01 Oct 1996
Leading In a New Eraby Nancy O. PerryTopics:
Four 1971 classmates — three who serve on the front lines of corporate leadership in the 1990s and one learned observer of the changing role of the senior executive — comment on the complex task of running a successful company in an economy transformed by globalization and new technologies.
How have today's senior executives, trained in the days when the pyramidal organization and domestic markets held sway, made the transition to a global, technology-driven economy? For three 1971 classmates and corporate leaders, Donald J. Carty, Paul R. Charron, and George J. Harad, the journey has been eventful. The lessons of their experience speak volumes for all of American industry, as firms large and small grapple with a host of new challenges that those beginning their careers in 1971 never anticipated.
Another MBA '71 graduate, HBS professor Christopher A. Bartlett, has been researching how management practice has evolved since the "benevolent, high-growth environment" following World War II. That era provided fertile ground for the growth of Alfred Sloan's "strategy, structure, systems" model of the divisional corporation studied by all postwar MBAs. In three recent Harvard Business Review articles coauthored with Sumantra Ghoshal of the London Business School, Bartlett maintains that a revolution in corporate management, driven by the strong dual forces of globalization and technology, is now replacing Sloan's model with something altogether new — an organization in which top management's focus extends beyond strategy, structure, and systems to purpose, processes, and people. All of the restructuring, reengineering, downsizing, and delayering that has occurred during the last decade, Bartlett attests, is the manifestation of the painful birth of this new management model.
Few are more familiar with this upheaval and transformation than '71 classmates Carty, Charron, and Harad, whose companies American Airlines, Liz Claiborne, and Boise Cascade, respectively, are setting standards for success in this changing business environment, even as these three respected executives set standards for leadership.
As good as the late 1980s were to forest products company Boise Cascade (BC) Corporation, the early 1990s spelled near disaster for its primary business — making plain, white copier paper. Like others in the industry, Boise Cascade, a manufacturer and distributor of office products, building products, and paper, had expanded production capacity to meet the strong demand for paper in the late 1980s but bore the brunt when demand began to taper off in 1990. The company — which started up in 1957, rapidly diversified in the 1960s, streamlined in the '70s, and became robust again during the '80s — reported losses approaching half a billion dollars between 1990 and 1994. But that tide is changing, says BC's amiable chairman George Harad, who became CEO in 1994 and chairman in 1995. Harad has launched a series of initiatives to bring the company's management structure up-to-date. Last year, Boise Cascade announced its most profitable year ever, with earnings of $352 million on sales of $5 billion.
At about the same time that Harad's company was struggling against declining profits, across the continent at 1441 Broadway in New York City, managers at leading apparel maker Liz Claiborne Inc. (LC) were coming off a sixteen-year high that had begun to wane in 1992. A combination of factors — the national recession, weak spending on women's apparel, increased competition, department stores merging or going out of business, and the company's admitted inattention to customer feedback — led to stagnating sales and declining profits. "When I walked into this company in 1994," says Claiborne's straight-talking chairman, president, and CEO Paul Charron, "it was a $2-billion corporation without a plan. It was not going down by the bow or anything; it was just steaming around in circles."
Even as Liz Claiborne circled, AMR, the parent company of American Airlines, the world's largest airline, was in the process of laying off several hundred managers, technical specialists, and clerical workers — part of a wave of downsizings begun in 1990 that would eventually cut 15,000 jobs from the company's payroll. In ten years of growth between 1982 and 1992, the number of employees had risen from 41,500 to 116,700, and the airline's fleet had grown from 231 to 897 planes. However, in 1991, due to a variety of deteriorating conditions throughout the industry during the previous decade, the company posted its first losses ever, and for the last five years, American has strived to trim some of its excess growth. Donald Carty, American's president since March 1995, says that dealing with the ramifications of globalization and with labor union negotiations are the two most pressing challenges in his industry.
Carty, Charron, and Harad — all chiefs of their organizations (Carty reports directly to AMR chairman Robert Crandall) less than two years — have an exciting opportunity before them, according to Professor Bartlett, who explains that the challenge facing today's business leaders is threefold. While the old strategy-structure-systems doctrine was very effective at allocating capital, he explains, it has proven a constraint as companies try to manage information, knowledge, and expertise — the emerging sources of competitive advantage.
"Today's top management needs to move beyond its focus on strategy that defines a rational product-market position to a sense of purpose that captivates employees' attention and commitment," Bartlett asserts. Managers, he says, "need to broaden their view from a structure that defines tasks and divides resources to a process-based perspective focused on ways to link and leverage the individual competencies and capabilities that exist within the organization. And," he concludes, "they need to shift their attention from sophisticated systems that often result in a remote and analytic view of the organization and recognize that they can exert much greater influence by getting directly involved in the recruitment, development, and deployment of people."
Indeed, as disparate as are the industries in which Boise Cascade, Liz Claiborne, and American Airlines operate, the "people equation" seems to be at the forefront of each of their leaders' minds. "I really believe that the most important competitive element a company has are the people who work in it," notes Boise Cascade's Harad. Harad prefers to lead by example, encouraging his people to be involved in the decision-making process at every level of the 17,320-employee company. "Most nonhuman resources, such as capital or equipment, can be acquired," he says. "What's more important is how a corporate strategy is executed and how people utilize resources."
At Boise Cascade, where a philosophy of total quality management has been in place for the past several years, Harad says that people are involved "fairly far down" within the company's various businesses in developing strategies and the plans to carry them out. "In our paper business," he relates, "we just went through a strategy review that involved about two hundred people, each of them looking at a different area. That process obviously takes longer to do," he notes, but is well worth the effort, because it "creates more understanding of why we've chosen a particular direction, as well as more readiness to implement the strategy than had we tried to force it through the organization from the senior management level."
Unlike Harad, who rose through the ranks of one corporation following his graduation from HBS, Paul Charron, who came to HBS after five years of active duty in the Navy, worked for several companies in different industries before being brought on by the board at Liz Claiborne as vice chairman and COO in 1994. Founded in 1976 by fashion designer Liz Claiborne, her husband, Arthur
Ortenberg, and two other partners, the tiny shop had rocketed to success in its first year and hadn't let up until sales hovered at the $2-billion mark for the two years preceding Charron's arrival. By then, founder Claiborne had moved on to other activities, and the company was encumbered by a highly centralized management style and a sense of complacency.
When Charron, a marketing expert who cut his teeth at Procter & Gamble, discovered upon his arrival at LC in 1994 that the company had done relatively little consumer research, he immediately launched an intensive survey of customer needs. He also performed an asset inventory of the entire organization, which revealed "a lot of smart, highly motivated, relatively young people," he says, as well as a positive brand image, good relationships with key customers, and some $250 million cash (and no debt). "For me," Charron notes, "it was simply a question of how to deploy those assets and how to take advantage of the opportunities we had in order to get this company moving in the right direction.
"For the first three months," Charron continues, "I did nothing but listen. I had to listen to figure out what the hell was going on. All I did was go around and meet people — hundreds of people inside and outside the company, in the investment community, consultants, employees, the trade, and consumers. I don't think I had two meals alone." From these encounters, Charron soon realized that all of the important decisions in the company were being made by just a few senior managers. One goal, then, was to "win the hearts and minds of the top forty or fifty people in order to crystallize action around a program that made sense." By listening and learning from all of these constituencies, Charron outlined principles and clarified a vision to help guide newly empowered associates' decision-making.
Perhaps most important, he says, these changes have produced an environment in which "the proven expertise of our most effective veteran executives is complemented by fresh ideas from newly hired managers. In turn, our newer personnel learn from the experience of our veterans."
The company is already seeing the results of these synergies, Charron notes, in the form of closer cooperation among divisions, more innovative fashions, more effective business strategies, and sales and profit growth.
"We're also striving to foster a more creative environment for our associates," Charron continues. "Our designers, in particular, must have the freedom to innovate and create the best fashions possible. We're empowering sales, production, marketing, and other people to use their skills and talents to the fullest extent possible, fostering growth both for the company and themselves.
Our people," he stresses, "are our greatest asset."
In the airline industry, a company's strategic and tactical decisions historically have been made by one person — the CEO. But as the business environment has become more global, complex, and dependent upon vast amounts of information, the days of the "solo" CEO seem numbered. Indeed, says American Airlines' Don Carty,
"The biggest single change I've witnessed at the senior management level is the focus the CEO now has to have on the quality of people around him." Because of the sheer volume of information and complexity of the business today, he says, "the CEO must have increasingly competent people around to filter information and make recommendations to him.
"I spend much more of my time now managing people and 'people issues' — such as making sure people are compatible with each other. Ten or fifteen years ago," he says, "I spent more time on developing strategy and setting content and context for the organization."
Accompanying changes at the senior management level, Carty says, are the continuing pressures of managers' negotiations with labor unions. "It is critically important to our business to change the conventional confrontational approach to labor relations," Carty notes. In the past, he says, unions and companies have entered into negotiations from explicit and intransigent positions.
He believes that an interest-based approach should be taken to negotiations. "Both parties must clearly delineate their underlying interests and spend their negotiating energy trying to identify places where those interests overlap," Carty emphasizes. "As managers, our challenge is to convince all of our employees and their unions' leadership to change the way we have done business in the past and to create more economic value in the business for the benefit of both the employees and the shareholders.
"It doesn't make sense for the CEO to be at the table because of the enormous amount of time involved in defining and debating the interests of the parties," Carty continues. "The CEO needs to be a part of defining the interests of the company and understanding the interests of the employees and the unions that represent them in order to provide direction to the management negotiating team." This approach worked well, Carty says, in a recent negotiation with the Transport Workers Union. As a result of that negotiation, the company received "substantial new flexibility in its contract," while members of the Transport Workers Union received "new, unprecedented levels of job security, a new profit-sharing program, and an early retirement program — all of which had been identified as things the members of the union wanted."
If people are the most important resource in today's organizations, then it stands to reason that what and how people communicate will determine the success or failure of an enterprise. Says HBS's Chris Bartlett, "We need to think about organizations in a more flexible way, in terms of processes — not as a hierarchy of static and compartmentalized tasks and responsibilities but rather as a portfolio of flexible and interlinked roles and relationships." While the outmoded top-down management structure of corporate divisions gave managers tight control and enabled their companies to grow, Bartlett says, "it also fragmented resources and created a vertical organization that prevented small units from sharing their resources and competencies with one another." Information and other kinds of technology have enabled people to communicate laterally within their organizations — to move information from the margins of the company where frontline employees come face-to-face with customers, competitors, and new technologies — quickly and efficiently.
In the airline industry, for example, computer technology has fundamentally changed how service is delivered, as well as how decisions are made, AMR's Carty observes. "Our business, and our company in particular, has been very aggressive in using technology to change processes such as how you buy a ticket, how you get on an airplane, and so forth," he says. American is known for many of the innovations that revolutionized the industry since the onset of deregulation in the late 1970s, including now-commonplace ideas such as frequent-flyer programs, the planning of route systems around central hubs, and supersaver fares.
"We're using technology to help eliminate any impediments to a person boarding our planes," Carty says. "Starting in June, our customers were able to purchase American Airlines tickets on the Internet, and corporations are now buying their entire travel budget through specialized applications we deliver over the Internet."
Technology has also changed the decision-making process for airline employees, giving them "the ability to take vast quantities of data coming out of our operations and from other airlines, compress that data, and turn it into useful information," Carty explains. Other carriers have not been as
successful at this, he says. "I still see airlines that haven't yet recognized the value of information and of making it available to everyone," Carty observes. "The carriers that do that best will have a tremendous competitive advantage."
Liz Claiborne, too, is applying technology "aggressively," Paul Charron says, to reduce the cost of operations, the time-to-market with new fashion products, and the overall complexity of the company's operations. All forms of technology — whether computer-aided design and manufacturing, replenishment systems, or general information-sharing in the company's fourteen specialized areas, from women's clothing to menswear, cosmetics,licensing, and accessories — will be crucial to maintaining an edge in a "crowded" apparel marketplace (made up of Levi Strauss and VF Corporation, followed by Claiborne, Jones, and then a host of $50- to $500-million firms). "With the right combination of human and technological resources," Charron adds, "we can respond quickly, creatively, and appropriately to any challenge."
At Boise Cascade, George Harad has worked to erase former boundaries between the CEO's office and the company's front lines. He responds daily to dozens of electronic mail messages received from employees throughout the company. "The ease of communication and the ability to manage multiple activities conveniently have increased tremendously through the use of information technology," Harad notes. He points out that in the office products distribution business, order fulfillment (30,000 40,000 individual orders per day at peak ordering time), package delivery, and warehouse management would not be possible at current performance levels without information technology.
Another benefit of technology, Harad says, is in tying people together in the company's six vast pulp-and-paper mills. In BC's Rumford, Maine, mill, for example, 1,500 people work together at a mill site covering some 50 acres. "Information technology has enabled the people in that mill to view the entire papermaking process on their computer screens. Now everyone is able to understand what is happening upstream and downstream from where they are. They can also recreate conditions that existed at other times by banking the data. It's enabled people whose jobs used to be quite narrow to understand how their part of the process relates to all the others."
In other ways, in addition to technology, management can facilitate human connections and encourage employees to take initiative. "Part of managing through total quality," says Harad, "is to get people to understand that they are managing processes and not a series of discreet events. We've worked very hard to instill process improvement as a culture and to give people the analytical tools and managerial support they need to make these improvements." One of many employee initiatives occurred recently in BC's packaging division, for example, when a handful of employees developed a new type of corrugated cardboard box that takes advantage of specialized technology to make it stronger, lighter-weight, and less costly than a conventional cardboard box. "These people were on the lookout for a product that could be integrated with our paper business," Harad relates with pride. "Nobody asked them to do it; they just figured that it was a good idea and went with it. Now it's a terrific business. The people who are involved with a process know best how to streamline it, remove waste, and do only the things that add value," he says.
At Liz Claiborne, where, Charron notes, "Product is our reason for being," a new initiative has been launched that will take advantage of the expertise of workers throughout the organization. "Product drives everything we do," reiterates Charron. "In response to this focus, at the suggestion of our Leadership Council, we recently began a project to create a unique and identifiable aesthetic for the Liz Claiborne brand. The steering committee consists of seven senior managers from a range of areas, including accessories, menswear, and human resources. Together, they have created task forces of interdivisional, cross-functional associates at widely varying levels to plot the future approach to product from aesthetic, process, and environmental perspectives."
According to Charron, the group has been empowered to completely reevaluate the company's current product assumptions and development systems as part of Claiborne's transformation. "It is one of many flexible teams that have been established to address the evolving requirements of the market."
At American Airlines, Don Carty says that "we have tried to overcome the inefficiencies of highly hierarchical organizations by having a completely open attitude about what information is available to employees. Our business is changing so rapidly and individual managers are forced to make so many decisions that restricting access to information can only slow a company down. If you expect people to perform," he asserts, "you must give them the best tools with which to perform."
In a slower-moving, more predictable environment, the CEO could effectively act as the company's chief strategist. But in today's fast-changing world, with most expertise located on the company's front lines, many are feeling the need to push the strategy process deeper into the organization. At the top of the company, the critical task is to frame strategy within a broader sense of purpose — according to Bartlett, "a stretching ambition and a unifying set of values that provide employees with a sense of challenge and identity." By framing such a strategy, he says, the CEO can change the organization from one in which employees see themselves as working for an efficient corporation to a view of themselves as members of a purposeful organization. Only then, Bartlett maintains, will an individual make the kind of commitment that becomes a powerful source of competitive advantage.
Liz Claiborne's transformation from a culture accustomed to easy success into a leaner, more cost-effective, and competitive entity has been Paul Charron's goal in introducing the company's "LizFirst" initiative. "LizFirst," Charron explains, "stands for first in responsiveness, service, and total value — principles that are central to achieving an ongoing competitive advantage.
LizFirst is the umbrella under which all of our change initiatives operate," he explains. "Across the company, associates are constantly searching for better ways to do business in response to the LizFirst challenge.
"While our management structure is not totally democratic here," Charron adds, "we make a point of empowering our associates in the management of change. We tap the emotional energy of our entrepreneurial heritage and our leadership position in this unique industry. There's a real sense of mission here as eachof us personalizes this vision of what Liz Claiborne can become."Under the rubric "Boise Cascade is back, and Boise Cascade is better," employees there are finding renewed inspiration in the company's commitment to continuous learning and total quality management. "The reach of our business — what some people call globalization — has changed so rapidly that things that have an impact on your business come from places you've never even heard of," says George Harad. "In this kind of environment it's difficult to establish strategy in any detail. What we're trying to do is establish direction and figure out where we can move to create competitive advantage. Sustaining that advantage over time or even acquiring it in the first place gets to be very, very fluid." Harad says that Boise Cascade needs people who understand their competitive situation and have the authority to act upon their decisions quickly, which is why learning must be forced down to lower levels in the organization and the decision-making process made "more flexible and less centralized than it used to be."
"Our real business is not simply to make paper and building products or to distribute office products," Harad adds. "Our real business is to create value with the resources we have gathered and, most important, to do that with the people who are Boise Cascade."
Establishing a unifying sense of purpose has been a simpler task at American than at many other companies, according to Don Carty. "We have been very lucky in one sense," he says. "American's employees all share the view that American's mission is to be the greatest airline in the world. This common vision has resulted in our employees knowing each day that they must do better than the employees at any other airline if we are to fulfill our mission. The employee commitment that accompanies that sense of purpose has certainly been a powerful competitive weapon for American."
The corporation taking shape today is very different from the one we learned about in the MBA Program," reiterates Chris Bartlett. "In today's far more complex, globalized economy, that outmoded, hard-edged analytic model of organization and management simply will not work. While those old principles haven't disappeared, top managers need to move beyond them to empower people at the front lines to make the judgments that will make their companies more flexible. To do that," Bartlett concludes, "there must be a strong sense of purpose that binds people to their organizations." For Don Carty, Paul Charron, and George Harad, nurturing that sense of purpose is at the top of the agenda.
Since leaving HBS, Don Carty has spent most of his career in the airline industry, working in a variety of senior management positions at three different carriers in the United States and Canada. Currently, he is president of AMR Airline Group and president of American Airlines, Inc., the nation's largest domestic carrier. As the company's chief day-to-day airline executive, Carty is responsible for all operational elements of AMR's several airline businesses. He directs the overall operational, marketing, labor negotiating, safety, and capacity planning activities at American and the four AMR Eagle carriers, as well as the company's cargo division.
Joining Liz Claiborne Inc. in 1994 as vice chairman and COO, Paul Charron became president and CEO one year later and chairman of the company in May1995. Previously, he was executive vice president of VF Corporation, the country's largest publicly held apparel manufacturer, supervising its Vanity Fair, Vassarette, Barbizon, Jantzen, and Healthtex divisions, among others. Charron's varied career has included stints in advertising (with Brown & Bigelow), sales and marketing (at Cannon Mills and General Foods), and brand management (with Procter & Gamble). During his five-year career as a naval officer prior to entering HBS, Charron served for one year in Vietnam.
George Harad began his 25 years with Boise Cascade Corporation in a real-estate subsidiary the company no longer owns. Rising through the company's ranks as a financial strategist, he has been CEO since July 1994 and became chairman in April 1995. An integrated paper and forest products company based in Boise, Idaho, with operations in the United States, Canada, Mexico, and Great Britain, Boise Cascade manufactures and distributes paper, paper products, building products, and office supplies, and owns or controls some three million acres of timberland to support these operations.
The MBA Class of 1966 Professor of Business Administration, Chris Bartlett has been a member of the HBS faculty since 1979. His current research focuses on the ways in which new organizational structures and management processes are changing the core roles and responsibilities of managers. His 1989 book, Managing Across Borders: The Transnational Solution, coauthored with London Business School professor Sumantra Ghoshal, has been translated into nine languages and adapted into a video program. At HBS, he has taught General Management, International Management, and Ethics and Corporate Responsibility. He served for three years as chairman of the School's International Senior Management Program and is currently chair of the General Management unit.