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General Electric Blame Must Be Shared: Summary of Ex-CEO Jeff Immelt’s ‘Hot Seat’

March 4, 2021 By Nagesh Belludi Leave a Comment

Leadership is tough. Some things work out, and some don’t. Other things end up epic failures. But no company gets anywhere without trying.

In the fullness of time, when the company does well, as suggested by its stock price, such leadership attributes as optimism and foresight are heralded as brilliant. But when things go wrong, these very attributes are the first to get the blame.

“More complete telling of the truth”

Hot Seat: What I Learned Leading a Great American Company (2021) is former General Electric CEO Jeff Immelt’s response to the allegations that his ineffectiveness led to the collapse of the once-mighty company. It’s an engaging book that must be studied after Wall Street Journal reporters Thomas Gryta and Ted Mann’s worthwhile postmortem, Lights Out: Pride, Delusion, and the Fall of General Electric (2020; my summary.)

My legacy was, at best, controversial. GE won in the marketplace but not in the stock market. I made thousands of decisions impacting millions of people, often in the midst of blinding uncertainty and second-guessed by countless critics. I was proud of my team and what we’d accomplished, but as CEO, I’d been about as brilliant as I was lucky, by which I mean: too often I was neither.

General Electric Blame Must Be Shared: Jeff Immelt

Confluence of bad luck, bad timing, leadership mistakes

I’ve previously written a dissertation on what happened at General Electric (GE.) Immelt had a tough act to follow. Under the previous CEO, the exceptional Jack Welch, GE got spoiled by greed and got away with a lack of transparency.

Over the years Jack Welch had collected a group of idol worshippers and sycophants around and outside the company who fostered an unrealistic view of GE and of Jack himself.

Immelt was saddled with Welch’s doomed legacy, but Immelt failed to right-track it in his 16 years at the helm.

Early in his tenure as CEO, Immelt realized the scope of a potential disaster in GE Capital but couldn’t break its bad habits swiftly. In fact, Immelt went about pivoting the company around slow-growth industrial products. Still, as he did so, his strategy entailed relying on GE Capital to deliver easy profits. It was a hard addiction to break, and Immelt couldn’t discard GE Capital easily.

In the short term, GE Capital was our strategy. We had no other engines of growth. We had to keep our heads down and weather the scrutiny. … We would let the rest of GE Capital grow so that we could keep earnings on a steady path, while the industrial businesses could catch up.

On top, Immelt overpaid for acquisitions, most prominently for the French power generating equipment company Alstom. At the same time, his bet on fossil-fuel-based power equipment was spectacularly mistimed because market conditions deteriorated quickly.

In the final years, Immelt’s misfortunes, even in such previously thriving businesses as healthcare and transportation, piled on. When Immelt called Jack Welch after stepping down, Welch told him supportively, “We both know you never caught a break.”

Jeff Immelt Admits He Let Everybody Down.

'Hot Seat General Electric' by Jeff Immelt (ISBN 1982114711) Immelt’s Hot Seat is a fascinating account of what it takes to lead a significant global business in times of rapid change.

Immelt owns up his many mistakes with a certain self-awareness. He rebukes a few people while acknowledging he should have been more accountable for everything that happened under his watch. But Hot Seat is primarily a then-in-time rationale of his significant decisions.

Interestingly enough, Immelt doesn’t offer insightful misgivings for the lack of transparency in GE’s financial statements, his outsized compensation, and the mischaracterization of insurance charges and pension liabilities.

Be advised, though, there’re so many details in Hot Seat that are unknowable without a first-rate knowledge of GE’s people and business model, starting with the Welch era.

“Every job looks easy (until you’re the one doing it)”

Read Hot Seat: What I Learned Leading a Great American Company (2021.) General Electric’s fall is a complicated story. It deserves to be heard from insiders such as Immelt as it does from journalists and stockholders.

Hot Seat should leave you with a fair-minded assessment of General Electric, Jack Welch, Jeff Immelt, financial engineering, the conglomerate business model, and Wall Street-oriented capitalism itself. These, sadly, many people don’t understand or know completely.

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Filed Under: Business Stories, Leadership Reading, The Great Innovators Tagged With: General Electric, Jack Welch, Leadership Lessons, Leadership Reading

Easy Money, Bad Deals, Poor Timing: The General Electric Debacle // Summary of ‘Lights Out’

December 14, 2020 By Nagesh Belludi Leave a Comment

The story arc of the unraveling of General Electric should be familiar to followers of business news over the last two decades. Wall Street Journal reporters Thomas Gryta and Ted Mann’s crisp Lights Out: Pride, Delusion, and the Fall of General Electric (2020) draws together the vital episodes in one impassive narrative. It’s brimming with lessons about the hazards of obsessively focusing on impressing Wall Street.

Decades of Bad Decisions and Careless Oversight Ruined GE

'Lights Out General Electric' by Thomas Gryta (ISBN 035856705X) The fall of General Electric is really the story of how long-time CEO Jeff Immelt got saddled with the doomed legacy of the previous CEO, Jack Welch.

In 2001, Immelt took over a ship that was in trouble but wasn’t sinking yet. Unbeknownst to many analysts and investors—and overlooked by Jack Welch-buffs,—General Electric had been spoiled by greed, lack of transparency, and “lax oversight and buried risks.”

As a rising star, Immelt was part of Welch’s apparatus, perhaps to a smaller extent, at the GE Medical Systems division that Immelt ran previously. Early in his tenure as CEO, Immelt realized the scope of a disaster in the making. However, he didn’t act quickly and decidedly enough to fix the ill-fated ship’s rotten bits.

To focus on the stock’s negative return during Immelt’s 16 years as CEO and pit it against the sixtyfold return over Welch’s 20-year term is myopic. This argument is definitely understandable, yet it is scarcely convincing.

Welch’s good times couldn’t last forever, and Immelt had a tough act to follow. Yes, Welch was a forceful numbers-obsessed management mastermind who transformed GE into the world’s largest, most profitable, and best-admired company during his tenure as CEO. However, many of the mistakes of his corporate strategy manifested years later.

Welch would argue that he pushed his underlings to produce results, not fraud. But even if the CEO didn’t bend the rules himself, Welch cultivated an environment of pressure that incentivized people to do just that.

Welch was fond of saying, “You reinforce the behaviors that you reward. If you reward candor, you’ll get it.” Welch’s playbook rewarded—and got—the worst traits of modern capitalism. In so doing, he sowed the seeds of the company’s tragic decline.

Jack Welch’s Playbook Was Long-term Destructive to GE

Welch had a take-no-prisoners attitude to running GE. He set overly aggressive targets for his managers. He engaged in accounting shenanigans and consistently “managed” the numbers to maintain the myth of consistency and limitless growth. Behind the scenes, Welch’s machination was made possible by crafty-but-legal accounting practices (with auditor KPMG’s blessings, nonetheless,) mazes of financial deals, and murky structures. Welch even underfunded reinsurance reserves by $9.4 billion, helping pump up profits from 1997 to 2001.

Managing financial results wasn’t unique to GE, but the degree of GE’s reliance on the practice was. Management, with its customary swagger, treated the frenzy of last-minute tweaks and transactions each quarter as entirely natural. GE executives have acknowledged that they worked to make sure earnings were always growing in a nice smooth trajectory.

Immelt knew—or came to comprehend—of all this tomfoolery but didn’t break GE’s bad habits swiftly. Specifically, Immelt didn’t dismantle the GE Capital unit, the company’s most significant liability, and it continued to haunt GE. Under pressure, the complex conglomerate structure that Welch had held together during the good times of the ’80s and the ’90s started falling apart towards the end of his tenure.

The winds were shifting on Welch. GE’s share price had soared for years, making it, for a time, the world’s most valuable company. [During Welch’s] final eighteen months, the share price fell 33 percent. … [Bond-market guru Bill Gross commented,] “Institutional investors have wondered why a company can continue to produce 15 percent earnings growth year after year, quarter after quarter.”

An Addiction That Was So Hard to Break

Decades of Bad Decisions and Careless Oversight Ruined General Electric At the heart of General Electric’s fall is how GE Capital came to gain an outsized influence over the parent company and ruined it. Under Jack Welch, GE Capital’s business model of high leverage and “financialization” was resoundingly successful. Financial engineering, e.g., recognizing revenue from long-term service contracts for power-plant repairs and jet-engine maintenance, is not only suspect, but it cannot manufacture results beyond the short term.

GE Capital was the nonbank bank that was embedded in the company’s fabric. Everything that GE produced was leased, rented, or loaned by GE Capital. In other words, the industrial side was sustained by the rise of GE Capital. It was too interlinked to everything else, and that impeded Immelt’s “definancialization” plans.

In the ’90s, Welch embraced the notion that it’s a lot easier to make money in financial services than in industrial manufacturing. The Capital unit provided huge dividends (with enormous risks) while the industrial side was less profitable but more stable.

No wonder, then, that Welch made GE Capital a gargantuan part of GE. GE Capital became the vehicle for his headlong obsession with enhancing pure shareholder value.

Sadly, Welch bet the farm on the continued success of GE Capital. It misused GE’s high-quality credit rating and became a colossal lender and a major shadow bank. Welch’s bet went sour in 2008—GE Capital was the largest commercial paper issuer going into the financial crisis. It needed a $139 billion government bailout, and it has continued to drain the company’s bottom line ever since.

Jeff Immelt focused on pivoting GE towards core industrial businesses. He doubled GE’s investment in R&D. He sold off slower-growth, low-tech, and nonindustrial businesses, but not soon enough. He managed to keep revenues growing and delivered high margins until the financial crisis hit.

Cleaning Up the Mess Left by Welch

Even as Immelt went about restructuring the company around industrial products, he continued to rely on GE Capital “for smoothing out rough quarters and delivering easy profits.” It was a hard addiction to break.

Lights Out acknowledges that Immelt was “playing with a tough hand,” and he knew that “his success would be attributed to his predecessor but his failure would be seen as all his own doing.”

The authors reveal plenty of leadership blind spots. Immelt was a genial and assertive salesperson, and he didn’t like hearing bad news. He didn’t like delivering bad news either.

CEOs are expected to be optimistic, but Immelt was unfailingly overoptimistic. Perhaps his overconfidence was a manifest outcome of the company’s cultural dynamics. Sadly, when a company is doing well, such CEO attributes as optimism, audacity, and foresight that Immelt’s leadership personified are heralded as brilliant, but when things go wrong, they’re the first to get the blame. Results are all that matters.

Some board members … had … a poor impression of Immelt’s deal-making skills. The knock on Immelt was that he chased trends, arrived too late, and paid handsomely. One rival CEO joked that he was “fad surfing.”

At General Electric, Jeff Immelt Made Bad Decisions and Was Slow to Make Changes

Immelt Made Bad Decisions and Was Slow to Make Changes

Immelt spent over $100 billion on ill-timed share buybacks to shore up earnings-per-share and so the stock price. He had a history of overpaying for acquisitions. He was reluctant to back away from deals that he was dead set on, even when the deal’s prospects became dubious during the parleying.

Immelt tended to start negotiations too high, sometimes to the surprise of others involved in the deal, leaving little room for negotiation. It wasn’t uncommon for the board to approve one of Immelt’s deals, only to have him ask for approval to pay more in order to make the deal work. In some ways, this tendency simply reflected Immelt’s experience as a salesman. He’d always needed to close deals, and for a company like GE, paying a little more didn’t seem to cause any concern.

No decision could be more illustrative of Immelt’s fateful deal-making than the one for Alstom, the French power generating equipment company. Immelt set his reputation on that deal because GE Power would be “the centerpiece of his new GE.” Immelt didn’t walk out on the deal even after regulators forced General Electric to divest Alstom’s lucrative service business and take on 30,000 high-cost employees in Europe.

Worst of all, the deal was spectacularly mistimed. With the Alstom purchase, Immelt doubled down on fossil-fuel-fired turbines just as renewables were becoming more cost-competitive. Demand for GE Power’s products collapsed in next to no time, and that unit’s profit plunged 45% in 2017. The whole Alstom transaction turned out to be an out-and-out disaster. In 2018, General Electric took a $22 billion goodwill impairment charge for the Alstom acquisition.

Hope and Optimism Could Take Immelt Only So Far

It’s both easy and unfair to comment on what GE should have done. Immelt’s prospects were seriously encumbered by the September 11 attacks, post-Enron accounting rules, the 2008 financial credit crisis, and a substantial recession that hit the energy industry.

The world in which Jeff Immelt had thought he would be leading GE had been turned upside down. The recession and the uncertainty that followed the terrorist attacks had dampened the global growth on which GE’s industrial businesses depended. And changes to accounting rules in the wake of the Enron scandal, by requiring that the company now account for the vast financial holdings on its balance sheet at GE Capital, had eliminated an easy and reliable source of paper profits to smooth over rough periods.

Lights Out explains how, during the last five years of his tenure, Immelt’s misfortunes piled on. GE Healthcare took a pause (it’s innovative, high-profit machines had become increasingly commoditized.) The GE Renewables business rarely turned a profit. The GE Transportation unit’s sales stagnated. GE Power built an extensive inventory hoping for a return in demand for its large, expensive machines. The merger of GE Oil and Gas with Baker Hughes turned out to be untimely too.

For many investors, GE had lost its mojo. Its lackluster performance, fuzzy financials, and unknown risk just didn’t fit with a lot of investment portfolios.

Leadership Mismanagement, Self-Dealing, Collusion

The deplorable collapse of General Electric, and GE Capital, in particular, was fostered by the board’s abysmal stewardship.

GE’s board was dysfunctional. It comprised too many directors who owed their cushy positions to Welch and Immelt and merely rubber-stamped their strategic actions. As chairman of the board, Immelt promptly cast out Welch-appointed directors who objected to his plans.

As they’d done under Welch, the board usually tended to approve Immelt’s recommendations and follow his lead. Some felt that Immelt manipulated the board, and it was whispered that members were chosen and educated to see the company through his visionary eyes. There was concern that the board didn’t entirely understand how GE worked, and that Immelt was just fine with that. Like many CEOs who are also their company’s chairman, he made sure that his board was aligned with him.

Just last week, GE agreed to a $200 million fine to settle a Securities and Exchange Commission probe into feel-good accounting at its Power and Insurance units.

General Electric Recent CEOs: Jack Welch, Jeff Immelt, John Flannery, Larry Culp

Too Steeped in the GE Culture to Effect a Major Transformation

Immelt was replaced by John Flannery, a finance specialist. Flannery had run the business development team when GE Power bought Alstom. He wasn’t likely to kick off any dramatic changes in GE’s business strategy. His proposals for GE’s transformation were consistent with Immelt’s strategy.

Flannery tried to stop GE’s hemorrhaging of money but wasn’t quick enough either. He showed reluctance—caution perhaps—to take risky and complicated actions that could have been costly or even impossible to reverse.

If Immelt was known for his vaulting optimism, Flannery soon became known for his indecision and endless analysis. Few decisions, even major ones, were final. A critical strategic move, like the separation of a major division, could be made, only to be reassessed at any time. Flannery’s style was quickly grating on top executives who worked with him.

The board got insecure quickly because of widespread public criticism that it had waited too long to remove Immelt. “After sixteen years of Immelt, Flannery thought that he had more time to turn the ship around, but when he looked for support from the board, there was none there.” Fourteen months into his term, Flannery was forced out.

For the first time in its 126-year history, GE, which prided itself as a talent factory, handed the leadership baton to an “outsider” to bring a fresh perspective.

New CEO Lawrence “Larry” Culp is generally admired for his stellar record of accomplishment at Danaher, a smaller industrial conglomerate. “Culp had more experience, and he also had no emotional attachment to GE.” Culp had joined GE’s board six months before and had started questioning the wisdom he’d received from Flannery and his team.

Having an outsider take charge of a storied company marks how much change the board desired. GE may not reclaim its once-celebrated footprint. But it’ll continue to be one of the great American business stories.

Jack Welch’s GE: Everything Worked Until It Didn’t

Recommendation: Must-Read Thomas Gryta and Ted Mann’s excellent Lights Out: Pride, Delusion, and the Fall of General Electric. It’s a great reminder that even America’s most iconic companies—and the world’s leading businesses—can go off the rails if things go wrong.

It wasn’t Immelt’s fault that the entire oil sector had turned south. But he was responsible for GE investors being so openly exposed to the collapse. … He had spent sixteen years at the top and, regardless of what Welch had left for him; he’d had plenty of time to fix it.

Lights Out is a revealing, reasonable, and accessible narrative of how a thriving company was humbled by sheer misfortune and poor leadership.

Jack Welch’s razzle-dazzle capitalism party could last only so long.

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Learning from the World’s Best Learning Organization // Book Summary of ‘The Toyota Way’

November 27, 2017 By Nagesh Belludi Leave a Comment

Toyota is a Paragon of Operational Excellence

Toyota is the World’s Most Benchmarked Company, and for Good Reason

Toyota’s cars are reputed for their reliability, initial quality, and long-term durability. It is the pioneer of modern, mass-production techniques and a paragon of operational excellence. Even if its reputation has taken a beating in the last few years because of the uncontrolled acceleration crisis and major product recalls, Toyota’s long-term standing as the epitome of quality production is undeniable.

Toyota measures and improves everything—even the noise that doors make when they open and close. As cars roll off assembly lines, they go through a final inspection station staffed by astute visual and tactile inspectors. If they spot even a simple paint defect, they don’t just quietly fix the problem merely by touching up the paint to satisfy the customer or their plant manager. They seek out systemic deficiencies that may have contributed to the problem, and may hint at deeper troubles with their processes.

World-Class Processes, World-Class Quality

'The Toyota Way' by Jeffrey Liker (ISBN 0071392319) As Jeffrey K. Liker explains in his excellent The Toyota Way, the genius of Toyota lies in the Japanese expression ‘jojo‘: it has gradually and steadily institutionalized common-sense principles for waste reduction (‘muda, mura, muri‘) and continuous improvement (‘kaizen.’) Liker, a professor of industrial engineering at the University of Michigan (my alma mater) has studied the Toyota culture for decades and has written six other books about learning from Toyota.

Liker establishes the context of The Toyota Way with a concise history of Toyota Motor (and the original Toyoda Textile Machinery business) and the tone set by Toyota founders Sakichi and Kiichiro Toyoda. Quality pioneers such as Taiichi Ohno, W. Edwards Deming, and Joseph Juran instituted groundbreaking philosophies that shifted Toyota’s organizational attention from managing resource efficiencies in isolation to managing the flow of value generated by the Toyota Production System (TPS.)

“No Problem is the Problem:” How Toyota Continuously Improves the Way it Works

Liker devotes a bulk of his book to the distinct elements of Toyota’s foundational principles: continuous flow, minimal inventory, avoidance of overproduction, balanced workload, standardized tasks, visual control, etc. He drills down to the underlying principles and behaviors of the Toyota culture: respect people, observe problems at the source, decide slowly but implement swiftly, and practice relentless appraisals of the status quo. Liker states, “Toyota’s success derives from balancing the role of people in an organizational culture that expects and values their continuous improvements, with a technical system focused on high-value-added flow.”

Toyota mindset and the organizational discipline

Companies that have tried to emulate Toyota have struggled not with understanding its management tools but with putting into practice the mindset and the organizational discipline that permeates everything Toyota does. “Understanding Toyota’s success and quality improvement systems does not automatically mean you can transform a company with a different culture and circumstances.”

Book Recommendation: Read The Toyota Way. As Liker observes, “Toyota is process oriented and consciously and deliberately invests long term in systems of people, technology and processes that work together to achieve high customer value.” The Toyota Way is comprehensive and well organized, if tedious in certain parts. It can impart many practical pointers to help improve the operational efficiency of one’s organization. Peruse it.

Postscript: I’ve taken many tours of Toyota’s Georgetown, Kentucky, factories and a few associated suppliers—once as part of a lean manufacturing study tour organized by Liker’s research group and other times privately. I strongly recommend them for observing Toyota’s matchless culture in action on the production floor. I also recommend the Toyota Commemorative Museum in Nagoya for a history of Toyoda Textile Machinery and Toyota Motor and their management principles.

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Book Summary of Donald Keough’s ‘Ten Commandments for Business Failure’

March 10, 2017 By Nagesh Belludi Leave a Comment

Coca-Cola executive Donald KeoughDuring a remarkable business career of 60+ years, Coca-Cola executive Donald Keough (1926–2015) developed an inspiring lecture on leadership failures. At the prompting of Warren Buffett, a former neighbor and friend, Keough published his lecture as Ten Commandments for Business Failure.

Keough worked for the Coca-Cola Company for 43 years and rose through the ranks to become its President and COO. Following retirement in 1993, he served on the boards of Coca-Cola, Buffett’s Berkshire Hathaway, and many other organizations.

At Coca-Cola, Keough steered the company’s global product expansion and directed its iconic brand image and enviable distribution network. He became the business world’s most celebrated non-CEO leader.

Keough gained reputation as the public face of Coca-Cola’s 1985 New Coke misadventure—he delivered an on-TV mea culpa (see YouTube video) and announced the volte-face reinstatement of “Coca-Cola Classic.”

Donald Keough’s Straightforward Analysis and Leadership Lessons

'Ten Commandments for Business Failure' by Donald Keough (ISBN 1591844134) Keough’s Ten Commandments for Business Failure is a predictable, yet insightful—even if circuitous—exploration of ten (and a bonus) leadership mistakes.

  1. Quit Taking Risks: “Failures, for all the valuable lessons that they teach us in hindsight about management blunders, are simply risks that just didn’t work out. Such miscalculations, costly though they might be at the time, are part of the price of staying in business. As Peter Drucker pointed out nearly fifty years ago, it is management’s major task to prudently risk a company’s present assets in order to ensure its future existence.”
  2. Be Inflexible: “Flexibility is a continual, deeply thoughtful process of examining situations and, when warranted, quickly adapting to changing circumstances. It is, in essence, the key to Darwin’s whole notion of the survival of the fittest. … Most recalcitrant business leaders would certainly never actually characterize themselves as inflexible. More than likely they would pay lip service to a philosophy of change, expressing the usual platitudes about how they embrace change and welcome it.”
  3. Isolate Yourself (i.e., Be Out of Touch): “One of the traits of many of the legendary builders of business was that they had an uncanny ability to know and relate to their employees at every level … if you isolate yourself, you will not only not know what you don’t know about your business, but you will remain supremely and serenely confident that what you do know is right. Isolation, carried to its most extreme form, tends to breed a sense of almost divine right.”
  4. Assume Infallibility: “The infallible we-know-best attitude of management has caused many companies to ignore reality and miss opportunities … If you want to increase your chances of failure, deny the possibility that you are not always 100 percent perfect in your judgment. Ignore the fact that sometimes others do know a thing or two. … So, if you want to fail, pose as an infallible leader.”
  5. Play the Game Close to the Foul Line: “Business finally boils down to matters of trust consumers trust that the product will do what it promises it is supposed to-investors trust that management is competent-employees trust management to live up to its obligations. In recent years we seem to have quite a few smart, energetic people who have evidenced a rather fuzzy view of the right thing.”
  6. Don’t Take Time to Think: “Time to think is not a luxury. It is a necessity. As Goethe noted: “Action is easy; thought is hard.” Yet action frequently-in fact, more often than not-takes on a life of its own. We pay homage to reason, but we are held hostage to emotion. We are, after all, feeling creatures, and in the excitement of a particular endeavor once the ball is rolling, it’s difficult to stop.”
  7. Put All Your Faith in Experts and Outside Consultants: “The narrow perspective of what appears to be genius is often the inverse of wisdom.”
  8. Coca-Cola Company's COO Donald Keough with Investor Warren BuffettLove Your Bureaucracy: “As [Warren] Buffett said, “It’s unbelievable how much bureaucracy can build up in businesses, particularly those in which you can pass almost all of your costs to the consumer.” … On the hazards of bureaucracy: at their worst, they cannot only impede success, they can also precipitate disaster. … The more cooks there are in the kitchen, the greater the chance that bureaucratic decision making will either be deadlocked or the decision will become an exercise in group wishing. … Ultimately, a bureaucracy can become so dysfunctional that there is literally no one who can rain on the parade. The team can never make anything approaching an objective decision.”
  9. Send Mixed Messages: “Sending mixed or confused messages to your employees or your customers will jeopardize your competitive position, and result in failure.”
  10. Be Afraid of the Future: “The most serious problem with great pessimism is that it is absolutely paralyzing. People are so afraid of dire consequences that they throw their hands up in despair and do nothing. Fear of the future guarantees that the future will be a failure. … To aspire to any kind of leadership in business you simply have to be a rational optimist. One optimist in a sea of pessimists can make all the difference.”
  11. Lose Your Passion for Work-for Life: “A major component of happiness in the business world is finding something you love doing, whatever it might be, and then finding a way to do it. To have success you have to have a high level of unadulterated desire to get up and go to work. … The easiest way to develop an inner passion in a business setting is to focus all your mind and heart on four aspects of your world: your customers, your brands, your people, and, finally, your dreams.”

Words of Wisdom from a Distinguished Corporate Executive

Donald Keough was the public face of Coca-Cola's 1985 New Coke misadventureAmong the myriad offerings of “rules for success” volumes, books such as The Ten Commandments are distinctive for their memorable business stories and examples. Keough’s candid analyses include narratives as captivating as the historical origin of Coke, the commercial history of the xerographic machine, the Coke-Pepsi rivalry, Coca-Cola Company’s ownership of Columbia Pictures, and the New Coke debacle. When asked in an interview if New Coke was worth the risk, Keough famously replied,

I wouldn’t want to do it again. But it was an enormous learning experience, and oddly enough, it turned out to be positive for the Coca-Cola Company. Our sales increased when we brought the original formula back. The reaction from our customers was overwhelming. Once we realized that we had made a mistake, I went on television and simply said that we don’t own this brand, you do. You’ve made it clear that you want the original formula back, and you’re getting it back.

Henry Ford and Model TIn the chapter on flexible and adaptive leadership, Keough blames Henry Ford’s stubbornness for the flagging market share of the Model T vehicle. During the mid-1920s, the industrial triumph of his mass production system and the commercial success of the Model T blinded Henry Ford to a budding customer penchant for cosmetic customization and convenience features. Electric starters, for example, were starting to be perceived as essentials and not as luxuries. Keough argues,

Henry Ford reportedly said, regarding the Model T, “They can have it in any color they want, as long as it’s black.” For a long time that was just fine. But then people began to get tired of the black tin lizzies. Yet even as America was roaring into the 1920s with bigger, faster, fancier, brightly painted automobiles, Henry Ford kept insisting that the Model T, essentially unchanged since 1908, was still what America wanted and needed and he was not going to change his mind. Inevitably, upstarts like Chevrolet and Dodge began to erode Ford’s market and seriously challenge the company’s dominant leadership. At last, more rational minds prevailed and Ford admitted the need to produce a better vehicle. After shutting down his main plant for six months, he successfully launched the Model A in 1928. But Henry Ford’s inflexibility had brought the company to the brink of disaster and cost it a competitive edge that it has never regained.

Recommendation: As a fast read, Donald Keough’s The Ten Commandments for Business Failure is worthwhile for its many nuggets of business history. Even though many of his cautionary lessons are not entirely unexpected, some are insightful. The “play the game close to the foul line” warning about values and ethics is especially thought-provoking. Keough writes, “The fact is, if you play on the edge the organization will step over the line from time to time. It is inevitable. Warren Buffett says: ‘Play to the center of the court’.”

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Filed Under: Leadership Reading Tagged With: Books, Change Management, Entrepreneurs, Ethics, Leadership Lessons, Leadership Reading, Winning on the Job, Wisdom

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About: Nagesh Belludi [hire] is a St. Petersburg, Florida-based freethinker, investor, and leadership coach. He specializes in helping executives and companies ensure that the overall quality of their decision-making benefits isn’t compromised by a lack of a big-picture understanding.

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RECOMMENDED BOOK:
The Art of War

The Art of War: Sun Tzu

The ancient Chinese master Sun Tzu reveals the essence of conflict and how to win by knowing yourself, knowing your enemy, and fighting only when you can win.

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Unless otherwise stated in the individual document, the works above are © Nagesh Belludi under a Creative Commons BY-NC-ND license. You may quote, copy and share them freely, as long as you link back to RightAttitudes.com, don't make money with them, and don't modify the content. Enjoy!