Bower on Strategy

National Post Jan. 5:

CAMBRIDGE - Harvard Business Professor Joseph Bower believes that General Electric and Procter & Gamble are the two most "phenomenal" companies because of their unique corporate cultures.

"They promote from within and have put emphasis on people with the talent and ability to build and sustain an organization that can execute really well in difficult times," he said in a recent interview in his office. "The only template is they invest in people and build a culture."

Professor Bower is an expert on corporate strategy and organization. He has written dozens of books and articles and serves on a number of large corporate boards such as Loews Corporation, holding company for the wealthy Tische family; Brown Shoe Inc.; ML-Lee/Acquisition Funds; New America High Income Fund; Sonesta International Hotels Corporation and trustee of Putnam Emerging Opportunities Portfolio.

He, and Professor Clark Gilbert, have done landmark studies into "disruptive technologies" or the restructuring or demise of companies following unrelenting innovation. More recently, he has been examining how companies can master new technologies, globalization and deal with uncertain futures.

"Our studies look at the way companies actually make strategy, the problems associated with that and what arrangements can deal with those problems," he said.
Strategies come to fruition if championed by effective managers or they languish if the responsible manager's track record is less than stellar. This is not a bad process because it amounts to checks and balances in order to carefully screen projects along the way.
"The ability to get resources has to do with a manager's track record because everyone looks after their reputations very carefully," he said. "By the time, a strategy gets to the finance committee, ranking has taken place. The right signatures have already signed off. So a director on the committee might say `Sally's project? She's great. Never failed. Does she need more money?' Or it might be `Harry? What's he doing here?'"

But "disruptive technologies" have made strategic planning more difficult for established, large corporations. The tire industry, for example, did not react quickly enough to the creation of radial tires which lasted twice as long.

Even those who began producing these superior tires, continued to expand production of the traditional tires. This squandered future resources and made losses greater than necessary as radials devoured the entire market.

A similar problem occurred in the disc drive business years ago. Most pioneers went out of the business because they did not realize they had to migrate quickly into the next generation of technology.

"In well-run companies, resources go toward what the customers really want and toward finding out what a new generation of customers wants," he said.
Typically, big publicly-held companies with lots of divisions rely on their customers to tell them what to produce or change. Their managers play it safe by sticking with tried-and-true customer bases. But that allows foreign and entrepreneurial firms to come in and serve others, then eventually invade the traditional companies' markets, he said.

Giants like GE and P&G are large, but innovative in terms of products but also in terms of their strategic development process.

"They don't interfere with the process but periodically intervene. They remain informed then only intervene when they can either help by absorbing risk or providing entrepreneurial capital such as getting units to cooperate or drive the process faster," he said. "They perform an override function."

"Jack Welch [former GE CEO] called them `deep dives' - or the process of going way down _in an organization in order to help work out the problem. Corporations must be able to break routines. It's not interference but getting a different discussion going."

Andy Grove, CEO of Intel Corporation, said this is key to innovation because usually the innovators and executives are separated.

"He said you have to have the knowledge power and the corporate power in the same room," said Professor Bower. _The CEO must drive the process and develop then nurture a team which will do the same, he said. One of the biggest problems in U.S. businesses has been the short tenure and inordinate attention paid by executives toward their compensation packages and not the corporations they are responsible for. The stock option phenomena is mostly to blame.

But great CEOs must embody other traits in order to midwife strategies that will sustain the enterprise through tough times.
"Great leaders aren't necessarily charismatic but they must have a dispassionate objectivity as they look at the world and business but they must be absolutely passionate about people. They must embody both."