LESSON 7. Lead By Example

Finally, there is no question that if senior managers want the best performance out of their employees, they must perform well themselves.  Every action must reflect the priorities they want their staff to emulate. Leaders should take no actions without judging how others will interpret them or without assessing the impact those actions will have on others.

I know of one CEO who, on his first day on the job, asked for a pencil holder for his desk.  His secretary showed up several hours later with a really spiffy looking one – obviously manufactured specifically to grace the desk of some grand poobah.  When he found out how much it cost, the CEO immediately ordered her to take it back and get him a coffee cup for his pencils. By the end of the day, the story had spread like wildfire through the 400-person organization.  “You could be sure that I didn’t get any gold-plated proposals after that happened,” he remarked to me months later.

Understanding the effects of your actions on your company is essential to long term success.  Leading by example becomes the means by which younger, aspiring members can acquire wisdom and learn what they need to get ahead, to be respected, and to get rewarded. More importantly, leading by positive example helps to create, instill, and reinforce a company value system that will continue to influence lower level manager behaviors long after the leader has died (Thomas Watson at IBM; May Kay), retired (Alfred Sloan at General Motors), or simply moved farther away from the grassroots operations as the organization grows (Phil Knight at Nike).

Senior managers, therefore, need to recognize that subordinate managers are watching them closely and are eager to follow the direction and example of their superiors.  In the corporate context, imitation becomes more than just flattery: it is the essence of learning.

Before you can learn any new lessons, it’s important to first master the old ones.  Beware the consultant or guru bearing the latest flavor-of-the-month management wisdom.  The seven lessons I’ve presented here have shown, in my experience, to be the most important for continued organizational success.  By mastering and using them, many of the problems organizations face would either be drastically diminished or eliminated.

I challenge you to test your own management practices against these lessons as an indicator of your firm’s current and future performance.  Good luck!

LESSON 6. Avoid Competing On Price

There are only two ways of actively competing for customers (i.e., taking away share) in mature markets: offering a comparable or identical service at a price lower than the competition, or finding a way to differentiate the product or service either at the accepted market price or in such a way that a premium price is justified.  In almost all circumstances, differentiation (through innovation) is the preferred route, as low-price strategies tend not to provide a sustainable competitive advantage.

The only time it makes sense for a firm to launch a price war is when it is confident that already- weakened competitors will collapse under the strain.  Remember the Cola Wars? In the 1970s and 1980s, giants Coke and Pepsi temporarily battled it out on lower prices, but when it was all over, their relative competitive positions remained unchanged. Smaller companies, however, went out of business during this time since, unlike Coca Cola, they didn’t have hundreds of millions of dollars with which to defend themselves against the “Pepsi Challenge”. In such scenarios, most “victim firms”, sensing a loss in their market share, will respond rapidly to the price reductions and then aggressively work on their own cost reduction programs to restore margins.  Therein lies the lack of attractiveness of this approach. A similar situation is unfolding among the world’s airlines.

By contrast, a differentiation strategy avoids almost all problems associated with a lower price one.  By changing the rules of the game through differentiation, a company can neutralize competitors or remove them from the playing field outright, usually for a considerable period of time.  This is now often referred to as a ‘blue ocean strategy’. Canon accomplished this when it decided to sell its photocopier machines through distributors rather than mimic Xerox’s direct sales model.  CNN did the same when it concentrated on television news and marketing itself globally through cable companies instead of emulating domestic broadcasters.  Wal-Mart, too, changed the rules by initially opening in rural locations rather than those big cities where discount retailers concentrated their energies.  And the stronger the differentiation, the more difficult it is for competitors to match your offerings. Just ask Research in Motion as they struggle to catch up with Apple, which at this point they probably never will.

Posted in General | No Comments »