show… even when the basic building blocks of a business seem to be crumbling, clever recombination is all it often takes to piece them back together.

11,755

$80 MILLION

$4.6 BILLION

LEGO’s 2013 revenue, which has more than doubled since 2009,

when it was $2.1 billion

Amount of money spent each year on R&D in 2013, up from $52 million in 2009.

Number of LEGO employees in 2013, an increase from 7,286 just four years prior.


Studies of the world’s most successful firms show that the fastest way to unlock your organization’s creativity and growth potential is through simply providing employees with f lexible platforms for brainstorming, sharing, and executing new ideas. An increasing number of business leaders, from Wells Fargo to Unilever, are embracing these collaborative brainstorming principles. Nearly a fifth of all enterprises now use cloud computing and websites to innovate — just one of many tools for capturing worker suggestions. But what’s even more eye-opening is how market leaders are using these tools to drive continuing growth and success.

For example: At big data leader EMC, business units pose pressing strategic problems to employees to solve via innovation contests. Workers can suggest solutions, source feedback, and vote for winning ideas online, which are transformed into real-world prototypes. Strikingly, though, many of the firm’s best new innovations are happening when employees independently team up to bring failing ideas to life. At personal finance-software developer Intuit, leaders go one step further. Employees can propose ideas, secure staffing and resources, and actually go to market with pilot programs, sans management approval — and dozens of revenue-generating features and products have resulted. Even government

THE POWER OF THE PLATFORM

agencies such as NASA and the Federal Trade Commission are now using crowdsourcing portals like Challenge.gov and offering cash prizes to the public for creating new, business-ready solutions. So the next time you want to spark ongoing growth and success? It frequently pays to get a second — or even 200th — opinion, just as the world’s most celebrated business leaders do.

INNOVATE FASTERWhen it comes to innovation, less is often more. According to a recent book Make Change Work for You: 10 Ways to Future-Proof Yourself, Fearlessly Innovate, and Succeed Despite Uncertainty, evolutions and slight shifts in thinking can be every bit as powerful as revolutions and game-changing breakthroughs. Here are five ways you can rapidly drive innovation in your enterprise without huge investments:

Constantly experiment with new products and strategies, iterating and improving, based on the results you get from the market.

Always look for ways to reposition your products toward new customers. Ask yourself: Who else might want our solutions? What new problems can we solve?

Build an environment that encourages colleagues to bring new ideas to light, and look for insight from unusual places — customers can be your best source.

Share information freely through departments. When teams are aligned, you can more easily bring about innovations.

Play a portfolio of strategic bets and innovative new ventures: These efforts can help you continually learn, grow, and stay ahead of the pack.


THE TICKER

INNOVATION FOR BREAKFASTWhy not start the day with a fresh, piping hot cup of oatmeal — served straight from your Keurig coffeemaker? Thanks to food manufacturer General Mills and the magic of open innovation, the choice is yours. With sales of cold cereals (representing about 22 percent of the firm’s U.S.-based business) down as much as 10.7 percent from 2003 to 2013, the company recently faced a difficult choice: Adapt or decline. With an increase in customers’ demand for grab-and-go convenience, the rising popularity of fast-food retailers’ $3 drive-through oatmeal cups, and the decrease in the amount of time most have to sit around the breakfast table, the company realized it had an

opportunity: It could use booming sales of single-serve coffeemakers as a way to reach today’s time-strapped customer. After internal brainstorming sessions, innovation teams created an early sketch of potential solutions. They then presented prospective ideas to their network of suppliers, and external vendors quickly came up with flavoring recipes, packaging, and prototypes. Following successful concept testing — General Mills setup a lemonade stand-style display in Minneapolis malls — its Nature Valley Bistro Cups quickly served up rapid success. As soon as the cups were launched on Amazon, they sold out; and they’re now carried in over 6,000 retail stores.

The next time you feel like the boss is looking over your shoulder at work, consider this: She could be sharing your desk instead. In fact, at industry-leading software developer Menlo Innovations, which has a roster of all-star clients such as AAA and Domino’s, teamwork is the most important driver of business growth. Two workers share every computer in the office, and partners and projects shift weekly, which makes for an unusual fit as senior executives and junior interns must often learn to cowork. But this switching system (borrowed from the airline industry) is no laughing matter. It not only helps facilitate creativity and innovation, it also helps open employees’ eyes to new perspectives. Through direct, hands-on mentorship and learning, workers are exposed to new influences, ingrain vital leadership skills, and facilitate ongoing knowledge transfer. Just how successful is Menlo’s buddy system? Ask the thousands of executives from firms ranging from Thomson Reuters to Toyota who now visit the business to learn from its strategies.

AT MENLO, EVERYONE STANDS TOGETHER

Menlo’s “switching system” is borrowed

from the airline industry.

6,000NUMBER OF RETAIL

STORES CARRYING THE NATURE VALLEY BISTRO

CUPS

22%OF GENERAL MILL’S

BUSINESS IS IN COLD CEREALS

Here’s how three leading organizations used the power of changing perspective and iterative growth strategies to quickly solve problems and create powerful results.

SIMPLE SHIFTS; HUGE WINDFALLS

AD

TARGETWhen retailer Target wanted to

increase revenues, it didn’t open more giant strip-mall outlets. It introduced pint-size CityTarget stores in highly trafficked urban areas selling locally branded merchandise and household goods (e.g. paper towels) in smaller packages. The concept’s been so successful that the chain has doubled the number of these stores in one year.

UNITED AIRLINESWith an average of 5,200 flights to 369

destinations a day, United Airlines is often faced with unforeseen weather delays and cancellations. During events such as these, it once took three to five minutes to rebook each inconvenienced passenger, even with a team of hundreds of agents. At a customer’s suggestion, United introduced an automated rebooking system that tracks flight progress — and in the wake of delays, the system can now reroute customers in just three seconds with no human interaction required.

MASTER LOCKThreatened by a flood of low-priced

foreign competitors, the padlock maker sought out niche markets for new products where it could exercise its brand-name advantage — continually repositioning these products until they reached max performance. For instance, a steering-wheel lock that initially failed when targeted at mainstream auto owners proved hugely successful when rebranded as a security device for trailers and towing vehicles.

PDMA2015PDMA2015ANNUAL CONFERENCENovember 7-11, 2015Disneyland HotelAnaheim, California

8 INSIGNIAM QUARTERLY SPRING 2015

TOP LINE

BY THE NUMBERSCOMPILED BY GEOFF WILLIAMS

$18 BILLIONThe amount of profits Apple earned in the first fiscal quarter of 2015, one of the highest in corporate history.

6,000%Uber’s growth in the

last five years. By mid-2014, the company was

valued at $18 billion.

750%Airbnb’s growth in the last five years. It’s now worth

$10 billion. Much of the reason for Apple’s growth in that quarter was due to this country. Revenue in China grew 70 percent.

ROBOTICS$15 billion in 2010

and expected to be $67 billion by 2025.

FITNESS$24 billion in 2015 and

expected to grow 23 percent in the next 10 years.

3-D PRINTING$3.8 billion in 2014 and projected to be

$16.2 billion by 2018.

ONLINE RETAIL SALES$263 billion in 2013 and expected to be $414 billion by 2018.

CHINA

INDUSTRIES EXPERIENCING EXPLOSIVE GROWTH

INSIGNIAM QUARTERLY 9SPRING 2015

36.1%Indian budget airline IndiGo’s current market share. Since its first flight took off in 2006, the innovative carrier has become the fastest-growing and largest airline company in India.

Ulta Beauty, based in Bolingbrook, Illinois, has tripled

its store count to 765 since 2007. In the third quarter of 2014, the

cosmetics company saw:

7.2 PERCENT AND 7.5 PERCENTProjections for India’s growth, this year and next. Next year, it’s expected that India will be the world’s fastest-

growing large economy.

THE GROWTH AND DEVELOPMENT OF PEOPLE IS THE HIGHEST CALLING OF LEADERSHIP.— HARVEY S. FIRESTONE, FOUNDER OF FIRESTONE TIRE AND RUBBER COMPANY

JET

GR

OU

P

IND

IGO

SPIC

EJET

AIR

IND

IA

GO

AIR

A 30 PERCENT INCREASE IN PROFIT.

A 21 PERCENT INCREASE IN REVENUE.

A 59 PERCENT INCREASE IN STOCK PRICES.(OVER 2014)

COMPANY GROWTH PROFILE

*ACCORDING TO THE WASHINGTON POST.

Founded by Milton S. Hershey in 1894, The Hershey Company has one of those enviable brands that people flock to — literally. Tourists from around the world descend on the small Pennsylvania town the company has called home since

1905 (the company started in Lancaster, Pennsylvania, in 1894) to visit Hershey’s Chocolate World to learn how chocolate is made and enjoy the (non-chocolate-fueled) rush to be had on the roller coasters and other rides at Hersheypark.

While few companies can brag that their consumers travel great distances to interact with their brand, six years ago Hershey executives were pondering how more of the company’s candy could return the favor, especially overseas. Indeed, while Hershey products — which include over 80

brands, such as Hershey’s Milk Chocolate Bars, Hershey’s Kisses, Reese’s Peanut Butter Cups, Jolly Rancher, Ice Breakers mints, and Brookside dark chocolates — were already sold in 50 countries around the globe, the majority

THE INSIDE OUT GAME

SPRING 2015

BLOOD, SWEAT & TEARS

To help the Hershey Company seize its global potential, Jeff Kemmerer first had to address unease and tap the talents of employees at the 121-year-old brand.BY GEOFF WILLIAMS

10 INSIGNIAM QUARTERLY

SPRING 2015

of its customers were in North America. The company’s executives understood that sustainable

growth required an aggressive push into dozens of new global markets. While a big component of success in reaching large numbers of consumers in places like China and India required understanding and adapting their products and marketing messages to suit local tastes, Hershey’s C-suite also understood that in order to flourish they would have to recalibrate some of their own internal infrastructure and operations.

Case in point: In order to serve its existing international customers, Hershey already had an international division with multiple off ices and manufacturing plants located around the globe, in places like Canada, Brazil, China, and Mexico. But that meant there was also a lot of redundancy and wasted resources involved with each country handling its own payroll, IT, shipping, and transportation. That sort of inefficiency could easily take an oversized bite out of the growth and profits it hoped to secure by attracting new customers around the world. The answer to this dilemma: the creation of a global shared services (GSS) department to uniformly handle these important responsibilities everywhere Hershey operated. In other words, GSS was a way for global Hershey operations to speak the same language internally so that the company could be more effective at pursuing the polyglot, often-complex international markets essential for growth.

UP FOR A CHALLENGEAlmost by definition, the establishment and smooth

functioning of GSS at Hershey would be simultaneously a complex task and, if done right, one that relatively few people at the company would even notice. That is, taking disparate and essential functions and processes occurring in far-flung corners of the world and making them uniform is a job that would only get someone noticed if it didn’t work.

To take on that formidable responsibility, Hershey’s then-CEO David J. West, who has since left to head up Del Monte, turned to 23-year company veteran Jeff Kemmerer. It was a logical choice. During his tenure at Hershey, Kemmerer had established a reputation and a track record as someone who was eager to take on tough projects. “Every time they’ve

EVERYTHING’S BEEN OUT OF MY COMFORT ZONE, AND SO EVERY TIME I BECOME COMFORTABLE, THEY’VE SAID, ‘OK, NOW WE’D LIKE YOU TO DO THIS.’

—Jeff Kemmerer, vice president of global shared services at The Hershey Company

come to me and asked me to take on a new challenge, I’ve always said, ‘yes,’ and each experience has been better than the previous one,” says Kemmerer. “Everything’s been out

of my comfort zone, and so every time I become comfortable, they’ve said, ‘OK, now we’d like you to do this.’”

Kemmerer had already shown an ability to lead and manage major change that involved unifying myriad processes. As director of Hershey’s Enterprise Solutions Center, a group charged with continuous improvement of integrated business processes, Kemmerer saved the company $20 million by instituting best practices and improving business and accounting processes. Additionally, Kemmerer spent two years as the director of Hershey’s sales f inance organization and then three-plus years as vice president of finance for Hershey Canada, Inc.

NOT JUST ABOUT THE NUMBERSWith his accounting and finance background, Kemmerer

clearly had a knack for understanding the numbers and metrics he needed to focus on to make GSS a success. But what was harder to predict — and every bit as important — was the human part of the equation. Would the employees Kemmerer needed to create a shared services organization be willing to embrace a fundamentally new course? “Jeff had the foresight to understand that while processes, systems, and structures are obviously important in most significant organizational changes, it is unquestionably

$7.4 billion in 2014

$5.3 billion in 2009

HERSHEY’S TOTAL REVENUE


BUILDING THE FUTUREKemmerer didn’t need to worry. As a result of his openness,

he didn’t have to contend with negative fallout from the announcement. But he also believes that transparency allowed him to build both trust and genuine enthusiasm for what GSS meant for Hershey.

“Jeff ’s commitment to building trust, being authentic and transparent, and taking risks demonstrates the kind of leadership required to be successful in an enterprise-wide change initiative,” comments Bonnie Wingate, partner at Insigniam. “The rewards can be significant, as they were with Hershey’s growth outside North America.”

Kemmerer knew that GSS was moving beyond its challenging transition period into one where a new culture

could be built when he started f ielding employee questions that had nothing to do with the safety of their jobs. “They were asking, ‘Can I play music?’ ‘Can I eat lunch at my desk?’ Every

SPRING 2015

BLOOD, SWEAT & TEARS

the people involved in and effected by the change that ultimately determine whether it will succeed or fail,” says Jon Kleinman, Insigniam partner.

Kemmerer began working on GSS as the vice president of the division in August of 2009. And although he took his time learning all about the existing processes and strategizing what changes would be necessary, he also knew from the beginning it would entail a substantial culture shift and a restructuring that would inevitably include job cuts. So, too, did the staffers he managed. “Whenever I’d introduce the shared service concept, many employees would say, ‘Just tell us who has a job and who doesn’t,’” he recalls. Kemmerer’s initial response to those questions was an indication of the sort of transparency and openness he now sees was essential to the successful establishment of GSS. “I don’t know. I need your help to figure that out,” he told anyone who asked about job security.

Which is not to say that a commitment to transparency didn’t mean that there weren’t bumps and lessons to learn along the way. During an initial two-day working session with the 140 employees who first populated GSS, Kemmerer learned that his employees fell into one of three categories: those who understood and cheered the wisdom of GSS, those who were ambivalent, and those who were steadfastly against the change GSS represented. “They were never going to buy in. You can’t worry much about them,” Kemmerer says now, though he admits that he wasn’t as forceful as he should have been with the dissidents. “I should have been more aggressive at identifying the blockers faster, the ones who don’t have the potential to grow.”

What he did do, though, was focus his attention on those who were uncertain about GSS and what it meant to them individually. Kemmerer regularly had lunch with 15 to 20 of those employees as a way to demonstrate that he genuinely wanted to hear their concerns and ideas. It didn’t start well. “I got a lot of blank stares,” he says about the first lunch meeting. But by being consistent about soliciting their input, a rapport, trust, and enthusiasm began to build. “They were asking me, ‘What about this?’ ‘Have you considered that?’” he recalls.

The cohesion Kemmerer was steadfastly building paid dividends when he let his lunchmates know that he would need to eliminate 30 to 40 positions. After hearing his explanation, his employees asked if they could share the news with their coworkers. Committed to transparency, Kemmerer said, “yes,” though he quickly had second thoughts. “I was sick to my stomach,” he says. “I thought, ‘What have I done?’”

Tourists from around the world flock to Hershey, Pennsylvania, to visit Hershey’s Chocolate World and Hersheypark.

12 INSIGNIAM QUARTERLY

SPRING 2015

conversation was about the work environment instead of whether a position would be eliminated,” he says.

What Kemmerer told employees not only answered their specific questions, but also helped lay the groundwork for the sort of culture he knew would be essential for GSS to flourish. As long as what they did at their desks didn’t negatively impact others, he had no problem with it. It was a way of reinforcing the idea that employees feel independent and empowered. “Every employee of shared service is a leader,” he says. “You don’t want employees waiting to be told what to do. We wanted an empowered environment.”

Six years after the launch of GSS, not all questions about the division’s role have been sorted out. There’s an ongoing and healthy debate about what work GSS should handle and what individual departments at Hershey should take on. And Kemmerer has been careful to tie the growth of GSS to that of the departments they serve.

Yet what is not in question is how GSS has helped fuel Hershey’s international growth. Hershey has seen its sales grow from $5.3 billion in 2009 to $7.4 billion last year,

and the company has now set $10 billion as its target. The most rapid growth has come from outside the United States, with Hershey now selling its products in 70 countries.

Nor is there any question in Kemmerer’s mind about what makes this kind of growth possible: people. “Employees are your most important asset, and you have to act that way even when you make difficult decisions, like letting a person go,” he says. “You first care about the person and focus on them being successful.”

In his own way, Kemmerer has helped expand Hershey’s reach around the world. And who knows, it might even mean a few new languages will soon be heard at Hershey’s Chocolate World and Hersheypark.



With implementation of the Sarbanes-Oxley controls now in place at most publicly held companies, many boards of directors are shifting attention to issues that are more likely to grow revenues and profits. A McKinsey survey (“The View From the Boardroom”) supports this shift in concluding that one-third of the company directors surveyed want to spend significantly less time on audit and compensation issues.

Many directors have expressed a desire to become more involved with their company’s strategic growth planning. The McKinsey study found that 75 percent of the directors surveyed want to spend at least a quarter of their board time dealing with the company’s business strategy, its risks, and maximizing growth opportunities.

Though just one survey, these conclusions support what many of us see in the boardroom every day: The pendulum of topics commanding directors’ attention is swinging from oversight and compliance back to where it should be focused on the company’s growth plans. Boards do their jobs best when challenging the CEO to grow revenue, asking questions, and vetting the strategic plan. That’s how directors increase shareholder value.

The attention of boards of directors is swinging away from oversight back to where it should be, focusing on company growth. BY JOHN REHFELD

THE COMPANY DIRECTOR’S ROLE IN COMPANY GROWTH

THE BOARDROOM


CHANGING THE BOARD’S TRADITIONAL ROLEThe following chart illustrates what traditional boards

viewed as their role. Notice that the board stayed at approving and monitoring the company’s business strategy rather than helping to formulate and implement.

THE BOARD OF DIRECTORS’ TRADITIONAL ROLE IN STRATEGY

However, if directors truly wish to become more involved in their company’s growth strategies, as shown in the McKinsey survey cited above, the simplest way to engage the board is to put the growth plan first on the agenda. This keeps oversight, regulatory compliance, and general governance activities from monopolizing the entire schedule, thereby giving priority to the discussion of strategy formulation and implementation.

Since the board chair cannot allow a single topic, no matter how important, to occupy the entire agenda, the smartest way to accomplish the goal of a full and complete discussion of the company’s growth plan is to talk about it in bite-size segments throughout the planning cycle. Such quick, intense exchanges between the board and management strengthen overall strategy and ensure that the resulting growth plan is grounded in reality.

GETTING BOARDS OF DIRECTORS INVOLVED: CASE STUDY ADVANCED MEDICAL OPTICS

Most directors of Advanced Medical Optics (AMO) of Santa Ana, California, are intensely involved with specific

senior executives through AMO’s director/executive mentoring program. This program matches each of several senior executives with particular directors in that executive’s area of concentration and provides a forum for their regular interaction. The purpose is to mentor the executives and to get the company’s board of directors more closely involved. As a result, key board members of AMO are involved with strategy formulation.

CEO Jim Mazzo keeps AMO’s entire board informed throughout the planning process. Each discussion of the growth plan is short, concise, and informative. The directors learn what the growth strategies team is considering. Directors get to offer opinions and ask questions, thereby taking co-ownership of the process with management. The primary benefit is that by the time AMO’s strategic plan is completed, it drills into the smallest, most critical details needed to make the plan successful. It answers the critical question, “How will this strategy make more money than the plan costs to implement?”

RECRUITING BOARD TALENTThe days of the CEO’s buddies populating boards are

past. Today’s directors are often experts in their own right. They are chosen for their experience and capabilities. With this background, board members who insist on being treated as talented, expert resources improve the formulation, approval, and monitoring of business strategies while leaving implementation of strategy to the management team. Today’s skilled directors now drive the strategic growth plan by drilling down on the link between employees’ skills and competent management.

GROWTH THE KEY STRATEGYMost companies have as a strategic objective to grow

faster than the overall market. To do this, they must unseat market share from competitors or identify niche areas of faster growth within the overall market. Not only must the strategic plan clearly identify how this growth will occur, but regular board discussions should also track progress toward achieving this objective.

MID-COURSE CORRECTIONSBut what if things go south? Directors don’t want a

growth plan that assumes the company is like a truck driving through a town where every traffic light is green. They want a plan that shows what happens when specific contingencies occur. Often scenarios planning “if this happens, then we do X, and here’s the impact,“ provide all

BOARDAPPROVE MONITOR

MANAGEMENTFORMULATE IMPLEMENT

DIRECTORS’ TRADITIONAL STRATEGY ROLE


the insight necessary. Certainly, directors need the business and industry background to know what critical questions to ask and how to accurately interpret the responses. Such questions frequently facilitate healthy board discussion. They often take the following forms:

6 What are the potential upside and downside of specific contingencies?

6 What is the probability of each? 6 What events must happen for the upside or downside

contingency to occur? 6 Can the board of directors control any of the

contingencies? 6 What are some alternatives and options for dealing

with contingencies, assuming the best case and worst case scenarios?

HARNESSING BOARD TALENTS: CASE STUDY PRIMAL SOLUTIONS

Getting the board involved in formulating, approving, and monitoring the company’s strategy engages directors’ often ignored capabilities. A good example is the management of VoIP software producer, Primal Solutions. Management quickly realized that the board not only wanted to participate in strategy formulation, but that its members also had more experience in formulating business strategy than did many management teams of companies considerably larger than Primal Solutions with its $10 million in sales.

Primal Solutions’ CEO asked the lead director and one advisory council member to work with the management team to formulate the company’s business strategy. Together, they filled specific experience gaps. As directors, their intent was to guide, help avoid pitfalls, and empower the CEO throughout the process. Their role was to stay in the background and support the discussions rather than to dominate them.

Five members of the management team, a member of the board of directors and an outside facilitator shaped Primal’s business strategies and the plan to achieve them over one two-day meeting and three subsequent one-day meetings. The board member’s presence added to the sense of urgency and seriousness that the project demanded.

The resulting strategic plan reorganized the company into two different business units. The plan also recommended some strategic personnel changes needed to implement the plan. These changes would not likely have occurred as quickly had the strategic plan not been treated as a blueprint to be followed by management and monitored by the board.

Primal Solutions’ approach succeeded because they

followed these important rules:

6 Schedule significant time — several full days in this case — to hold meaningful conversations.

6 Create an atmosphere that makes the strategic planning team feel like it’s okay to challenge and question assumptions, and it’s okay not to know the answer, because we’re all working toward a common goal: to increase shareholder value.

6 Review the broad competitive landscape and alternative market scenarios.

6 Hold subsequent meetings to review and approve each stage of the strategic growth plan.

6 Devise a scheme to measure specific metrics used to track plan implementation and performance.

6 Reserve significant parts of each board meeting to devote to the company’s growth strategy.

6 Benchmark and monitor the company’s market position compared to that of its competitors.

6 Identify and track the two or three capabilities that are critical to achieving success.

TAPPING THE BOARD OF DIRECTORS’ SPECIAL TALENTS

Two simple questions that are very important to formulating the company’s strategic plan can help identify possible shortfalls in the board’s capabilities:1 What essential areas of expertise, technical know-

how, and experience does the growth plan require?2 What inventory of this expertise, technical know-

how, and experience does each board member bring to the table?

Getting the answers to these questions may require a competency assessment either by the board itself or by the strategic planning team. Along with board members who have technical qualifications, directors recruited to help formulate the strategic growth plan must be evaluated regarding their attitudes, values, time constraints, abilities to work cooperatively, and desire to contribute to the team’s success.

USING AN ADVISORY BOARD: CASE STUDY SONIC FOUNDRY

What if the board doesn’t have the necessary qualifications to help with the strategic growth plan? It is difficult to quickly change the composition of the statutory board. However, a company can swiftly create and enable an advisory board with relevant experience and industry contacts.

THE BOARDROOM


A good example of this is Sonic Foundry (SoFo), a company that created a real-time multimedia presentation recorder and web communications system. SoFo’s growth strategy requires them to cross the chasm by moving sales from customers who are strictly early adopters to customers who are in the mainstream market. Since SoFo is a small company, the business strategies team consisted solely of the CEO and the head of sales and marketing. Owing to the company’s prior business and rapid evolution, the statutory board lacked the distance learning and distribution experience needed to help management create the strategic plan. Even worse, SoFo’s small window of opportunity to stay competitive didn’t allow time to recruit statutory board members who had the right backgrounds. Instead, they quickly formed an advisory board. The full 10-person advisory board meets twice a year. However, the smaller, specialized committees such as the growth strategies committee meet considerably more often.

SoFo’s use of committee members from the advisory board expanded the growth strategy team’s depth and experience. SoFo’s strategic planning process resulted in a number of key decisions being made, such as unbundling the products to make them easier to use and moving the purchase decision from their customers’ IT departments to the end users. SoFo also raised prices and began charging for features that they had once just given away. Profit margins rose.

Today, SoFo has a formalized strategic planning process that holds three one-day meetings annually and involves the management team and the advisory board. The management team reports back to the advisory board on lessons learned and actions taken. Like Primal Solutions’ board, SoFo’s advisory board members participating in formulating the company’s growth strategies are not interested in dominating the discussions. Rather, their mission is to add expertise to planning deliberations and to empowering the CEO.

MANAGING THE BOARD’S AGENDABoard meetings are busy affairs. Adding one more thing

to an already crowded agenda can be disruptive. If that additional thing is something so critical to the company’s future value as business growth strategies, then the board must create a new paradigm to manage its agenda.

Boards that want more involvement in formulating company growth strategies create a strategic review committee. This committee draws out the board’s expertise, but doesn’t take huge chunks of board time, since

the committee meets off-line, often with key members of the management team. The strategic review committee saves the board time by communicating and prompting board discussion on strategic direction, identifying and monitoring business drivers, keeping an eye on and responding to major strategic issues, and understanding the company’s competitive position all of which are among the board’s responsibilities in providing strategic oversight.

PROVIDING DIRECTORS THE INFORMATION THEY NEED

Engaged directors often first want to understand the market. They need independent information showing market size and market share for both the company and for competitors. They want to see sales trends in the market place and to identify where new customers are entering the market while the old standbys may be exiting from it. Savvy directors make the connection between those market segments and niches that are expanding and those that are contracting. They link that information with key points in the strategic growth plan and then reach their conclusions.

CONCLUSIONWith some advance attention to likely concerns and

questions, members of boards of directors gain greater confidence that the planning team has looked into all the areas that hold potential opportunity or threat for the company. Such oversight often requires individual members of the board and outside advisors with specific expertise to become involved in the strategic planning process. The board of directors empowers the CEO to lead the company’s planning process and provides a sometimes necessary assist to create the final plan. With this higher level of involvement, the board of directors has all the information it needs to thoroughly discuss the growth plan and to approve its implementation.

Look for boards of the future to become increasingly involved, not only in approving and monitoring their company’s business strategies, but also in offering concrete advice to the management team in strategic formulation and implementation. Because directors are more qualified now than ever before, expect them to use their vast experience to help grow revenues and profits.

Reprinted with permission from the Graziadio Business Review.

proprietary process for creativity and execution. To create a system that leads to better innovation and more successful marketing, executives must first know how to overcome factors inherent in organizations that all too often limit the business’ ability to grow.

1 CORPORATE GRAVITYKodak knew film, and it did film very well. It

created the industry for personal cameras. But the company did not anticipate when or how quickly the market — the very market it generated and led — would move to digital. The reason: Kodak was caught in its own corporate gravity; it was stuck in an orbit around a core product.

Too many companies find themselves in similar situations. They develop a core product or service, one that produces a growing income stream that supports much of the company. Understandably, then, companies organize themselves around that core, setting up rules, structures, and systems

Peter Drucker boldly declared that “business has only two functions — marketing and innovation. Marketing and innovation produce results,” Drucker wrote in his seminal 1954 tome, The Practice of Management. “All the rest are costs.”

The world of business has changed a lot in the 61 years since Drucker published those words. But he is still right. Executives who boost innovation or improve effective marketing — and especially those who succeed in doing both — are the leaders who will help their companies achieve explosive growth.

But that kind of growth also requires that leaders build on the inherent strengths of the enterprise to create a


BY NATHAN O. ROSENBERG AND SHIDEH SEDGH BINA

LEADING FOR EXPLOSIVE GROWTH


to protect it and keep the income stream flowing. But once the business model is organized around that

core product or service, management may begin to perceive change — specifically, change that could launch them into new markets or create new business models that eat into the core business model — as threats. Stray too far from the core, the thinking goes, and you might end up cannibalizing or even destroying the source of the enterprise’s success.

In practical terms, corporate gravity might occur when a chief financial officer sets hurdle rates for investments that are too high for most innovations to clear. To be sure, high hurdle rates will protect the core product. And while it is easy to calculate the value of an improvement to the core product or service, the CFO may get conservative when calculating returns on a new way of doing business. That often unrecognized prejudice will weigh down innovations so that they never get off the ground and find their true value in the marketplace.

Arbitrary decision-making has the same impact. Insigniam recently worked with one company that wanted

to accelerate new product launches. It had been debuting one new product every two years and wanted to dramatically change that by unveiling one new product per quarter. That required a substantial amount of product testing. But after a few months the testing ground to a halt. Why? Because the company president ignored the test results and made the call on which new products would make it to market. As a result, the employees saw no reason to champion new ideas, because there were no guidelines for knowing whether their ideas had a chance of ever being produced.

Even when guidelines are in place, corporate gravity can weigh down the creative process. For example, we consulted with a pharmaceutical company recently that experienced a drop in market share for one of its major products to No. 2 from the No. 1 position, and other products were beginning to falter. We discovered that the CEO had recently established a regulatory review panel. The team’s primary task was to make sure the company never again ran afoul of regulators. That task may have been a worthy one. But to achieve it, the review panel swung to a “no risk is


the best risk” policy and simply killed most new marketing initiatives that came before it. While not intentional, it had the effect of stopping any new creativity and the potential innovation that could follow.

2 CORPORATE MYOPIAWhen a company is unable to recognize future

value, it has developed corporate myopia. This short-sightedness may spring from judging value in a time period that is too immediate or from the inability to see value through the customer’s eyes. It is a dangerous condition. When companies can only see what’s in their immediate future and that which only relates to their current mix of products or services, they fail to envision revolutionary new ideas on the marketing or innovation side. That leaves room for competitors to step in.

A consumer goods company lost a rapidly growing category that currently generates about $500 million in annual sales due to corporate myopia. The company had the technology for what would eventually be sold as the Swiffer Sweeper. But they could not see the value in a product because they were focused too narrowly on the way that houses had been cleaned in the previous decade. Once the company passed on the Swiffer concept, a competitor bought it, redefined household cleaning, and created a new product franchise.

3 CORPORATE IMMUNE SYSTEM

The human immune system works hard to kill off foreign bodies, the things that might hurt us.

Organizations do that, too, working to kill off dangers of all kinds. That is sometimes good. But occasionally the corporate immune system simply attacks anything unfamiliar, even ideas that could breath new life into the organization.

Take the diversity issues now facing many Silicon Valley firms for example. The workforces at the top tech companies are mostly comprised of white or Asian men. In 2014, Google, for instance, employed more than 46,000 people, but just 2 percent were African-American. Inside Google’s tech division, more than 80 percent of workers were male and 60 percent of them were white. Apple, Yahoo, Facebook, and Twitter have all recently reported similar numbers.

The problem, many think, is not outright racial or gender bias on behalf of the top tech firms. In fact, the point is not gender or race; it is diversity of experience that will lead to new and better ideas. In this case, the thinking is that Silicon Valley executives and managers simply tend to recruit workers who come from the same backgrounds as themselves and have the same perspectives and styles that the executives and managers themselves exhibit. Leaders in all kinds of companies suffer from that same kind of indirect bias when they hire people who resemble themselves in one way or another.

That is what a corporate immune system does: It simply tries to replicate the sources of its prior success and all too often views anything new as a potential threat to future success. That’s a force that can greatly inhibit innovation and growth.

INSPIRE CREATIVITY AND GROWTHLeaders who want to avoid the inherent problems with the

corporate immune system, corporate myopia, and corporate gravity will want to create a process that identifies factors that inspire creativity and growth and identifies ones that inhibit creativity and growth. That method can take any number of forms, but whatever the shape, it must do three things: embrace risk, create a process for creativity, and measure the creation of value in ways other than traditional profit and loss statements.

Embrace RiskWayne Delker, the just-retired chief innovation officer

at Clorox, has long managed a massive portfolio of R&D projects, many of which are product redesigns. That could involve anything from putting grooves in Kingsford charcoal briquettes to reduce the weight of the bag and make the charcoal to burn hotter to inventing a product like the ToiletWand. “We have to simultaneously innovate across those different product lines to keep the brands healthy,” Delker said recently.

WHEN COMPANIES CAN ONLY SEE WHAT’S IN THEIR IMMEDIATE FUTURE AND THAT WHICH ONLY RELATES TO THEIR CURRENT MIX OF PRODUCTS OR SERVICES, THEY FAIL TO ENVISION REVOLUTIONARY NEW IDEAS ON THE MARKETING OR INNOVATION SIDE. THAT LEAVES ROOM FOR COMPETITORS TO STEP IN.


Clorox executives do not always know that a new product will connect with consumers. After all, before the ToiletWand, with its disposable sponges preloaded with Clorox Toilet Bowl Cleaner, hit the market, consumers had spent decades using wire-and-bristle-capped toilet brushes. Who could say, then, that the wand would be something millions would embrace?

That uncertainty and the risks associated with it did not stop Clorox, because the company trusts what Buckminster Fuller called the “profound knowledge” of its leaders, and it has a proprietary process to bring new technologies and ideas to the market while managing Clorox’s exposure to risk.

The most common mistake in regard to profound knowledge is that it presents itself as gut instinct about the industry in which you work. And all business leaders have been traditionally trained to ensure that facts triumph over gut. Leaders who are in the marketplace stand in the stream of their industry every day, with information and data flowing by them constantly. Sometimes all the data, facts, and projections one would like to be working with prove too fluid to capture. But these leaders of growth know what is out there when they have been standing in that stream long enough. The judgments made based on knowledge and wisdom gained from sustained engagement in the marketplace (even if the leaders cannot fully articulate the basis of the judgments) often turn out to be better grounds for a business decision on a new product or marketing approach than a BASES score.

Create a Process for CreativityCultivating creativity is bigger than a suggestion box.

Companies have to invest in an infrastructure that fosters innovation and gives creative ideas an outlet. Employees have to know how to take an idea and turn it into a prototype and how to move that prototype to a new product or marketing campaign.

One example that worked for one of Insigniam’s clients:

Create an office of project management and pair it with an office of project acceleration. Combined, the two are able to push a larger number of ideas through the corporate pipeline. The new innovation office created and published a proprietary innovation process that anyone and everyone in the enterprise can use.

However the infrastructure is set up, execution is key. And execution requires a culture that is focused on accountability. That does not mean “blame, shame, and credit.” Instead, accountability is a system of measuring outcomes. Just like in accounting where your balance sheet must add up correctly, there also has to be a balance in performance accountability. Think of it like this: Producing the intended result is a product of action; accountability is acknowledging the actual result and the actions taken or not taken.

Create a New ScoreboardBalance sheets and income statements are important. But

those agreed-on financial tools do not measure or show valuable developments in innovation and marketing. And, as anyone reading this article will know, the first rule of management is that you tend to get what you measure. Therefore, leaders of growth will have a metric and a scoreboard that measures, captures and displays the value generated by innovation and marketing. What is tracked and displayed on this new scoreboard is critical.

Do you value lead times? Quality control? Brand recognition? Then put those on the scoreboard. Wayne Delker invented a metric to measure ROI for R&D and reported the number at executive team meetings, just as the CFO reported earnings.

Peter Drucker first told us 61 years ago, the two and only two functions of a business that generate value are innovation and marketing. Growth leaders provide an environment that supports creativity through culture, processes, and structure, and have ways to account for the value generated by that creativity.

FACTORS PREVENTING CORPORATE LEADERS FROM CREATING A SYSTEM THAT LEADS TO BETTER INNOVATION, MARKETING — AND GROWTH.3

CORPORATE GRAVITY

CORPORATE MYOPIA

MILLION BILLION

1

2

1975

1996

2004

2012

The digital camera is invented by Kodak, which it quickly placed back in the closet. In fact, Kodak invented much of the technology used in digital imaging.

Kodak remakes itself as a digital imaging company, a decade after the first digital camera hit the consumer market.

Kodak files for Chapter 11 bankruptcy, having failed to capitalize on digital imaging due to corporate gravity.

Kodak’s revenues peak at $16 billion, but the company was not adequately prepared for the digital camera’s imminent market penetration.

$500Annual sales of Swiffer Sweeper, a product that a consumer goods company passed on because they were focused too narrowly on the way houses had been cleaned in the previous decade.

U.S. household-care market size.

$4575%

Swiffer Sweeper owner Proctor & Gamble’s hold on the quick-clean market in 2005, just 6 years after launching the cleaning aid.

CORPORATE IMMUNE SYSTEM3Percentages of jobs held on average by different groups in Silicon Valley companies Apple, Yahoo, Facebook, Google, and Twitter, which may prevent a diversity of ideas from bubbling up through the ranks.

2% AFRICAN-AMERICAN16% WOMEN

4% HISPANIC


Societies, like computers, have operating systems. These systems consist of a set of rules for human behavior and how people act. “The laws, social customs, and economic arrangements that we encounter each day sit atop a layer of instructions, protocols, and suppositions about how the world works,” says business guru Daniel H. Pink in Drive: The Surprising Truth About What Motivates Us.

Organizations have operating systems, too. Beneath the surface of the hardware (tools and structures) and software (employees and processes) is a complex set of values, arrangements, rules, and suppositions governing how the

organization works. We generally refer to this as corporate culture.

Organizational operating systems or cultures are the invisible forces driving performance. They can either propel or inhibit growth. If the culture aligns and reinforces vision and strategy, you get booming growth like at Apple or Netflix. If it’s myopic and sclerotic, you get an enterprise like RadioShack with a decline that can be traced through a long thread of

self-defeating tactics born from a cultural background that didn’t create the evolution needed to survive.

These cultural systems can be broken down into

nine distinct elements:

• Language and the network of conversations• Customer orientation• What is actually valued• Accountability and responsibility• Traditions, rituals, heroes, legends, and artifacts• Leadership dynamics• Unwritten rules for success

UNLEASH CULTURE TO FUEL GROWTHHow to align the nine facets of corporate culture to drive performance.BY SHIDEH SEDGH BINA AND NATHAN O. ROSENBERG


• Decision rights and processes• LegacyTogether these elements form the set of instructions,

protocols, and suppositions — the DNA — of the corporate organism. This DNA either primes the organization for growth, or sets it on a course of stagnation, dysfunction, and decline.

LANGUAGE AND THE NETWORK OF CONVERSATIONS

What people say aligns with how they perceive what they’re experiencing. For human beings, perception is not only physical, it’s linguistic — shaped by language. What you listen for when assessing the network of organizational conversations are the elements shaping these interactions.

Listening to what’s being said is often not enough to generate a sense of corporate cultures. You also have to be aware of what’s not being said.

For example, we once interviewed employees at all levels of a high-flying U.S. supercomputer maker in the Midwest. Throughout these interviews, we never once heard an admission that someone made a mistake or wasted the company’s money.

This told us that what was lacking in the corporate culture was a sense of personal responsibility and individual accountability.

When we relayed this to the CEO, he said, “Wow. I never would have gotten that. But the second you say it, you’re absolutely right. This is Midwest nice, and we don’t hold people to account.”

To drive growth, the patterns of conversation must shift from passive expressions such as: “It would be good if...,” “Somebody should…,” and “We need to…,” to active declarations such as “I will…,” “I promise…,” and “Would you…?”

CUSTOMER ORIENTATION How important is the customer? Years ago we had the

opportunity to participate in one of the first known corporate-culture transformations at the Ford Motor Company. We found that some assembly line workers would often strike back at management by sabotaging cars. For example, they’d put a tin can inside a fender so it rattled when the car was driven. They were using customers to animate their hostility toward management. This episode illustrates the consequences of a culture so dysfunctional that both employees and customers became completely alienated from the company and its success.


When you put employees first, it translates to the customer. After all, in the end, the customer determines your success. Ultimately, only satisfied customers can fuel enterprise growth. And customers are not abstractions.

That’s why some companies actually give the customer a name. For example, during high-level meetings at Amazon.com, CEO Jeff Bezos has an empty chair representing the customer placed at the table. And those at the table had better include the customer in the conversation when decisions are made.

WHAT IS ACTUALLY VALUEDCorporate values are not plaques on walls. They are not

posters. They’re not handbooks passed out to employees. Corporate values are what leadership consistently displays and reinforces through action. What behavior can get you fired? What actions are people rewarded for?

Rewards don’t necessarily mean bonus money. One of the misconceptions we often find among executives is the belief that without bonuses, people won’t pursue high performance. This is incorrect. In Drive, Pink relates what a team of researchers reported to the Bank of Boston in 2005 after completing a study gauging the effects of incentives on performance: “In eight of the nine tasks we examined across the three experiments, higher incentives led to worse performance.”

Clearly, something other than money drives people to achieve. Oftentimes performance of the task — the sense of striving and accomplishment — is its own reward. But this drive is fragile. It needs a hospitable environment to thrive.

A CEO we once worked with regularly composed handwritten notes to employees on his personal stationary to recognize a job well done. People framed these notes and put them up on their walls like they were plaques, because they were so proud to receive a simple handwritten note from their CEO.

But remember: Stated values and beliefs are counterproductive if leadership doesn’t walk the walk. In one organization we worked with, several of the most senior executives regularly violated values and rules explicitly outlined in the employee handbook. That destroys corporate culture. It creates cynicism. It kills growth. You’d be better off having no beliefs than stating a set of beliefs and values that executives habitually violate.

ACCOUNTABILITY AND RESPONSIBILITYTo successfully establish a growth trajectory, enterprise

leaders must strive to create a culture where people aren’t afraid

to bring bad news to leadership. If an employee has a problem delivering something that was promised, that employee should feel comfortable picking up the phone or walking down the hall to alert their superiors in a timely manner.

Agile leaders often respond by offering assistance: “Okay, how can I help you?” or “What resources do you need?” or “Let’s think about how we can solve this problem.” If an employee believes leaders are prepared to support them in a pinch, they’re much more likely to bring up problems before they escalate into crises. Such an environment fosters collaborative problem solving and allows leaders to effectively tap the human resources at their disposal.

TRADITIONS, RITUALS, HEROES, LEGENDS, AND ARTIFACTS

Traditions, rituals, and heroes animate corporate culture. These powerful elements are instilled intentionally. Who do we want to make a hero? What are the stories we want to tell? By introducing potent narratives, we reinforce and give life to corporate values.

At Home Depot, there’s a common-told story involving a customer who needed help installing an attic fan in his home. The associate provided him with the parts, instructions, and tools to do the job. But at the end of the day, the associate realized he forgot to give the customer a critical part for the installation. So he pursued the cashier who transacted the purchase, obtained the customer’s record, and contacted the customer. He then made arrangements to deliver the part to the customer’s house on his way home from work.

What does this story tell new employees? It tells them three things:

• We’re in the do-it-yourself business. Our job is to make do-it-yourselfers successful.

• Customer service is really important.• You take care of the customer.That’s all encapsulated in one story. And you make a

hero of that employee. Skip all of the buzzwords. Stories are more important. At AutoZone, the DIY vehicle-parts retailer renowned for its customer service, meetings start with reading a customer letter about an employee that went the extra mile for the customer. If you’re an organization with a high-performance culture, you instill and sustain these stories.

LEADERSHIP DYNAMICSSuccessful cultures — those primed for growth — make

clear that anyone in the organization can lead. If only senior executives can lead, you’re in big trouble. If the only person who can lead is the CEO, you’re in really big trouble. Highly


effective organizations have leaders at each and every level. When people step forward to lead, executives from the CEO on down must encourage and incentivize that behavior.

Great leaders encourage other people to lead, even if those people are not effective the first time out. They reinforce and support that behavior. True leaders are not threatened when others take the lead. Organizations saturated with leadership culture propel growth. The high-performing cultures we’ve seen have well-defined leadership governance structures with different leadership bodies across management levels, each with its own charter, accountability, and meeting cadence to instill leadership throughout the enterprise.

UNWRITTEN RULES FOR SUCCESS This element is a tough one. The only way to tease out

unwritten rules for success is by violating them. Therefore, you’re going to get a bruised forehead and a bloody nose walking into walls you simply can’t see. If you examine outcomes, these shadowy rules begin to take shape. What kinds of people succeed in the organization? How do they behave? What are they rewarded for?

But keep in mind: Unwritten rules are rules for succeeding in the company, not for succeeding in the marketplace. And these rules are oftentimes at odds. We witnessed this at a manufacturing company that was fighting market-share erosion due to new, innovative activity from one of their key competitors. They needed to come up with potent, creative marketplace moves quickly. Yet when they called meetings with their top leaders, the unwritten rules said that only those executives that ranked senior vice president and above could sit at the conference table and participate in the conversation. VPs were expected to sit in the chairs around the wall and not participate unless called upon. So much for creativity and agility in the marketplace — the thinking is constrained by one’s title or the location of one’s chair in the meeting room.

DECISION RIGHTS AND PROCESSWho gets to make decisions? Who has the authority to

make changes in a process or shift direction? In many large organizations, nobody knows the answer to these questions. And to the degree that nobody can intelligently answer these questions, you’ve got a problem. If employees want to change something in the company to make a process better, how do they know if they have the right to do so? And if not, who does? Too frequently the answer is, “I don’t know.”

Sometimes leaders refuse to grant people on different levels of the organization with decision-making rights, because they

are afraid people are going to screw up. Sometimes the drive for immediate results leads to decision rights rising to the top—thus reducing risk for the senior levels while shrinking the range of motion of those closest to the market. In an extreme case, we witnessed a $14 billion global company where every contract over $25,000 had to be personally signed by the CEO and any travel expense over $500 had to be approved by an executive committee member. This culture of thrift drove attention and action toward chasing literally every dollar and away from serving customers and executing on critical tactics. Too much management and control indicates bad management. Without the ability to execute on new ideas and innovative changes, employees will give themselves over to a culture of complacency, rather than working hard to continuously improve the way they do business.

LEGACY Having a mission statement or credo is important. So is the

informal and formal storytelling that populate an enterprise. This means more than a poster on the wall; it helps everyone throughout the organization align and make decisions. Johnson & Johnson maintains an impressive decades-long commitment to its credo. This four-paragraph statement written in 1943 by then-Chairman Robert Wood Johnson clearly states what is important and the responsibilities of the enterprise, and it outlines the focus of this $65 billion mega-corporation. “We believe our first responsibility is to the doctors, nurses, and patients, to mothers and fathers and all others who use our products and services” and then moving on to employees and communities, and ending with stockholders. By stating and codifying a clear ethos, J&J provides all of its employees with a consistent set of criteria to use as a benchmark for decision-making — the same criteria executives use to guide their decisions — which only serves to empower employees to deliver on stated objectives. The company invests significant money and time into monitoring its adherence to its credo and boasts premier performance among its competitors.

THE CULTURAL MOLECULEWe call each of these facets “elements” because they

come together to create a molecule—the DNA that drives corporate culture. When combined, these elements contain the instructions and protocols that can drive dramatic growth. When these elements lose their power, the organization begins to whither and degenerate. The culture becomes counter to what you want to accomplish and organic growth become harder and harder to achieve.


SOURCE: INSTITUTIONAL INVESTOR

GROWTH FACTORS: The Drivers Behind 2015’s Top 10 Emerging Markets

The growth rates of emerging markets were forecasted to slow to an average of 4.4 percent in 2014, down from 7.5 percent in 2010 according to the International Monetary Fund. But not every country is suffering. Some markets have been

insulated against outside forces, such as dropping commodity prices, through strong internal policies, among other factors. Here, we take an in-depth look at the environments fostering the strong growth of the top 10 emerging markets.

QATAR

$16 billion, cost of Hamad International Airport, opened in 2014, which promises not only global travel, but also 70 retail shops

2022, the year Qatar will host the FIFA World Cup, driving infrastructure improvement projects including road systems, a metro system in Doha, stadiums, and arenas

85 percent of export earnings come from oil and natural gas, making the country vulnerable to unstable prices

1

6.5 PERCENT, 2014 GROWTH RATE

7.7 PERCENT, PROJECTED 2015 GROWTH RATE

7.4 PERCENT,2014 GROWTH RATE


10.4 percent, the growth rate of China in 2010, which has since slowed to 7.4 percent in 2014

4 million yuan, the amount paid on the 89.8 million yuan due when Chinese company Chaori Solar defaulted on its bond note in March 2014, raising concerns about how China would balance market liberalization with financial stability

November 2014, the month Shanghai-Hong Kong Stock Connect launched, which opened up the Shanghai Stock Exchange to international trade for the first time and allows mainland investors to buy Hong Kong stocks

CHINA 2

GROSS DOMESTIC PRODUCT GROWTH (IN %) PER THE IMF

Country 2014 2015Qatar 6.5 7.7China 7.4 7.1India 5.6 6.4Philippines 6.2 6.3Indonesia 5.2 5.5Malaysia 5.9 5.2Peru 3.6 5.1Thailand 1.0 4.6Colombia 4.8 4.5United Arab Emirates 4.3 4.5


1947, the year India last implemented large-scale tax reform. The new goods and services tax, which is scheduled to take effect in 2016, will replace indirect taxes placed on goods and services by the central and state governments and is expected to increase growth

30 percent, the amount the Bombay Stock Exchange S&P BSE SENSEX has risen since the beginning of March 2014, when it looked certain that the business-minded Narendra Modi would be elected prime minister (he won two months later)







No. 3 largest democracy in the world

No. 1 largest economy in Southeast Asia

Poor roads, a factor many analysts blame for hurting the country’s growth rate, which reform-minded President Joko Widodo, elected in July 2014, promised to invest in

$8 billion, amount of money in projected government savings by the end of 2015 due to cut fuel subsidies promised by Widodo

3

INDIA

PHILIPPINES

1.1 million, the number of homes destroyed by Typhoon Haiyan (Yolanda) in November 2013, from which the country continues to recover

5.4 percent, Philippines’ growth rate in the third quarter of 2014, reflecting lower state spending

No. 4, Philippines’ ranking among the fastest-growing emerging-market economies in the world

Trade and commerce, areas currently constrained by the Philippines’ lack of modernization in customs regulations and infrastructure

4

5

INDONESIA

MALAYSIA 6

7

PERU







COLOMBIA


40 percent of the world’s supply of palm oil is produced in Malaysia

10 percent of Malaysia’s GDP is account-ed for by palm oil

4.5 percent export tax on crude palm oil was temporarily removed from September 2014 through February 2015 in the hopes of increasing growth

Oil prices are less likely to affect Malaysia due to diversified economy

60 percent of country’s export earnings come from mining

No. 1, the ranking it will achieve as fastest-growing emerging-market economy in Latin America if IMF growth projections come true

3.5 percent was Peru’s lowest interest rate in three years when the central bank cut rates in September 2014

A3, the rating Moody’s Investors Service raised Peru’s credit to in July 2014, matching that of Mexico and trailing only Chile in Latin America

Alonso Segura, the well-regarded economist appointed finance minister in September, who is pushing for major economic reforms

$1 billion, size of bond being pushed by Segura along with tax cuts to finance public sector investments and short-term spending

2X, oil production rate increase in the last 8 years

10 percent of the country’s roads are paved, and the country’s infrastructure badly needs investment

50 years, how long it’s been since the conflict between the Colombian government and the Revolutionary Armed Forces of Colombia began

December 2014, when negotiations began promis-ing a potential end to the conflict, which could lead to increased growth

Emerging market status, the country was upgraded from frontier market by U.S.-based index provider MSCI

Less than 1/3, the fraction of the GDP now accounted for by oil thanks to efforts by the government to diversify the economy

Tourism, the area government has worked to develop through luxury hotels and international airlines Etihad Airways and Emirates

9

10

UNITED ARAB EMIRATES



Political instability, the cause of the dismal growth rate in 2014

2011, the year that former Prime Minister Yingluck Shinawatra began rule, which ended in May 2014 during a military coup

Military rule, believed to have stabilized the business environment, which should revive foreign direct investment and growth after a year of disruptive political unrest

THAILAND

8


1 PERCENT, 2014 GROWTH RATE



For the past decade or so, companies seeking to boost growth have had two primary options: mergers and acquisitions or innovation. Many executives and boards have opted to pursue mergers and acquisitions (M&A), convinced that increasing everything from their geographic reach to their amount of intellectual property will translate seamlessly into brisk and sustained growth. Indeed, last year alone saw over 40,000 M&A deals made worth $3.5

trillion worldwide, an increase of nearly 50 percent from 2013 and the most since the pre–Great Recession days of 2007.

But don’t let the sheer popularity of M&A convince you that they’re a foolproof blueprint for vigorous and sustainable growth. In fact, a vast body of research has shown that M&A are anything but a slam

dunk. For a wide range of reasons — such as an inability to mesh disparate corporate cultures into one that is cohesive and effective — at least 50 percent of all M&As fail to achieve their objectives, which almost always include growth. Given that questionable track record, it’s wise to carefully consider the primary non-M&A pathway to growth: innovation.

Though it may sound improbable, we argue that innovation approached properly — which is to say thoughtfully and

INVENTING GROWTHMove past traditional means of aquiring growth for a company by developing an organization primed for innovationBY JON KLEINMAN AND ROBERT E. JOHNSTON JR.


boldly — has a success rate bordering on 100 percent. Problem is, pursuing growth through innovation the right way is neither simple nor especially intuitive. By definition, establishing a culture with the capacity for the sort of innovation that continuously drives growth requires fundamentally reshaping how things are done and how people think in an organization. Though it will challenge the status-quo culture, which is often centered on maintaining and perpetuating a company’s current products and processes, an innovation-oriented culture can yield dramatic results. This kind of company mind-set values new, original ideas and possibilities.

Growth through innovation is a journey that will vary from company to company and industry to industry. Yet it’s important for leaders to understand some of the similarities, questions, and requirements involved with any successful quest for innovation-fueled growth. Here are a few:

DON’T DEFINE INNOVATION TOO NARROWLY It’s understandable why so many people both in and out

of the business world immediately think of Apple when they hear the word innovation. The technology company’s ability to consistently develop breakthrough products like the iPad and iPhone has allowed it to both capture the public’s imagination and achieve enviably consistent growth. But while product innovation is undeniably one important aspect of innovation, it is hardly the only one. We define innovation as anything new or novel that creates or adds value. There are myriad examples of companies that have achieved truly breakthrough growth by innovating a variety of aspects of their business, including their business models, supply chains, or even their routes to market. Language matters in business, and having too limited a definition of innovation can unwittingly erect a formidable barrier to it.


A MANDATE FROM LEADERS No matter whether it’s product- or business-model

innovation, the one essential ingredient for success is leadership. C-suite executives, in particular, need to establish a strong enough mandate for innovation, so that everyone — from the CEO to middle managers and factory workers — understands the basic concept: The company’s future success depends on innovation. Obviously, this requires senior management to be aligned and consistently vocal about the central role innovation plays in the entire enterprise’s fortunes. Innovation must be one of the stated top three priorities of the company. A couple of memos and a town-hall meeting isn’t enough; this has to be an ongoing company-wide conversation that constantly reiterates the commitment to innovation.

Nevertheless, it’s important to remember that words alone aren’t enough. Leaders also need to be sure that their actions align with their message. Which means that the goal of innovation — the creation of new value — must be supported by the incentives, rewards and internal structures of a company. For example, we have worked with a large real estate investment trust (REIT) company that owns over 150 hotel properties all around the world. Not only has everyone from the chairman of the board to the CEO and executive vice president regularly trumpeted the importance of innovation at all of the company’s properties, they have also created metrics, incentives, and training programs that actually recognize and incentivize everyday actions.

ENLIST EVERYONE IN THE EFFORT Any effective executive team knows this: Good ideas come

from everywhere. After all, it’s logical that salespeople closest to your customers will have a good sense of their evolving

needs and the opportunities that could arise by meeting them. Simply put, growth through innovation requires help and input from everyone. Fortunately, fostering a culture where people are encouraged and expected to contribute ideas that drive growth also significantly elevates employees’ engagement and commitment. This is important. Although vital, incentives, training, and other programs designed to drive innovation are not sufficient by themselves. Decades of research — much of which is summarized in Daniel H. Pink’s best-selling book Drive — demonstrates that what truly motivates people to perform is not money or fear but the very human desire to create and ultimately master new things, control and direct their own lives, and make a positive difference in the world.

The most successful efforts to hardwire innovation into a company both understand that idea and grasp the notion that employees are most likely to support and perpetuate a culture that they helped create. We have seen that dynamic in our work with a packaged-goods company. After committing to putting innovation at the core of the company, senior leaders decided to form 20 innovation teams to explore business growth ideas and challenges that had been identified by executives. Participation was open to everyone at the company, and it was all volunteer work, meaning that employees had all of their regular duties in addition to the time commitment involved with the innovation teams. Not only did a lot of employees opt to work on the innovation teams, many volunteered to work with more than one team. At the end of one year, the company CEO gathered the 20 teams together to thank them for all of their work. During the gathering, though, one of the team leaders took the microphone from the CEO and thanked him for providing the opportunity for employees to express their creativity.

KNOW WHERE YOU’RE GOING, AND LET INNOVATION HELP YOU GET THERE

Successful growth through innovation requires the input of everyone at a company, but it is incumbent on leaders to establish where all of this effort should be headed. This is less obvious than it may seem. Companies have a tendency to imagine their future based on their past. Instead, what is more conducive to growth is to chart a future course based on developing or recognizing unrealized opportunities and letting innovation lead you to that envisioned future. A classic lesson about the perils of looking backward rather than having foresight comes from history. Railroad executives at the turn of the last century undoubtedly believed they had bright prospects. And it’s easy to see why: Trains had established a virtual monopoly on long-distance travel.

THOUGH IT MAY SOUND IMPROBABLE, WE ARGUE THAT INNOVATION APPROACHED PROPERLY HAS A SUCCESS RATE BORDERING ON

100 PERCENT.


But brain science now tells us that our current perceptions are shaped by past experiences. Unfortunately, the result of that is often a severe case of corporate myopia that makes it difficult to envision a different and better future. Instead of thinking of themselves as being in the transportation business, the railroad executives of yore doggedly hung on to the notion of being exclusively in the train business, even as other faster and more convenient modes of transportation emerged. That lack of foresight spelled the end of the big train companies. Being clear on the future you want to build opens the door to the kind of innovations required to get there — preferably at the speed of a jet plane, not Amtrak.

We’ve witnessed the power of foresight in our work with the medical products division of a large conglomerate. One key component of our collaboration with the company’s executives was outlining what its preferred future would be and then devising an innovation-led roadmap to make it a reality. In other words, we collectively charted where the company

wanted to be in 10 years and then worked backward to create milestones that needed to be achieved to get there, including the development of new products. The result: One year into its plan, the company was approached by a global medical products giant interested in an acquisition. We later learned that the amount the acquirer paid was twice the original offer,

because the vision and strategy for the future that the company laid out was so compelling.

MEASUREMENT MATTERS It’s often said that we measure

what we value. If innovation is the tool to spur growth, then companies

need to commit to measuring its effectiveness, especially in relation to achieving their envisioned futures. Part of what distinguishes innovation from creativity is the fact that the value created by innovation is measurable. In the case of the REIT client we worked with, executives established clear black-and-white metrics about revenue increases at each property, based on its size and the new

INNOVATION DEFINED: ANYTHING NEW OR NOVEL THAT CREATES OR ADDS VALUE.

6REQUIREMENTS

FOR INNOVATION-FUELED GROWTH

DON’T DEFINE INNOVATION TOO NARROWLY

SCHOOL DAZE

ENLIST EVERYONE IN THE EFFORT

KNOW WHERE YOU’RE GOING, AND LET INNOVATION HELP YOU GET THERE

A MANDATE FROM LEADERS

MEASUREMENT MATTERS


ideas being implemented. While metrics are important, it’s also paramount that they not be too limiting. This is especially so when it comes to evaluating new ideas. We once worked with a company that was looking to generate more breakthrough ideas to fuel its growth. While this company had a legacy of innovation and leadership that consistently espoused its importance, we discovered that they were too quick to discard ideas. Early in development, potentially game-changing, breakthrough ideas often won’t appear that way, and it’s important to keep that in mind when evaluating them.

SCHOOL DAZE Business schools are good at a lot of things, but teaching

managers and executives about innovation is not one of them. As a rule, business school students learn how to manage a company’s existing products and business lines with a goal of getting the most out of them. While that is a mandate that C-suite executives have, they also are charged with creating a company’s future. All too often, these responsibilities are in direct conflict. Leaders must recognize how the corporate immune system and corporate gravity work against implementing even the most promising new ideas. Corporate gravity — the real and perceived barriers to doing anything counter to the current business model — must be countered with decision-making structures that ensure ideas are approved and funded quickly or put into an actively managed system for consideration again later. The corporate immune system that manifests itself in the bureaucracy, turf, and hierarchy that kill off most ideas must be replaced by structures that turn ideas into realities so that everyone feels emboldened to take risks and propose innovations.

What happens when innovation becomes the engine for growth? We’ve seen impressive results time and again. For instance, a packaged-goods company asked us to work with its executives and board four years ago to assist its effort to instill a company-wide spirit of innovation. Fast-forward, and this year, the company will launch 100 new products; meanwhile its factory leadership has identified improvements in its manufacturing process worth millions of dollars.

This is the norm when companies make innovation the centerpiece of their plan for growth. But remember, a haphazard approach to innovation won’t yield the many benefits and sustainable growth that are possible. Put simply, smart innovation requires a company-wide commitment, diligent planning and measurement, and the imagination to glimpse a better future. If that’s not a commitment executives are willing to make, then the 50-50 crapshoot of M&As just might be the better choice.

LAST YEAR ALONE SAW

BY THE NUMBERS

M&A DEALS MADE, WHICH WERE WORTH

WORLDWIDE, AN INCREASE OF NEARLY

FROM 2013, AND THE MOST SINCE THE GREAT

RECESSION OF 2008

BUT AT LEAST

OF ALL M&AS FAIL TO ACHIEVE THEIR OBJECTIVES

40,000

50%

HALF

$3.5 TRILLION

BY C H R I S WA R R E N


As the CEO of the Cardinal Health Medical

Segment, Donald Casey Jr. drills down to the core

of the constantly changing healthcare industry to

discover the innovative ways the company can

position itself for dramatic growth and success.

T H E H E A R T O F T H E M A T T E R


For the past three years, Casey has served as the chief executive officer of the Medical Segment of Cardinal Health, a company based in Dublin, Ohio, in the United States that ranks No. 22 on the 2014 Fortune 500 list. In his current role, Casey heads up the Cardinal Health segment that manufactures and delivers a variety of essential medical products and devices — such as extravascular closure devices and Negative Pressure Wound Therapy pumps — to hospitals, surgery centers, clinical laboratories, and other medical facilities throughout North America.

So when Casey says that healthcare has been whipsawed by dramatic change over the past few years, it’s worth listening. “I have been doing healthcare for 33 years at this point. And there has been more change in the last three than at any time, and it’s by a long shot,” says Casey, who points to the Affordable Care Act and an aging population as the two main drivers behind what is a fundamental reshaping of American

healthcare. “The fastest-growing population in all of the U.S. today is 80 and above,” he says. Many of these older Americans are contending with more than one chronic disease, meaning their healthcare demands are significant and growing.

Already, he says, regulatory and demographic shifts are having a dramatic impact. For instance, individual hospitals are becoming a rarity, morphing out of necessity into what are known as integrated delivery networks that provide everything from surgery centers and physicians’ offices to skilled nursing and long-term care facilities. While these genuinely seismic and fast-paced changes cause plenty of hand-wringing

and sleepless nights among healthcare executives, Casey sees real opportunity for Cardinal Health amid the tumult.

But when Casey outlines how Cardinal Health can succeed in a business environment that is anything but stable and predictable, what he is really describing is a role in which his company helps its customers adapt and flourish in what is very much a new world. Here’s why: Even though more and more baby boomers and older patients are seeking care — much of it expensive treatments for serious diseases — there is little appetite for healthcare spending to catapult above its current 15 to 17 percent of America’s gross domestic product. “I don’t think people are comfortable with the idea that we are just going to increase that to 30 percent,” says Casey. “It’s

going to be much more about how are we going to provide great healthcare to people in new paradigms. And that is where we think Cardinal thrives.”

That’s not just Casey’s opinion, either. In the company’s second-quarter earnings of the

FEW PEOPLE CAN SPEAK WITH AS MUCH

authority about the recent changes that have convulsed the worldwide healthcare system as Donald Casey Jr. Indeed, Casey has spent the past three-plus decades working in a variety of healthcare jobs. For the first 26 years of his career, Casey was at Johnson & Johnson (J&J), where he held executive positions in the company’s medical device and pharmaceutical divisions. Later, Casey was worldwide chairman of J&J’s Comprehensive Care Group as well as a member of the company’s executive committee, where he oversaw its global cardiovascular, diagnostic, diabetes, and vision-care franchises.

Over the last 30-plus years, Donald Casey Jr. has been witness to the changes that have overtaken the global healthcare market.


2015 fiscal year, Cardinal Health reported revenue of $25.5 billion, an uptick of 15 percent from the previous year’s second quarter. And the Cardinal Health Medical Segment also saw revenue rise 4 percent compared to 2014.

POSITIONED FOR GROWTH To understand why Casey sees opportunity and growth

where others see crisis, it’s helpful to more closely examine the challenges much of the industry faces and how Cardinal Health helps solve these problems. Put simply, the future of healthcare boils down to this: Do more with less. While that is an ominous-sounding mandate for many, Casey has been in healthcare long enough to know that there is a wide spectrum of areas ripe for improvement. “Healthcare for years was almost a cottage industry. It was individual hospitals and individual doctors,” he says. The evolution away from what amounts to a mom and pop business model presents enormous possibilities. “With hospital chains getting progressively larger, they are bringing modern management and efficiency into the system,” says Casey. “And then the technological advances that have been kind of the mainstay in other industries are being brought to bear in healthcare because there’s such an opportunity to create more efficiency.”

The Cardinal Health Medical Segment has positioned itself to drive that efficiency and ultimately help its customers focus on delivering the best patient care possible. How does it do that? In part, it’s by investing in and operating a sophisticated supply chain of the sort that is more or less standard in American retail. Think about it: When a case of soda leaves the shelf at Wal-Mart, how much time does it take to be replenished? Not long. But in healthcare, that sort of quick replacement has not always been the norm. Take the case of cardiology, where Cardinal Health is actively building out its information-enabled supply chain. “A doctor will get a delivery from a cardiology device company three or four times a day through UPS,” says Casey. “But there’s no aggregation of how you put all that demand together and use a shared distribution network, which is something Cardinal Health provides.”

The benefit of the sort of efficient delivery model Cardinal brings is significant. Largely eliminated are lost and dated products, and the economic burden they represent that goes hand in hand with an antiquated process for getting vital medical products to the clinicians who need them. “Probably 10 to 15 percent more

inventory is held because there is no transparency or visibility about how to manage that inventory,” says Casey. Nor is all inventory created equal. Some devices are needed to perform scheduled procedures, such as angioplasty to treat coronary artery disease, while others are genuine emergencies. “How

many units do we really need to stock within a hospital versus how many can we store centrally and get out on an as-needed basis?” asks Casey. “If X percent are emergencies, what do you need to serve those well while at the same time understanding that how you manage inventory for

PROBABLY 10 TO 15 PERCENT MORE INVENTORY IS HELD BECAUSE THERE IS NO TRANSPARENCY OR VISIBILITY ABOUT HOW TO MANAGE THAT INVENTORY.


scheduled procedures needs to be done differently?”Differently — that’s how Cardinal Health is working.

For example, the company’s budding information-enabled supply chain uses a low-cost WaveMark RFID (radio-frequency identification) technology that will let the company know when a product leaves the distribution center, when it enters a hospital and even when it enters an operating room. It also will provide notification when a product is actually taken out of its packaging.

In other words, the information-enabled supply chain provides the kind of transparency that previously has been unimaginable in healthcare. Casey says tests through the Veterans Health Administration have seen

inventory reductions of 15 to 20 percent and the near elimination of dated and lost products. “[Take a] look at pharmaceuticals that have come up with cures for hepatitis C and devices that make a profound life-saving difference to people,” says Casey. “We also think

there needs to be innovation in the supply chain, and that is what we are going to do.”

MAKING CHANGES TO BENEFIT CUSTOMERSGiven that Cardinal Health sees its role — and its avenue

to growth — as helping its customers adapt in ways that allow them to provide improved patient care at a reduced cost, it’s no surprise that Casey and his colleagues are always on the lookout for ways to improve the value of Cardinal Health’s own offerings. For a company that brings efficiency where it was lacking, it’s almost inevitable that Cardinal Health would pursue increased scale and even more innovation.

In March, Cardinal Health announced its plans to acquire

As CEO of the Cardinal Health Medical Segment, Casey has taken an inventive approach including the development of an information-enabled supply chain.


Cordis, J&J’s global unit that manufactures cardiac and endovascular devices — think products like stents and balloons that prevent artery blockages. If the deal closes, which Cardinal Health expects will happen by the end of the year, the addition of Cordis will aid the company’s strategy to better manage what are known as physician preference items (PPI) for doctors working in the cardiovascular, wound management, and orthopedics areas. In the past, as the name indicates, PPIs were medical devices that doctors opted to use in their practices, because they believed the products were the most innovative of their type.

Not surprisingly, those PPIs also come with a higher price tag. But the premium charged has recently become questionable given the influx of what are known as “clinical equivalents,” which match the preferred items’ quality and functionality at a lower price. “We have this physician-preferred strategy where we try to develop entries in areas of high physician preference, where there is not as much clinical differentiation anymore,” says Casey. “Products have been

around for a long time and you haven’t seen as much innovation.” Put more simply, there’s little to differentiate between the different brands of guidewires that surgeons use in orthopedic implant procedures.

By acquiring Cordis, which has operations in over 50 countries and had revenues of around $780 million last year, Cardinal Health achieves a number of important things. Besides securing a menu of well-known interventional cardiology products, the acquisition of Cordis could quickly transform Cardinal into a manufacturer with global scale. “We felt that to compete in a lot of these new physician-preferred categories you need global scale on a manufacturing basis, so you are not at a disadvantage,” says Casey, who will oversee Cordis as it is incorporated into Cardinal Health. “We believe the combination of what we can bring from an efficiency standpoint with what they can bring in product and understanding of the category will create really good value for patients as well as providers.”

More generally, though, the acquisition of Cordis is

Cardinal Health’s acquisition of Cordis will bring with it larger access to the cardiology product market.


NEVER FORGETTING THE CUSTOMERIt’s not always the case that the mission of a company

aligns more or less exactly with the personal philosophy of its executives. All of Cardinal Health’s strategies, products, and investments revolve around becoming a force that allows healthcare providers to deliver the best patient care possible while keeping costs in check.

In other words, it’s a service mentality. And it’s that mindset that, as a leader, Casey tries to both imbue his staff with and remember himself each day. In fact, Casey hung a note on his office wall that asks a simple question: What have you done to help a customer today? And this is not a query that is exclusive to Casey. “We talk about it a ton,” he

says, “whether it’s a senior leadership meeting or a meeting with our sales people, research and development people, or supply-chain people. What are we doing to help our customers with their biggest challenges everyday?”

Having that question drive all of his actions as a leader helps clarify not only how Casey spends his days but also guides strategic choices and the direction of the Cardinal Health Medical Segment he manages. A big part of knowing what his customers need and how Cardinal Health can help them simply comes down to asking them all the time. That is especially true today in such a fast-changing and dynamic business environment. “If you’re not checking everyday, you won’t be 100 percent sure what changes overnight,” he says. “It’s very rapid change.”

But to be frank, Casey says that while healthcare might be in the midst of faster and more jarring change than most industries, no corporations are exempt from the often-disorienting fluidity of global business. And although the self-deprecating, instinctually modest executive is loath to give advice to others about how to successfully manage a business during times of change, he does insist that the guiding principle at Cardinal Health can translate elsewhere. “If every single day, you wake up understanding [that] your true north has to be solving customer problems, and you take that as your core mission, I think you’re going to be in great shape,” he says.

also an example of how Cardinal Health will assess new medical device markets to pursue. Areas that combine both a physician preference that has become less meaningful over time and can benefit from Cardinal Health’s approach to product delivery and scale make that list. “They are ripe for us to bring a different way to get these products to market,” says Casey.

A GLOBAL PERSPECTIVE Even though Cardinal’s business has long been focused

on servicing healthcare providers in the United States and Canada — and, more recently, China — the acquisition of Cordis, which has an impressive global footprint, is also an indication of the company’s increasingly global ambitions.

While it’s easy to think provincially and imagine that America’s healthcare system is the only one in the midst of great change, the reality is that many of the trends that are roiling healthcare here are also present overseas. In particular, aging populations in Europe, Japan, and elsewhere put increased strain on healthcare systems that don’t have the option to continually raise prices. “Globally, healthcare is looking to provide patient care in a more fiscally responsible manner,” says Casey. “We are going to have to recognize that how we do business is going to be different going forward, not only in the U.S. but everywhere around the globe.”

One answer to the dilemma — at least when it comes to cardiology — is an increasing use of interventional procedures that prevent more drastic invasive and expensive surgeries. But Cardinal Health’s international efforts are not likely to end with the cardiovascular market. One of the benefits of the addition of Cordis is 70 percent of its sales in 2014 came from beyond America’s shores, including important markets like China, Japan, Germany, Italy, France, the United Kingdom, and Brazil.

This international reach is immediately significant for Cardinal Health’s cardiovascular device business. But it also forms the backbone of a platform that can eventually be used for other Cardinal Health products and devices. Though Cardinal Health continues to operate separately from J&J and Cordis, and will do so until the acquisition closes, Casey says there is real growth opportunity internationally. “The reaction we’ve gotten from customers that we are now starting to talk to beyond the U.S. tells us they are looking for those solutions,” he says.

IF YOU’RE NOT CHECKING EVERYDAY, YOU WON’T BE 100 PERCENT SURE WHAT CHANGES OVERNIGHT.


TEN DISRUPTIVE FORCES IN HEALTHCAREBY INSIGNIAM

Through extensive research into thought-leading literature on the industry, as well as interviews with executives, physicians, policy makers, and other stakeholders at the heart of the matter, Insigniam has identified 10 disruptive forces in healthcare, which healthcare leaders will need to address in their strategies if they intend to realize continued growth in the significantly changing marketplace. These 10 disruptive forces are:

1 Transition to Value-Based Reimbursement: More Affordable, Higher-Quality Care at Lower Reimbursement Rates

Hospital systems are now healthcare systems that provide sick acute care as well as wellness and pre-emptive care, which necessitates population health-management methods, processes, and protocols.

2 Shifting Volumes and Lower ReimbursementsMost systems will need to reduce costs by 20 to 40

percent while acting to maximize and creatively optimize the reconstituted utilization of all systems.

3 Moving from Caring for Sick Individuals to Managing the Health of a Population

Ambiguity is high with defined parameters for care and reimbursement still being developed.

The law focuses on prevention and primary care to help people stay healthy and to manage chronic medical conditions before they become more complex and costly to treat.

4 Shifting Demographics: Older, More Diverse, Larger Income Disparities, Greater Access

Providers need to be able to provide the appropriate care given the patient’s cultural background and offer a wide range of health needs based on segments.

5 Increasing Government RegulationDeteriorating trust between bio-pharmaceutical

companies, devise manufacturers, and the FDA results in slower, more complex approval processes while the FDA considers regulating healthcare IT systems, thereby increasing its involvement in care delivery.

6 Advances in Health Information Technology (HIT)

Electronic health records allow for clinical integration, and full optimization requires developing analytics that leverage and optimize Big Data.

7 Acceleration in Introduction of Digital Health Tools, Advanced Medical Technology, and Medical Models

Telemedicine and personalized medicine are becoming or will become accepted models of care, likely driving higher levels of patient engagement in health management.

Diagnosis and treatment is preventative, image-based, and therefore, less invasive.

8 Projected Provider ShortagesCreating the proper match between the necessary type

of care for each case and the provider best suited to provide it as care evolves to more care being delivered by care providers other than doctors.

9 Informed and Involved PatientsProviders must be able to support patients in adhering to

care plans, especially as an increasing number of patients are cared for in post-acute settings and have greater access to varied medical opinions, patient consensus on best practices, and efficacy metrics through increased use of the internet.

q Shrinking Availability of CapitalPerceived unpredictability of government regulation

dampens investment in medical technology and care providers while financial difficulties limit debt capacity for many hospitals.

HEALTHCARESPECIAL REPORT


distinction between understanding the role of the patient in healthcare and actually working with the patient to redesign healthcare.

3 New Revenue Cycle: Develop a highly effective, productive, and efficient (i.e.

simplified) revenue cycle.

4 Diversified, Yet Integrated Specialization: Optimize physician network with strong physician leadership, collaboration, diversity of specialization, and alignment.

5 Mindset of Well-Being:

Creating a mindset for patient care that takes a broad view of the overall patient’s health and well-being across a continuum of care.

6 New Horizons:Expand patient care beyond physician-centered and

acute-hospital-located care delivery.

7 Embedded Innovation: Embed in the organization a competency for creativity

to continually innovate and rapidly execute innovation and change.

8 Leveraging New Technology: Establish a strong capability and capacity to leverage

information technology, including but not limited to mobile and web technology.

9 Transformational Leadership: Leaders must be able to envision and execute on new,

unprecedented futures while being highly skilled in the interpersonal skills needed to partner with physicians and care providers and to support and encourage creativity while maintaining discipline.

q Culture of Responsibility and Accountability: In order to drive demonstrated value, both patients

and providers will need to operate at higher levels of accountability. Organizational and clinical culture, processes, and structures must be organized to institutionalize accountability and responsibility.

CRITICAL SUCCESS FACTORS FOR THE FUTURE OF HEALTHCAREInsigniam has identified a set of critical success factors that provide clear opportunities for elevating the likelihood of success in the marketplace and for significantly impacting the success of a healthcare system moving into the future.

In a 1984 Sloan Management Review article titled, “An Assessment of Critical Success Factors,” A.C. Boynlon and R.W. Zmud write:

“Critical success factors [CSFs] are those few things that must go well to ensure success for a manager or an organization, and therefore, they represent those managerial or enterprise areas that must be given special and continual attention to bring about high performance. CSFs include issues vital to an organization’s current operating activities and to its future success.”

As the authors assert, CSFs must be given special attention in order to bring about the impact and results the leveraged CSFs represent. If employed and fulfilled upon, these leverage points provide the necessary foundation for impacting the mammoth industry of healthcare, as well as those elements of healthcare that have been traditionally reinforced and have rewarded the way it is.

These critical success factors rely on a commitment to and capacity for reinvention and innovation:1 Indispensability:

A healthcare system must make itself indispensable with an offering that healthy community residents, patients, and payers cannot (and wish to not) avoid or go around.

2 Reinvent Patient Experience: Work with patients to re-engineer core patient processes

to leverage technologies and drive dramatically better patient engagement and experience. There is a major


“When you’re going through hell, keep going,” Winston Churchill famously told embattled British citizens during World War II. Enduring a disaster in the business world may not be as intense as German bombing raids, but the parallel in leadership techniques and the need for a positive attitude are undeniable.

Business leaders are called on to not only get through troubled times but also to do so in a way that positions their companies for recovery and growth. It’s a difficult feat, for sure, but there are those who have proved it’s possible over and over again.

John Jastrem is one of those people. A turnaround expert with decades of

experience in the executive suite, he’s been regularly called into companies during times of crisis and charged with right-siding them.

Jastrem was recently named CEO of North American activities for Arcadis, a European natural and built-asset design and consultancy firm that acquired Callison

An interview with turnaround expert John Jastrem BY STACEY CLOSSER

GROWTH THROUGH ADVERSITY: TRANSFORMING DISASTER INTO UNTOLD SUCCESS


Architecture Holdings, of which Jastrem served as chairman and CEO. Other companies he’s led include Exhibitgroup/Giltspur and GES (merged and rebranded into Global Experience Specialists), several subsidiaries of Omnicom (Rapp Collins and The Marketing Arm), Acme Holdings (rebranded RSC), and Colt’s Manufacturing Company. The industries he has worked in range from architecture and publishing to rental equipment and firearms. They have included public, private-equity owned and entrepreneurial companies — and he has been successful in every post.

Jastrem says he’s enjoyed his years working in the turnaround field, but he’s glad to be applying his business know-how to a healthy organization like Arcadis. He describes his earlier days as “terror-filled” but eased by good mentors and advisors. For example, he recalls a time walking out of a planning meeting at 11:30 p.m. on a Wednesday and not knowing how the company would make payroll on Friday. For those organizations currently facing similarly

dire times, and those who want to avoid it at all costs, Jastrem offers some candid advice.

REALITY CHECKWhat unifies the failing companies that Jastrem has

worked with is that they were once leaders in their industry but for various reasons had faltered. Often those reasons were external — market forces, the economy, disruptive technology, or loss of competitive advantage. But no matter how outside the influencer, the internal refusal to address the situation heightened the challenge.

Jastrem believes leaders must know where the market is going and what that means for their future. What worked two years ago doesn’t matter; what are the growth opportunities of tomorrow? Companies that innovate and leave the door open for growth in alternative directions can actually slingshot through trying times and even come out on top. For example, Jastrem refers to the publishing industry, which


has been undergoing change for the last 10 years. “The smart companies have found a way to reinvent themselves,” he says.

It’s tempting to think that success begets success, but that’s not really true. “If you’re not careful, and not thinking about why you’re successful and how you’re going to be successful tomorrow … you tend to get complacent,” Jastrem says.

This, in turn, can lead to problems, a lack of growth, and the kind of crises Jastrem is accustomed to stepping into. Focusing on past success, executives may have blinders on when it comes to significant issues. Leaders need to keep a critical handle on reality. Not acknowledging — or worse, not knowing — the magnitude of a problem will profoundly impact a company’s chance of recovery from it.

A CULTURE OF CONTINUOUS IMPROVEMENT

The term turnaround is a bit misleading, because it suggests recovery will involve some sort of U-turn. In fact, any kind of fast change that leads to quick results might make the stock bounce, but it won’t set up the company for sustained growth. Jastrem prefers the term “continuous improvement” and strives to embed the philosophy into the culture of every company he works with.

Most in-crisis companies that call on Jastrem have cultures that are either extremely tarnished or weren’t good to begin with. When Jastrem evaluates a company’s culture, he first goes to its customers — what do they think about the company? Then he approaches high-performing employees — what are their thoughts and how consistent is their performance?

Jastrem says the worst culture scenario is one of complacency and politics. “Politics is the exact opposite of facing reality and [going] in the right direction,” he says. A positive, productive attitude has the ability to get a team through the worst of situations.

Every employee should be asking: How can I do my job better and more efficiently? What am I doing to add value? Should I be doing these other things that are not adding value?

“When employees start answering these questions and seriously engage, I’ve seen great results,” he says. “Clients notice it, the energy level goes up, and people get excited about doing something different.”

THINK LIKE A SEALWhen people ask him how they can be expected to

perform well during tough times, Jastrem points to the Navy SEALs as a prime example of attitude and teamwork.

“Spend the day with a Navy SEAL,” he says. “They believe they can make it happen, they process information and make quick decisions, and they work together as a team. I can’t think of a tougher job than theirs.”

Jastrem offers an example from his own experience: He received a call from the bank at 8 a.m. on Friday, and was told that the company would be put into bankruptcy by Monday unless he came up with a very good plan, he says. In that moment, he needed a team of special forces. “You probably don’t have a team of Navy SEALs, however, the people you do have on your team need to possess a Navy SEAL attitude.”

If there are those on your team who are unable or unwilling to be part of the solution, make it clear that they can bow out as soon as possible. “I can’t deal with pretenders and those who behave like complacent politicians,” he says. “You just can’t have them on the team.”

Many times, the culture issues start at the top, and wholesale leadership change is required. If that’s the case, Jastrem says it should happen within the first six months of the recovery effort. Those employees who are sitting on the fence and waiting for something remarkable to happen will quickly become adversaries to achieving success.

ID THE TICKING TIME BOMBSOne of the benefits of a crisis is the ability to harness

the sense of urgency and use it to prioritize and focus. Jastrem follows the advice of his late mentor Sandy Sigoloff, a pioneer in the turnaround business: First identify and

“SPEND THE DAY WITH A NAVY SEAL. THEY BELIEVE THEY CAN MAKE IT HAPPEN AND WORK TOGETHER AS A TEAM. I CAN’T THINK OF A TOUGHER JOB THAN THEIRS.”— JOHN JASTREM


prioritize the “five ticking time bombs.” These are critical issues that unless addressed, will get much worse. Stay focused on that list and add to it as items fall off, he says.

“Focus and prioritization are really, really critical,” Jastrem adds. In other words, under no circumstances should leadership try and “boil the ocean” by taking on all the problems at once.

One of the first indicators of a successful turnaround is that the organization has turned a problem into an opportunity, says Jastrem. For example, a real estate company that had several contaminated sites saw them not as a detriment but as a potential asset. By cleaning them up and finding developers to pay top dollar, the company turned liabilities into cash-generators.

Jastrem says that companies can be distracted by a relatively new innovative product or side business as both are perceived as assets. But such items can only provide revenue given the right financial investment — which struggling companies may not be able to do. Instead of holding on to 100 percent of that business, leaders should consider partnering with another company. The idea is to maintain a controlling interest, but let someone else in on the deal to create more revenue in the long run.

“Eventually time works against you,” says Jastrem. “If you have an innovative product, someone else out there is going to catch up.” So unless you can support the product all the way, finding a partner to share in the effort is the next best thing.

FORGET THE MAGIC WANDThere’s a fine balance between moving too fast and

moving too slow. “Speed is an advantage if you know what you’re doing,” cautions Jastrem.

Looking for the perfect person, scenario, or decision will likely put you on the slow track. Know that there is no magic-wand formula that will fix everything and allow you to kick back with a cigar, he says. Instead, leadership has to make the best decision possible with as much quality information available, get behind it 100 percent, and carefully watch to ensure it delivers the desired results. If it doesn’t, they must quickly regroup, learn from the mistake and move on to make a better decision.

Companies today often face challenges that are external and unforeseen such as dropping oil prices, currency swings, and fluctuating interest rates. What a company does have control over is its culture — which can benefit from a turnaround philosophy of continuous improvement.

Jastrem encourages leaders to stick to the fundamentals. What are you best at? What are your customers looking for? How do you provide best-in-class solutions? Closely evaluate your risk profile, keeping in mind that not taking risks can put you in just as precarious a situation as taking on too much risk. And most important, arm yourself with a positive attitude and be ready for anything.

Up until a few years ago, the U.S. Navy SEAL’s code was unwritten and defined by culture, experience, and training. Leaders decided to formalize it into a comprehensive code that could stand the test of time and inform behavior in times of war and peace. Not surprisingly, many of the tenets can be applied to business.

THE U.S. NAVY SEAL CODE:

LOYALTY TO COUNTRY, TEAM, AND TEAMMATE1SERVE WITH HONOR AND INTEGRITY ON AND OFF THE BATTLEFIELD2READY TO LEAD, READY TO FOLLOW, NEVER QUIT3TAKE RESPONSIBILITY FOR YOUR ACTIONS AND THE ACTIONS OF YOUR TEAMMATES4

EXCEL AS WARRIORS THROUGH DISCIPLINE AND INNOVATION5TRAIN FOR WAR, FIGHT TO WIN, DEFEAT OUR NATION’S ENEMIES6EARN YOUR TRIDENT EVERY DAY7


GROWTH WITH AN ACCENT

BY JOE GUINTO

From cheeseburgers to lattes, John Dawson understands how to transform domestic brands into successful international enterprises.


The Coffee Bean & Tea Leaf has opened up new stores all over the world, including in Thailand (above).

DIDyou know that “Gangnam Style,” the surprise hit pop song released by South Korean singer Psy in 2012, makes a big deal out of drinking coffee?

In the lyrics, Psy says he’s looking for a girl who knows how to savor a cup, and then brags that he’s the kind of guy who knocks his coffee back in one shot — while it’s still hot. The reason: Gangnam is the name of one of the biggest coffee-drinking neighborhoods — and the richest area — in Seoul, South Korea, a city where coffee consumption is booming and has become something of a status symbol.

It’s no surprise, then, that The Coffee Bean & Tea Leaf, a Southern California-based chain known to be preferred among Hollywood’s glitterati, has opened dozens of new locations across South Korea, especially in Seoul — and most especially in Gangnam.

That’s just part of the overall growth plan that’s being overseen by John Dawson, who was brought on as president and CEO of The Coffee Bean & Tea Leaf in January 2014. Dawson is both expanding the company’s


already formidable presence in Southern California and pushing it into new markets in Asia, including Japan and China. And that’s on top of the company’s already significant foreign presence.

Plenty of companies would like to savor the same kind of growth. But international expansion as a pathway to growth is far from simple. For example, one recent survey of 20,000 companies doing business in 30 different countries found that, on average, foreign expansion efforts usually produced a negative return on assets five years into the expansion plan. Positive return on assets was seen only after a decade.

Why? In many cases, the companies had to spend

heavily to clear legal and regulatory hurdles or broach cultural and language differences — or both. In other cases, the companies couldn’t reproduce the same supply chains they had domestically — changing their cost structures in unexpected ways.

“Growing internationally can be challenging,” Dawson says. “You can grow too fast and quickly lose sight of the fundamentals. That kind of growth becomes very expensive in the long run.”

Dawson, 51, has dealt with those kinds of challenges for more than two decades. From 2005 to 2012, he held a variety of leadership positions at Dunkin’ Brands. As the company’s global development officer, he was responsible


for Dunkin’s global store development, including franchising, real estate, construction, asset management, and design. He also oversaw Dunkin’ Donuts’ expansion to the West Coast.

Before working at Dunkin’ Brands, Dawson spent 17 years at McDonald’s Corporation. As vice president of worldwide restaurant development, he was in charge of the strategic direction for McDonald’s global expansion. Dawson oversaw the establishment of the first McDonald’s in Pakistan and traveled to more than 40 countries.

But even though he’s swapped burgers and doughnuts for coffee and tea, Dawson says that many of the lessons he learned developing other brands internationally apply to his current job, and, he believes, could also apply to leaders in any organization considering foreign expansion. The following five lessons are among the ones he considers most important.

DO YOUR DUE DILIGENCEIf you’re going to open a new location in any market —

even if that location is a new office down the street from headquarters — you have to research the space thoroughly. But Dawson says doing due diligence on new locations, especially overseas, is often harder than it might seem.

“Systems and processes matter when you’re expanding internationally,” Dawson says. “There’s a vast amount of coordination across disciplines that you have to master. Supply chain executives, and human resources, and the real estate divisions, and your development, and operations

people all have to be part of that due diligence. You can’t leave any division out of the oversight and research process. There really isn’t a shortcut to success here.

“In my time working at McDonald’s — both opening new markets and working with existing markets — the one thing I found is that McDonald’s is very good at systems and process,” Dawson notes. “They take it very seriously.”

Part of the due diligence McDonald’s did so well and The Coffee Bean & Tea Leaf is now stressing in its expansions is working with local franchisees to make sure that those who want to join the brand are the right fit. In a non-franchise business, that same lesson might apply to the hiring of store managers or vendors, or relationships struck with any foreign company that will represent your brand to customers.

“There are plenty of people out there with money,” Dawson says. “But you have to make sure they’re also people who have the right experience. You have to really get to know them. And you have to be very clear — early and upfront — in setting expectations. That takes time. When that partnership works well, it’s great. But when it doesn’t work well, it can be very expensive and very painful for all the parties involved.”

SPEAK THE UNIVERSAL LANGUAGE OF BUSINESS

Does a barista in Los Angeles want something different than one in Kuala Lumpur, Malaysia? Not in Dawson’s experience. He says the typical Coffee Bean & Tea Leaf

frontline worker wants the same thing no matter the location. “There are some universa l consistencies,” he says. “Workers want steady money. They want a chance to learn. They want to develop business sk i l l s. They want an opportunity for recognition and advancement. There are some small differences in how the reward programs are structured from market to market, but, generally, the workers have similar motivations in all markets. And I think as you go up the ranks in management, you find the same thing. A CEO of an Asian organization is dealing with the same issues that


a CEO of a U.S. organization is in terms of revenues, profit, extending margins, expansion, growth, market planning. So, there may be some cultural differences you have to be sensitive to — how you greet each other, for instance — but really, once you’ve established clear and common motivations and goals, the method of conducting business is about the same.”

DON’T LET YOUR CORPORATE DNA GET LOST IN TRANSLATION

When McDonald’s expanded to India, it swapped the beef in its burgers for vegetarian options in one of the most famous examples of a U.S.-based brand adapting to the culture of a foreign market. But McDonald’s still maintained its fries, its shakes, its nuggets, and its golden arches.

“There was no confusion about the fact that McDonald’s in India was still McDonald’s,” Dawson says. “And I don’t think there is any confusion that The Coffee Bean & Tea Leaf is the same and serves the same great beverages from Los Angeles to Seoul and Manila [Philippines].”

That’s because the coffee sold to customers in San Diego is roasted from the same beans, and the tea is sourced from the same fields as what will be sold to customers in Tokyo.

Still, there are some regional differences. Some of the drinks in Asian markets are sweeter than in the U.S. markets, because that’s what customers there have said they prefer. And in Asia, some stores have full-service kitchens serving complete cafe-style meals, whereas in the U.S. food offerings feature fresh bakery and wholesome snack items.

“You have to adapt your offerings to the market, but you can’t change them wholesale,” Dawson says. “There has to be consistency. Everyone will talk to you about the localization and the tweaks you have to make, but you have to be clear about what’s going to stay consistent. That’s what gives you a relevant brand, one that people can recognize even as you go across markets. The key for taking any brand to a new market is having an established corporate DNA, really understanding that brand DNA, and committing to bringing it with you wherever you plan to grow. That’s how you ensure your culture [stays] strong, your values [stay] in place, your company DNA doesn’t get diluted, and your brand differentiation stays clear.”

LEARN FROM THEMIn Korean, coffee and tea are called keopi and cha. The

Coffee Bean & Tea Leaf ’s C-suite might never need to know how to pronounce those Korean words, but they are asked to know how their counterparts in foreign markets do business and to learn from them.

Although the desire to give back is universal across the system, The Coffee Bean & Tea Leaf ’s people-first culture takes on different forms across global markets. An example of this is what one Filipino franchisee is doing with a program called Brew Your Best Year. It motivates and encourages employees and customers alike to push themselves on personal development and share their stories with others. “Those are all things we’ve learned and are working to bring back here to the U.S. organization,” Dawson says. “The meaning of ‘people

first’ translates universally. But the execution of it gets expressed differently. And that’s what happens when brands go international. Many of the best ideas end up coming from the international side. It’s not a one-way, top-down flow of information. It is interactive. And a strong business leader needs to recognize that.”

DON’T GROW INTERNATIONALLY JUST FOR GROWTH’S SAKE

Scan the financial headlines, and the temptation becomes obvious. Google now makes more than half its revenues doing business overseas. Most of Apple’s new stores are opening in foreign markets. Even Macy’s, long entrenched in the U.S., will open a store in Abu Dhabi, United Arab Emirates, in 2018 — its first overseas.

But the failures are there too: Target lost $2 billion on an ill-fated expansion into Canada, one it wholly abandoned this year.

That’s why John Dawson remains cautious about expansion. “Growth for growth’s sake doesn’t work when you’re talking about creating a sustained growth plan,” Dawson says. “I have had a few experiences, either working with franchisees or on the corporate side where we grew too fast. You can build a lot of sites, sure. But to operate them well and to staff them well takes a lot of work in advance and a commitment to a plan in the long run.”

THE KEY FOR TAKING ANY BRAND TO A NEW MARKET IS HAVING AN ESTABLISHED CORPORATE DNA


Organic GrowthIs the

C-Suite’s No. 1

PriorityBY ROB CALDERIN

This key performance indicator is changing the way executives are judged — here’s how to adapt and achieve success.


CUSTOMER EXPERIENCE

MANAGEMENT

POTENT INNOVATION

DEEP INSIGHT

BRAND RELEVANCE

VALUE CREATION FOR THE CUSTOMER


of managing a customer’s exposure, engagement, and interaction with a brand. Creating a brand-centric, unique experience at every touch point is the goal—a very different exercise than traditional marketing and advertising’s focus on brand communications. In the CEM model, companies’ experience architect s examine customer motivations, purchase behavior, the environment, brand communications, and the operational infrastructure in detail and focus on optimizing the customer experience in every channel, across all communication and delivery platforms.

Given the myriad channels that allow customers to access a brand — word-of-mouth, traditional media, packaging, sampling, website, social/digital, mobile, call center, blogs, and selling environment — consistency significantly impacts brand awareness and perceptions. But the consumer’s

engagement experience at each touch point is a much more powerful indicator of the decision to buy or not to buy.

CEM is not an easy strategy. Rooted in a customer-centric mentality, it transforms the way an entire company does business. For many, this requires a cultural change in which marketers work closer with operations, product designers, and IT than ever before. But for brand marketers who shift from traditional advertising solutions to CEM strategies (focused on optimizing the customer experience), the payoff is in increased sales driven by deeper knowledge of and stronger relationships with customers. This is a more sustainable approach to growing a brand that is far more effective than traditional loyalty programs. When done well, this growth strategy nets short-term sales and long-term brand ambassadors.

So what are the implications for the CMO in this must-show-growth environment? After several years of acquiring ad agencies, a New York holding company CEO once told his agency presidents, “Acquisition is not a growth strategy.” Clearly, if mergers and acquisitions were the answer, the CMO would have a more comfortable role. But with organic growth now a leading key performance indicator, chief marketers shoulder much of the responsibility for developing growth strategies that drive top-line sales performance. There are five areas of meaningful impact that can help CMOs identify strategic growth initiatives uniquely suited to their company.

CUSTOMER EXPERIENCE MANAGEMENTCustomer experience management, or CEM, is the process

CEOS HAVE NEVER BEEN UNDER greater pressure to deliver financial results. It is how they’re rated, ranked, and judged by investors, directors, analysts, and most other stakeholders.

A company’s f inancial results don’t just influence how CEOs are compensated; they’re also the yardstick for whether they keep the job. The constant pressure to improve top-line sales while managing costs is measured quarter by quarter; and while some may say this short-term performance standard puts long-range planning at risk, the time allotted to deliver financial gains continues to decrease. Case in point: Ron Johnson was at J.C. Penney just 17 months before getting the boot.


CEOs are judged more quickly than ever before: J.C. Penney got rid of Ron Johnson after just 17 months.

POTENT INNOVATIONInnovation is no longer a key growth driver

for just a limited group of categories, such as automobile, pharmaceutical, and technology brands. Today, it is a necessary strategic initia-tive that touches virtually every type of product and service. Solid, organic growth depends on a company’s ability to make innovative changes designed to keep the brand and its value proposition relevant and desirable.

The book If It Ain’t Broke, Break It, by Robert Kriegel and Louis Palter, posits that if you’re not continually reinventing your brand, business model, customer expe-rience, and products, you can count on some competitor out there devising a better, faster, cheaper way of serving and stealing your customer.

The kind of innovation that drives sustainable growth is rooted in creating a strategic advantage in the marketplace. It’s not the “a-ha” moment that occurs during a series of brainstorming ideation sessions. Profitable innovation is a dynamic process of continually evaluating spaces in which you can win and developing changes that fill that gap. You have to uncover consumers’ ever-evolving needs and desires — and understand where your brand falls short of their expectations.

DEEP INSIGHTCompanies successful at organic growth

have a deep understanding of their custom-ers. The insights they gain by knowing, tracking, following, and predicting customer

needs and behaviors set the stage for innovation, cus-tomer experience, brand promise, and value. Technology has given marketers an added dimension for developing meaningful customer insights.

Much is being said about big data and how companies are using the massive amounts of information at their dis-posal. Data is driving business decision-making in every department, division, and level of companies today. For marketers, data has enormous implications for every-thing, from where budget investments are made to where the customer looks when they enter the aisle.

The first step is to find meaningful information from massive amounts of data. The second is turning that in-formation into useful insights that foster smart decisions and create value for the customer. From data mining, or discovering useful information, to machine learning, which focuses on predicting outcomes, CMOs who can turn 10,000 pages of data into 10 valuable insights will generate disproportionate growth.


And while data provides a reliable tool in building this knowledge, high-growth companies seem to know that insight is also gained on the front lines. It is staggering how few companies spend time in their stores, learning from their own customers.

The single most important quick-service restaurant consumer insight in the last 10 years was uncovered by McDonald’s, when observational researchers noticed how many moms came in to buy Happy Meals for their kids, then sat in the restaurant, chatting on their cell phones with a cup of Starbucks coffee, but consuming no Mc-Donald’s menu offerings. Few — if any — menu items actually appealed to them. The company responded with a barrage of products, from premium salads to quality chick-en sandwiches, and, later, McCafé beverages, that drove sales at higher-than-category rates for nearly a decade.

BRAND RELEVANCEBrand relevance is created by the sum of all consum-

ers’ experiences with the brand, its competitors, and even influencer brands in other categories. Loss of relevance can be both self-inflicted and imposed by competitors’ innovations that set higher customer expectations.

This dynamic occurred when BlackBerry lost rel-evance, despite overwhelming penetration among high-value customers who, at one point, were emotionally

engaged super-fans. Even power brands like Coca-Cola and McDonald’s have suffered loss of relevance, yet came back by staying true to values that made them relevant in the first place, coupled with a perpetually dynamic brand voice. The lesson is that staying relevant requires continuous brand renewal.

Successful growth brands strengthen relevance by con-tinually finding new ways to increase their emotional bond with customers, by working hard at being loved. Zappos.com grew fivefold in six years by creating a culture around going to extremes for customers. They use their interactions with customers as an opportunity to create lasting memo-ries, and then celebrate exceptional examples of great ser-vice throughout the organization to continue the courtship.

Henry Ford once famously said,

“If I had asked people what they

wanted, they would have said faster

horses.” Despite a century of novel

examples to the contrary, companies

have been looking to customers to

tell them what they want — whether

it’s through customer surveys, data

mining, demographic segmentation,

or market research. Statistics and

past buying behavior are often seen

as a way into the customer psyche.

They’re not. But there is a way. It’s an

approach borrowed from another

discipline that is gaining traction

in business, and it’s referred to as

design thinking.

Businesses are finding that design

thinking is good not just for crafting

innovative products, but also for

resolving very complex business

problems, improving the customer

experience, and inventing new

business models and strategies.

“At the center of design thinking

is a human being, not a system

or profile or market,” explains

Nate Rosenberg Jr., a consultant

with Insigniam. “A human being

who has perceptions, thoughts,

feelings, a family, past experiences,

and deep desires.”

Gaining new insights from a

human being requires empathy.

Research has found that humans

possess “mirror neurons,” which

react to the emotions of others and

allow us to imagine life from others’

perspectives. By using empathy,

innovators no longer see customers

as merely a set of characteristics;

they instead gain insight into

their life experiences and, most

importantly, their needs.

The Institute of Design at

Stanford University details the

By Stacey Closser

Empathy in Innovation

BRAND RELEVANCE IS CREATED BY THE SUM OF ALL CONSUMERS’ EXPERIENCES WITH THE BRAND, ITS COMPETITORS, AND EVEN INFLUENCER BRANDS IN OTHER CATEGORIES.


following process for design

thinking: empathize, define, ideate,

prototype, test.

The first step is often the most

difficult for people who are used

to using deductive reasoning to

evaluate past behavior and then

infer a solution. To truly empathize,

the innovator must have no agenda.

“You’re not empathizing to find a

solution, you’re empathizing to see

something new and reframe the

problem,” says Rosenberg.

He encourages innovators to get

out of the office and not just talk

to, but also observe customers.

Watch them interact with the product

and take notes on what they could

be seeing, thinking, and feeling.

As an example, he refers to the

process that led to the design of GE

Healthcare’s MR Adventure Series

CT scanners. Only after observing

the way a frightened girl and her

family felt about the MRI machine —

and seeing it from her perspective

— did the designer fully understand

what was wrong with the award-

winning machine that had already

taken him two years to perfect.

“Understanding that the

environment where the scanning

was done simply didn’t work for

younger children was a wake-up

call. It was also a new challenge,”

said industrial designer Doug Dietz

in his TED Talk on the subject. By

empathizing with young patients,

he and his team were able to

meet the challenge with colorful,

creative solutions. The resulting

line of MRI machines has achieved

considerable success, both for GE

and for pediatric healthcare. Watch

his powerful TED Talk to see how he

accomplished this.

Employing empathy in the

innovation process is likely to

boost your team’s creativity and

effectiveness; but even better, it’s a

chance to exercise your humanity.

Growth brands like Chipotle tap into customers’ val-ues and design their branding, product offerings, messag-ing, and customer experience around issues people care deeply about. They become vehicles for customers to ex-press their values, versus simply a means to solve a need or fulfill a desire. The result is greater relevance and loyalty. The challenge with this approach is to align customers’ values with the firm’s values to create a profitable model that’s sustainable and genuine.

Of course, the best defense is to never lose relevance in the first place. Madonna has reinvented her brand many times over the years, maintaining relevance and influencing other artists across several generations in a category notorious for rapidly shifting consumer tastes and one-hit wonders.

VALUE CREATION FOR THE CUSTOMERBefore a company can grow shareholder value, its first

responsibility is customer value creation — that is, to en-sure there is real value in their value proposition. The ul-timate arbiters of value are its customers, so determining what they value is the first step in establishing the vitality and growth trajectory of a brand.

The economic challenges of the last seven years caused a fundamental shift in consumer attitudes about value, away from instant gratification and toward considered consumption. While American consumers’ aspirations

and expectations remain relatively high, 70 percent have cut spending, are more cautious about purchases, and in-sist on getting value for their money. The upshot is that a brand’s value equation — what consumers get for what they pay — has become an even greater determinant of the strength of the brand value proposition.

Within this context, brands need to reassess and adjust their value proposition to remain vital. Consider how growing retail brands like Target, which touts “Expect More. Pay Less.” emphasize the “what you get” aspect of the equation while ensuring that pricing is competitive on an absolute basis. Not to be outdone, after 19 years, Wal-Mart shifted to a benefit-based value proposition, “Save More. Live Better.” from its one-dimensional, price-focused “Always Low Prices” promise. It’s part of a more sustainable repositioning that includes store rei-magining and product offering upgrades, which are other key elements of the value proposition.

The big takeaway is that there is no room for the “if it ain’t broke, don’t fix it” mentality in today’s mar-ketplace. Delivering on the CEO’s drive for financial results through organic growth demands that CMOs continuously uncover actionable insights; improve their brands’ value proposition, relevance, and customer ex-perience; and foster a culture of innovation that drives forward momentum.

IQ BOOST

A powerful lever that executives can pull to achieve

growth is investing in their people. Even top-notch

employees who excel at their jobs may not have a

mind-set that is tuned to growth. Their positions often

require them to focus on maintaining the status quo,

something frequently supported by the general culture

of the company. One way to unlock dramatic growth is

through a workforce that dreams of being bigger, doing

things differently, or altering the path forward.

We believe that kind of imaginative thinking primes

a company for dramatic increases in the bottom line.

When it’s not present, the organization could be in

danger of getting caught in what we refer to as “the

drift” — the direction that some companies move in

when they are simply going with the tide. While it isn’t

necessarily dangerous, the drift is comfortable and can

lead to complacency. More importantly, since it usually

revolves around maintaining the status quo, the drift

rarely ever leads to significant or sustainable growth.

To discourage the drift and to enable a windfall

increase in profits, leaders may want to start with their

employees and commit to shifting their organizational

culture to one that encourages people to think like

innovators. That kind of thinking can be extended

throughout a company to gain the benefit of the ideas

of every employee. We recommend fostering thought-

leaders at every level who empower employees to

voice new ideas and follow through on them. Launching

this kind of business culture and then building it does

not happen without dedicated executives who see a

possible future and then make it happen.

When this kind of innovative energy infuses a

company’s culture from top to bottom, the entire

organization is poised for the kind of growth-making

change that everyone — from those in the C-suite to

those on the line — can boast about.

Bonnie Wingate is an Insigniam partner and

has instituted Insigniam’s methodology at Fortune

500 companies in a variety of industries, including

medical devices, pharmaceuticals, fast-moving

consumer goods, food, and banking, as well as in

not-for-profit organizations.

64 INSIGNIAM QUARTERLY® SPRING 2015

BUILDING A PASSION FOR GROWTH BY BONNIE WINGATE

This intensive day of learning will be kicked off by keynote speaker Paul Fireman, chairman of Fireman Capital Partners and former CEO of Reebok. Fireman started with an initial investment of $65,000 in 1979 and built sporting apparel powerhouse Reebok, ultimately selling it to adidas for $3.8 billion in 2006.

You’ll develop leadership skills and behaviors to implement immediately, elevating your enterprise’s performance—as well as your own.

Date: Sept. 17, 2015Location: Philadelphia, PA, USA

To learn more, visitwww.insigniam.com/thoughtleadership

LEADING AN ACCOUNTABLE AND INSPIRED ORGANIZATION

Insigniam invites you to its Executive Thought Leadership Day: A Meeting of the Minds. It’s a hands-on, interactive working session with executives from around the world who are committed to transformational leadership and breakthrough performance.

Insigniam_IQ_05/15_MindsAd.indd 1 4/28/15 12:31 PM

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PAIDLiberty, MO

Permit No. 441301 Woodbine AvenueNarberth, PA 19072

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Since 1995, the FORTUNE Global Forum has convened world leaders and the heads of the world’s biggest companies on the dynamic frontiers of global business. In 2015, we will bring together CEOs from the FORTUNE Global 500 with innovators, builders, and technologists from emerging companies to focus on disruptive innovation and explore the implications of technology trends for the 21st-century corporation.

For more information: www.FortuneGlobalForum.com

SAN FRANCISCO, CANOVEMBER 2-4, 2015

Attendance at the FORTUNE Global Forum is by invitation only and subject to approval. FORTUNE and FORTUNE Global Forum are trademarks of Time Inc., registered in the U.S. and other countries. All other trademarks are the property of their respective owners.

Confirmed 2015 FORTUNE Global Forum participants include (clockwise from left): JPMorgan Chase CEO Jamie Dimon, IBM CEO Ginni Rometty, Lenovo CEO Yang Yuanqing, Campbell Soup CEO Denise Morrison, Cisco CEO John Chambers, Facebook COO Sheryl Sandberg, Andreessen Horowitz Co-founder Marc Andreessen.

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insigniam quarterly spring 2015 - pathways to growth

Leadership & Management

enterprise growth

sides of corporate growth

driving growth

fuel growth

abundant growth

organic growth

stream of dramatic growth

growth strategies wither