Jeffrey Immelt and GE

The Wall Street Journal carried an article this past week on the change in management philosophy at GE. GE under Jack Welch was the quintessential conglomerate. It had divisions in unrelated industries such as media (NBC), finance (GE capital), and aircraft engines. Welch prized general managers who had no special expertise in a particular industry. He force-ranked executives, and fired the bottom ten percent each year. He shed companies if they were not at the very top of their industrial sectors. He was a leader in cost-cutting, firing so many employees, that he was called “neutron Jack,” after a neutron bomb which presumably killed people without demolishing buildings. Under Welch’s leadership the conglomerate’s primary task was to grow shareholder value, not serve customers or satisfy the needs of diverse stakeholders.

Nonetheless, the conglomerate as a corporate form was and remains controversial. Born in 1960s and simulated by the conception of the corporation as a portfolio of businesses, it came under attack by corporate raiders in the 1980s who bet, it turned out correctly, that many conglomerates were worth more broken up into their separate divisions, than held together.

Was Welch’s GE therefore the exception? From 1981 to 2001, under his leadership, the stock split 5 times so that a share worth about $57, in 1981 was worth $2300 at the end of 2000. But as the following graph shows the value of this same share dropped precipitously during the Great recession

 

In retrospect it appears that GE capital, a financial services company and a core part of the firm, enabled GE to profit handsomely from the financial sector’s disproportionate share of the overall economy’s profits. But it became a millstone around GE's neck when this selfsame sector collapsed after the housing market crashed.   

The conglomerate once promised to be the solution to the difficulty of growing companies organically based on their historical strengths. After all competition, anti-trust laws, and the size of the market were barriers. Instead the company would grow by acquisition. But in light of the raiders’ successes and the fall in value of one share of GE,  it appears that organic growth, however, challenging may still be the best way to grow.

Indeed, Jeffery Immelt, Jack Welch’s successor has refocused the company on organic growth, and this brings in its wake a changed corporate culture. Under Welch, ambitious senior executives rose to the top by gaining experience leading companies in a wide range of sectors. Their tenures were short, they focused on profits rather than revenue, they did not know their top customers very well, they uprooted their families frequently, they developed no deep industry expertise, and with the forced ranking system, they competed with each other.

Under Immelt, by contrast, ambitious executives must develop industry expertise, stay in leadership positions for a longer time, know their top customers intimately, rely on market breakthroughs to grow revenue, and focus more attention on creativity, and less on re-engineering operations to reduce cost. Welch had turned GE’s storied R&D organization from a cost to a profit center, so that it could no longer undertake research on behalf of the whole company. Immelt has rebuilt the R&D organization. In addition, Immelt has softened the impact of the forced ranking system. The purpose of Welch’s most important meeting, “Session C” was to evaluate GE’s top several hundred managers. Immelt’s top meeting is the “Commercial Council” for developing breakthrough ideas. 

As these contrasts suggest, organic growth relies on the connections that executives build and sustain with each other, their employees and their customers. In the pure conglomerate these ties count for much less. In this sense, the pure conglomerate mirrors the pure market. But even in companies that grow organically executives still compete with each other for scarce capital, for visibility and for the limited number of positions at the very top. Competition and cooperation are both spurs to progress. Perhaps one reason executives take up the challenge of organic growth with ambivalence and with difficulty is that they do not know to how sustain a culture based on both cooperation and competition. This requires, it would seem, a certain level of psychological sophistication and skill. Does Immelt have what it takes?

Julie Taymor and Spiderman

The New York Times carried an article about the lawsuit between Julie Taymor, the one time director of the Broadway musical, “Spiderman: Turn off the Dark,” and her collaborators and producers. For readers who do not know the backstory, Taymor directed a play which was 9 years in the making, cost $65 million to produce before it opened, opened far after the original opening date, and was panned by critics. Taymor was replaced as director, and the musical was rewritten substantially. The story, once conceived as a mythical enactment of a person with frailties who faces the possibility of greatness, was simplified greatly. It became closer to the cartoon story of Spiderman, with the added thrill of seeing Spiderman fly through the theater on a harness.  It went from the mythical and magical to the spectacle. As a spectacle it is doing very well, particularly attracting first time theatergoers who visit New York. The investors may yet earn their return and then some.

This story sheds some light on the psychology of work and creativity. There is no doubting Taylor’s genius. Indeed, she won the Macarthur Genius award in 1991. Rooted in the tradition of using puppets in theater, she developed a style that integrated fact and fantasy, not unlike the way in which Cirque du Soleil presents its dancers and acrobats. Her Broadway musical, the Lion King, her movies, such a Frida, and Titus, her delightful production of The Magic Flute, which served well to introduce children to opera, are all without a doubt artistic achievements. So how and why did she fail?

I think one possible answer may lie in the ideas of "subordination" and "projection." To create theater on a mythical scale Taymor developed a flying apparatus to be used during some two-dozen flying episodes in the play. At rehearsal, two performers were injured during separate demonstrations of a slingshot technique meant to propel them across the stage. Christopher Tierney, who played Peter Parker/Spiderman, was seriously hurt when he lost his footing and toppled off a platform.

One question is why Taymor persisted in using these dangerous methods. How could a musical, which is after all a product designed and produced to make money, be so important? Of course, one answer is that it was a piece of art.  But while we accept that artists should sacrifice themselves for their art, we are less sanguine when they sacrifice others, particularly when the injuries are physical rather than psychological.  

A different answer may be that Taymor saw here own efforts as mythical. Talking at a TED conference during the period of her travails with the production, she told the audience about her risky and frightening experience hiking on volcano in Hawaii. Likening it to her journey through the production of Spiderman she said, “I am in the crucible right now. It is my trial by fire. It's my company's trial by fire. We have survived because our theme song (in the musical) is 'Rise Above.’'' This quote suggests that she linked her experience of her struggle with the musical to the theme of struggle and achievement in the musical. She, like Spiderman was a person with frailties aiming for out of the ordinary achievement.  This suggests in turn that she may have grown uncomfortably close psychologically to her own creation.

What is wrong with that? One conception of work and creativity is that as producers and artists we must at some point subordinate to the work itself. While we create the work of art, its own logic soon drives its evolution. This is not unlike the way in which good novelists find that their characters speak through them rather than they speak for their characters.  One theory holds that this quality of subordination gives rise to the experience of flow. In a state of flow one is without ego, and a person becomes an extension of the work itself.  Perhaps Taymor could not subordinate to the production process, and the musical remained too much an extension of her own ambitions. Indeed, some observers believe that the Greek chorus she introduced to comment on the play as it unfolded, represented her own voice. Because the production was too much about her, she may have experienced lapses of judgment, for example trying to transform a cartoon into a myth.

There is one more issue to consider. Taymor had her roots in puppeteering and in the use of masks, a technique she used to great effect in The Lion King.  Puppets and masks work through the principle of projection. By definition, they do not look like anything real, but it is their very unreality that releases the viewer's fantasy. They provide a space for the viewer’s active participation. But in Spiderman, Taymor sought verisimilitude, to make it look like Spiderman was actually flying, rather than to help viewers see Spiderman as if he were flying. By forgoing the powers of projection, she reduced her reliance upon her viewer’s creative powers. Instead, she inserted the Greek Chorus --eliminated in the revised production-- to tell the viewers what they should be seeing.   

Perhaps if the musical was not mythical, the story of Taymor’s failure is mythical. Could it be the story of “hubris,” the fatal flaw that punishes us for over-reaching?  In addition, it may also be a story about collaboration, not in the sense that Taymor and her partners separated with acrimony, but in the sense that products, whether in the arts or in commerce, depend for their success on the collaboration between producer and user. 

Meetings, meetings, meetings….

The Wall Street Journal (WSJ) reported this week on a study conducted  by researchers at the Harvard Business School and the London School of Economics. Tracking how CEO's use their time, they report that CEOs spend a third of their time in meetings. The WSJ report does not indicate whether researchers thought this was too much or too little. The article’s tone, and its placement on the front page of the newspaper’s “Marketplace” section, suggests that the time spent in meeting is consequential. We better pay attention to how CEO’s use meetings for better or for worse.

Interestingly, accompanying this article on the WSJ website, (http://online.wsj.com/article/SB10001424052970204642604577215013504567548.html) is a link to an article on how CEOs can run better meetings. The article suggests quite sensibly that the CEO should have an agenda, start on time, ban cell phones and assign meeting members to follow up on decisions taken at the meeting.  But these common sense suggestions stand in some tension to the article’s placement as a lead story. How could the subject be so serious if the maxims for using meeting time productively are so self-evident?

I want to suggest that the study and its report references, but then suppresses, a common experience-- that top team meetings can be distasteful, difficult and sometimes toxic. The question is why this should be? The answer lies in the corporation’s political nature, in the role of ambition as a prod for work, and on the climate of evaluation that pervades top team deliberations. Top team members live in two time zones; the here and now as it shapes their tasks and establishes the conditions for their success or failure, and the imagined future, in which ambitious executives strive to, and can, become CEOs themselves. The second time zone introduces competition and evaluation. Subordinates’ effectiveness is measured relative to one another, and the CEO of the team gauges his or her subordinates as potential successors, or even possible usurpers.

This second time zone diminishes the value of the pragmatic advice referenced on the WSJ web site. That is because the challenge is political not technical. How can a CEO lash together competing subordinates, particularly when the CEO himself or herself, uses this competition as a spur to performance, as a guide to promotion, and as a way to test subordinates’ loyalty?  If the CEO is uncomfortable with the resulting tension, with the interplay of power dynamics and real work, then meetings will prove difficult, labored, and poor vehicles for accomplishing tasks. 

Several decades ago it was more common for management theorists to pay attention to the corporation as a political organization. But this worldview gave way to two competing conceptions. One was the “economistic” view in which it was presumed that executives as “agents” of the shareholders, would act on behalf of the corporation as a whole because they would be rewarded, for example with stock options, when shareholders were rewarded. The incentive system eliminated the tension between the individual executive and the corporation as a whole.

The other view, based on the ideas of Organization Development and improvement, proposed that executives could form teams if good will, rational conduct, and when necessary, self-sacrifice, predominated.

While these two conceptions, one based on economics, and the other on a kind of positive psychology, may seem different, both share common roots in what we can call utopian thinking. The marketplace utopia eliminates all power dynamics by integrating interests automatically though its impact on incentives. The marketplace is the great emolument. The Organizational Development utopia eliminates power dynamics through exhortation and by propagating an image of the “ideal organization.” Utopias, by definition, are always beyond reach. But today we recognize that when we try to implement them, we risk destructive consequences. By failing to acknowledge the dark side, the utopian program drives it underground, where it becomes even more destructive.

Political leadership and the contraception contretemps

Many journalists have wondered why and how the Obama administration erred in first ruling that religious organizations had to offer their employees contraception services. Catholic supporters on the left had warned Obama about the political consequences of such a ruling. In other words, the blow-back was predicted.  Republicans framed the issue as an attack on religious liberty. Equally puzzling, the compromise, which the Obama administration hastily put together, had been discussed at length before the ruling was first pronounced; namely follow Hawaii’s example by requiring that insurers, rather than employers, offer contraceptive-service benefits.

I don’t want to discuss the political and ethical issues this contretemps has stirred up. But I am interested in the decision-making process that shaped it.  How and why do savvy leaders stumble, when in retrospect their error seems obvious, and moreover they are forewarned?

I think this incident highlights some of the tensions that suffuse the machinery of decision-making. Early on it seemed that the issue of providing contraception services was framed technically as a question of how to implement the new health care legislation. As Simone Campbell, the executive director of Network, a Catholic social justice lobby founded my nuns, noted, “Even though a bunch of us weighed in and said there was this other layer of concern (the politics of religious sensibilities), it’s like it was above where they ordinarily focus, so it just didn't compute." Indeed after the blow-back threatened the administration’s political standing, some Obama appointees argued that they needed a year to work out the required compromise. As one insider noted, despite the blow-back, “administration officials did not feel a sense of urgency (my emphasis).”

One hypothesis is that by framing the issue of contraceptive services as a technical one, how to implement a complicated piece of legislation, administration officials lost touch with its vividness and therefore its emotionality. Urgency is starved when feelings are muted. Obama is vulnerable in this regard. Responding to the  Republicans' and the catholic left's outrage, he said, “I understand some folks in Washington want to treat this as another political wedge issue. But it shouldn't be. I certainly never saw it that way. This is an issue where people of good will on both sides of the debate have been sorting through some very complicated questions.” But of course as the blow-back indicated, issues that simulate strong feelings lead people to discount the good will of their opponents. Philosophy, the idea of good and bad replaces pragmatism. Indeed one criticism of Obama as a leader is based on the idea that he is too much the pragmatist.

The machinery of decision-making can also drain an issue of its vividness.  It creates the illusion of an orderly process, suggesting that events unfold logically, according to plan, as means and ends are synchronized.  But leaders make decisions on shifting sands. Implementing health care reform is no doubt a highly technical problem, filled with tradeoffs and complexities. But the administration was implementing the new health care law against a backdrop of questions about Obama’s electability. The recent announcement that unemployment had fallen raised hopes that Obama could yet win re-election.  The new policy on contraception, however, thoughtful, threatened to undermine this newly gained advantage. Moreover, the new policy was announced close to the time when 500 catholic social activists, many of whom were Obama’s allies in the in health care reform debate, would be meeting in Washington. Campbell warned Obama, “that if no compromise had been reached by then, all of them (the activists) would return to their parishes fired up about the contraception mandate.”

The blow-back, which led to Obama's backtracking, was one measure of the administration emotional distance from the electorate. Such distance, in the name of reasonableness, has the paradoxical effect of sustaining a certain level of naiveté. It was striking that after its own allies on the catholic left protested, some administration officials, according to an anonymous insider, imagined reframing the debate from one about religious liberty to one about “the war on women." I think we can safely call this a naïve idea. It overestimated the administration’s power to reframe a visceral and deep-seated debate in our culture, and it failed to account for Obama’s own cautious nature.

The constructive political leader has a to walk along a knife edge, staying emotionally engaged with the electorate while respecting the logic of planning, of adjudicating, and governing reasonably. The rabble-rouser chooses emotion over reason, the technocrat reason over emotion. Who can integrate the two?

Research In Motion and its new CEO

The two co-CEOs and founders of Research In Motion (RIM), the smartphone company, maker of the "Blackberry," have resigned their roles and appointed an insider, Thorsten Heins, as the new CEO. The founders, Jim Balsillie and Mike Lazaridis, will remain on the board, the latter as vice-chair.  In an email to RIM employees, they wrote, “Almost two years ago, we made the very difficult decision for RIM to go it alone – to not follow the path of our competitors and adopt a third-party operating system. We knew then that the ability to control our destiny and differentiate our own platform, products, services and brand would be vital to our future. With this decision and the transition that followed came great scrutiny. We felt we were right and so we stayed the course. With this transition to a single, unified platform, this was the right time to make this change.”

In short, smooth sailing. But will it be so smooth? The RIM stock price fell 9.1% after the announcement. The “street’ worried that Heins was good at implementing changes, but was not good at envisioning new directions. Indeed, Heins, in describing the company’s plans, said that, “It is going to be continuity, but its is not going to be standstill.”

Of course, Heins choices and prospects for success depend on whether or not the company’s current trajectory is sound. The co-founders’ email is suggestive here. They defend their decision to stick with their own operating system. Yet this decision has made it difficult for RIM to compete with Apple and Android-enabled smart-phones, both of which are supported by a dense ecology of “App” developers. The smart phone, once a business appliance, has become a consumer product.  Apps, unnecessary for the corporate executive, are essential for the consumer. Indeed, one of RIM’s operating principles was to sell its phones through companies. But increasingly, companies are letting consumers buy their own smart-phones.

Seen in this light, the founders’ evocation of “our destiny” has a bit of a mythological feel.  Indeed the email paints the picture of the two founders heroically sticking to their guns in the face of much opposition, in order to secure the firm’s future. 

But when myth is present, irrationality is not far behind.  In a classic study of the Saturday Evening Post magazine, Abraham Zaleznik argued that successors to its founder, Cyrus Curtis, slavishly stuck to his operating traditions, strategy and corporate mythology; namely, the magazine as representing a tranquil small-town America, just when the country was rapidly urbanizing.

It may seem sensible for Heins to genuflect to the founders, after all they remain on the board and he operates in their shadow. But uprooting a mythology provokes psychological difficulties as well. We are all emotional creatures of the human family. When we face high stakes events we code them, sometimes consciously, and sometimes not, as family dramas. Corporate succession can evoke the psychological process through which children transcend their parents’ worldview and their way of life. This process is often taxed by feelings of guilt. We are after all grateful to our parents for giving us the chance to live, and for ensuring that we will survive our infancy and childhood psychologically and physically intact.  In transcending them, in becoming different, despite our dependence on them, we may feel that we have to reject what they stood for and believed.

This resulting guilt can have two contradictory impacts. It may inhibit us in choosing what we yearn for, hence the difficulty some children have in marrying outside their parent’s faith or ethnic group. Or, we may turn the guilt to our favor, interpreting it as a sign that our parents have oppressed us and that we need to be free of them. We turn our guilt against them and in the process we devalue them.

Perhaps Wall Street is wondering if Heins can mobilize the psychological aggression required to uproot and devalue what may be RIM’s mythology, at least as it is being written by its founders.  To do this, he has to overcome two sources of guilt. One source is based on the simple fact that, like good parents, the founders have created enormous opportunities and wealth for thousands of people.  What does it mean to devalue their judgment? The other is based on the fact that, should he choose to launch a new strategy, he will upend careers and relationships, with no guarantee that he will succeed. To create he has to destroy.

This is one reason why companies facing turning points in their business, sell themselves. The buyer --another company, or sometimes a corporate raider --enters the scene feeling no obligations to the founders and the mythology they created.  They think in fresh ways and use destruction creatively to create a new business model.  Perhaps the street is wondering if Heins can mobilize this aggression?  If there is wisdom in crowds, the answer would appear to be “no.”

The Federal Reserve, Hero Worship and Groupthink

The Federal Reserve Board committee released transcripts of its proceedings in 2006, somewhat to its embarrassment. Participants in the meetings over the course of the year discounted for the most part the possibilities of a housing market downturn. Moreover, they doubted, that should a downturn occur, it would have much collateral damage on the rest of the economy. In a New York Times report on the transcripts, Timothy Geithner is quoted as saying about the housing market, “We just don’t see troubling signs yet of collateral damage, and we are not expecting much.”

The Times also reports that Alan Greenspan retired that year. At his last meeting, in February of 2006, committee members praised him. Geithner said, “That Mr. Greenspan’s greatness still was not fully appreciated." He added to some laughter, “I’d like the record to show that I think you’re pretty terrific, too. And thinking in terms of probabilities, I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.” The Times goes on to note that Janet Yellen, another committee member, praised Greenspan saying, “It’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. The situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot.”

While analysts have not made the connection, it is likely that praising Greenspan and discounting the impact of the housing market went hand-in-hand. When Greenspan retired many commentators suggested that he was one of the greatest Federal Reserve Board chairmen of all times. Yet in retrospect we know that he oversaw and supported the greatest asset bubble since the Great Depression. Hero worship can hamper clear thinking. It is one specific example of how an interpersonal process can introduce irrationality into group life.  A hero may be someone we love but more importantly, the hero is someone we identify with. In Freud’s term, the hero becomes, an “ego ideal.”  The ideal symbolizes our own prospect of becoming a hero as long as we are loyal to the image of the ideal we hold in our minds. This helps explain what appear to be Geithner’s sycophantic remarks. He was in effect praising his own and his colleagues’ perspicacity.  It was a form of self-praise by association. This also helps explain why committee members were so blind to the calamity unfolding in front of them. Had they taken the warning signs seriously, and the transcripts are clear that they were presented with such signs, they would have been demoting their hero and attacking their inflated sense of self-worth.

The link between the interpersonal process and rational deliberation is a complicated one. A person in a group has to assert herself to make her opinion known and to influence her peers. This process of self-assertion can provoke respect, but it may also stimulate competitiveness. Similarly, a person has to mobilize skepticism to test his peer’s opinions. While being skeptical is one way to take a peer’s opinion seriously, a skeptical remark can mask personal antagonism and communicate a belittling. Hero worship certainly privileges the interpersonal connection above thinking, and at the same time bonds group members together through their shared adulation. The bonding paves the way for groupthink. Beware the group that does not attend to its own group process!

Yahoo once again

The Yahoo board has appointed Scott ‘Thompson as its new CEO. It provokes a bit of a sinking feeling in me and apparently in the market as well. Yahoo’s stock dropped modestly after his appointment. Thompson is a technology person, a product person, with little experience in media and advertising. How can he help Yahoo growth its advertising revenue?

One senses in Yahoo’s situation the spectacle of psychological drift, or what is called “decision avoidance.” One view of the situation is that Yahoo faces a fundamental choice between two conceptions of its identity. Is it a “content company” or is it a “connector company?” Connector companies like Google or Apple use content to increase their usefulness as connectors. Thus Google excels in search and Apple in distributing music. Content companies rely on connectors to disseminate their content. Disney, one of the great content companies, has just signed an agreement with Comcast, a connector, to distribute its content across a wide variety of media devices and platforms.

Can a firm occupy both spaces at the same time?  One classical theory of competition, based on the work of Michael Porter of the Harvard business school, suggests that this is difficult. If you try to occupy both, the specialists on either side of you can deliver better value as either pure connectors or pure content providers.

In behavioral economics it is commonly presumed that we use our feelings to anticipate the gains we will get upon choosing one of a number of options. We try to anticipate our future pleasure or regret. It turns out that we are quite bad predictors of how we will feel in the future. This is not surprising since feelings arise directly from the “here and now” of our experience. The psychodynamic conception of decision-making by contrast, puts great store in the feelings stimulated by the process of choosing itself. It focuses on the “here and now.” Being stuck in the middle, as Yahoo is, and deciding to choose one exclusive path over the other is itself a painful process. Because the selection is so difficult, the decision-process stimulates anxiety in its own right. Elsewhere, I have called this the challenge of the “primary risk.”

Of course a group of executives or board members have methods to structure the selection process in the hope of reducing the pain; for example, by listing the risks of each option, assessing the company’s current strengths and weaknesses, and comparing the firm to its competitors. These are sensible methods, but they rarely determine the decision. A group facing a primary risk must at some point take a leap of faith.

But what happens when a group makes a leap of faith. As the term “faith” implies, it is not a rational process. Instead, followers willingly forgo their sense of autonomy by placing their future in the hands of the leader with whom they identify. Why should an adult be willing to forgo control over his or her fate? Because through identification, they no longer feel the pain associated with the decision process. The leader agrees, so to speak, to acquire their pain in exchange for their loyalty. In addition, by identifying with the leader, as Freud once noted, they gain a new psychological connection to each other.

One sensible question to ask is whether or not Scott Thompson has the psychological makeup to be such a leader. The Wall Street Journal reports that one acquaintance described him, as not a “micromanager.” Instead he chooses good people, gives them the authorization to the work as they see fit and then measures them by their results. This style, admirable when a company faces operational rather than identity challenges, may prove insufficient in Yahoo’s case.  When Steve Jobs returned to Apple for his second coming, he made a critical decision to overturn a policy of allowing other computer manufacturers to produce Mac “clones.” He reasserted his vision of Apple as a company with a proprietary platform, through which software and hardware were seamlessly integrated. It is likely that instead of feeling pain, he felt conviction, something his predecessors sorely lacked because they were failing. So perhaps the better test for Thompson is not his management style, but his capacity to feel and communicate conviction.

It sounds strange that a business conundrum of the kind Yahoo faces should provoke what sounds like an irrational if not a primitive process. But this is what happens when risk and uncertainty predominate. Most of us are familiar with Walt Kelley’s phrase, mouthed by Pogo, his cartoon character, “We have met the enemy and it us.” Through modernization, we have vanquished many of nature’s threats -- disease famine, floods -- but we have created an economy of sufficient complexity that the threats we feel and the risks we face, grow out of our relationships to one another. And as Freud pointed out, as humans socialized in families, we are an uneasy compromise between what is rational and what is not.