Episode #99 Don’t play one season too many

Episode #99 transcript

Hey there, and welcome to Episode 99 of the No Bullsh!t Leadership podcast. This week's episode, Don’t Play One Season Too Many: When it's time to go. We answered a question from one of our listeners Douglas, not so long ago, but he's asked another one that I thought would be fun and interesting to a lot of our listeners. It's about how to know when you've reached your used by date in a role. Douglas' question went like this. “One thing that inspired me onto leadership were sports powerhouses that fell into mediocrity. So for example, Manchester United, Arsenal Football Club, and the McLaren Formula One team. One common factor is senior management staying on for too long and falling behind new ideas. So is there a good time to leave a leadership role, perhaps a perfect length of time to stay? The reasons why organisations fail are many and varied, and so are the reasons why individually we lose our effectiveness over time. How would you know if you'd outstayed you're welcome in any role and more importantly, how do you avoid the pitfalls that leaders encounter in successful organisations that lead them to decline over time?”

So we'll start today by exploring why organisations rise and fall. I'll let you in on one of my favourite theories, the corruption principle. We'll consider why management teams become stale. And I'll finish by giving you a little checklist of some signs to look for personally that are going to tell you it's time to go. So let's get into it.

Richard Branson once said, "If you want to be a millionaire, start with a billion dollars and launch a new airline". Some businesses are just tough businesses to run. And his quote on the airlines has never been true than it is today. The COVID-19 pandemic has absolutely decimated the airline industry and we're talking about well run and poorly run companies alike. There is absolutely no discrimination there. But why do organisations rise and fall? I'm going to talk about a few books this morning, and the first is the Jim Collins classic, Good To Great. And this book is a must read, but I'm going to make a suggestion here that I'd like you all to follow. Don't just read Good To Great in isolation. It needs to be read in conjunction with another book, which is called The Halo Effect by Phil Rosenzweig. If you read Good To Great, and then follow it up by reading The Halo Effect, the whole experience will be elevated for you.

Good To Great looked at a dozen or so companies that outperformed the market for an extended period of 15 years. Now, it sought to offer reasons for this exceptional performance. And it's actually a really good analysis, although it gets a little help from our old friend attribution bias. So I thought it'd be fun and interesting to look at where those companies are now. Now some companies have continued to thrive. So you look at Abbott Laboratories, Gillette, which is now part of Proctor and Gamble and Kimberly Clark, but some have plateaued out like Nucor and others again have absolutely crashed and burned. So Fannie Mae, from 1984 to 1999, outperformed the market by over seven and a half times. The share price peaked in 2001 at $85 a share, but it was decimated during the GFC in 2008, 2009, and today it's trading around $2.20. Pitney Bowes, from 1973 to 1988, outperformed the market by around seven times.

And the share price peaked in 1999 at almost $70. Again today, it's trading at about $2.50. There are a couple of big brands that have struggled. So Walgreens 30 years ago was massively outperforming the market, but in the last five years, the share price is more than halved. And Wells Fargo, the bank, the share price is down 60% in the last two years, but financial scandals will do that to you. Here's the big one, Circuit City between 1982 and 1997 it outperformed the market by eighteen and a half times, but by 2009, it was gone all together. Just remember today's rooster is tomorrow's feather duster. The moral of the story here is that competitive advantages are fleeting, and there are heaps of reasons for this. If you haven't listened to Episode 85: Strategy isn't hard, the key point is that strategy doesn't happen in isolation.

Your competitors are constantly shifting and you need to shift too. Successful companies don't merely respond to market forces, they actually set the pace. David Yoffie at Harvard Business School talks about the red queen effect, and this is from Alice in Wonderland. This is the principle that you have to keep running faster and faster and faster just to stay in the same place. So you need to make sure you don't become too insular. Look at your market, understand the trends that will cause the ground to shift underneath you, and most importantly, listen to your customers. One of my favourite stories about not listening to the customer is the Johnson&Johnson cardiac stent business, which I first came across in a book called Why Smart Executives Fail by Sidney Finkelstein. And I'm going to give you something else in that book later on, but first, let's just talk about this story.

Johnson&Johnson had an absolute stranglehold on the production supply of cardiac stents. In 1997, it had a 95% market share and better still, it was incredibly profitable. Their gross margins were 80%. This was a licence to print money, but customers weren't happy. Who are the customers? Cardiac surgeons. And there were a few things that they wanted to be improved in the product. So for example, they wanted stents with greater flexibility, varying lengths, and the fact that they weren't really visible in x-rays was a bit of a problem. So later that year in October 1997, a company called Guident released a competitive product to market which solved some of these problems. Within 45 days, this is only a month and a half, Guident had captured 70% of that market and Johnson&Johnson sales dropped to 8% of the market by the end of 1998. An incredibly successful product was decimated because they didn't listen to the customer and didn't watch the competition.

Let's shift gears here a little and come back from the macro environment and talk about the individual. I want to start with the corruption principle. When you go into a new organisation, you have about three months before you become corrupted. On day one, you have the benefit of contrast. So from your experience in other organisations, you'll be able to see the inefficiencies, the risks, the cultural problems, and the poor management. But every day you go beyond that, you become accustomed to the environment and you become more conditioned to it. So what first seems shocking to you becomes commonplace, over time. And I saw this in spades at CS Energy. We hired a number of people from the oil and gas industry, and the oil and gas industry is renowned for having really, really strong process safety controls. Yet in CS Energy, the electricity generation industry, it wasn't quite as strong.

The initial reaction of these new people was quite staggering. I would ask them how they were going in that first week and watch the blood drain from their face as they explained to me all the problems they thought they had with what was going on CS Energy. But that same individual, I could talk to three or four months later and I'd say, "Hey, how's it going?" And they'd say, "Yeah, really good Marty. Everything's great." Nothing had really changed except the fact that they became accustomed and conditioned to what they were seeing. This is one of the toughest things to combat. As you learn about a new business, people explain why things are done the way they're done, and things that were once strange to you become familiar. One thing that I found really helps a lot is benchmarking. If I had my time over, I would have benchmarked every thing in the first few months in that new organisation I went to. You tell me what a great job you're doing, okay, well, how does that compare to the rest of the world? People always argue about why the benchmark isn't applicable. Even the super obvious things that are so easy to find relevant benchmarks for like project management, there are always reasons why you can't compare us because we're different. Some of you may be sitting there now listening to this thinking, “Don't worry, Marty, we're different!”, but I'm here to tell you you're not, you're not different. Just remember that complacency is the enemy of progress. There were some really senior people at CS Energy who'd look at me and say, "Why do you have to push so hard? We're doing really well." For a start, because that's what I'm paid to do is to push hard. Improve what's there, liberate the talent, get better outcomes with the resources I've been gifted by the organisation. If not that, then what, why would I be there? Part of being successful in this environment is to maintain the rage. One of the things I was able to very successfully do in my career was to never slip into complacency. I always had that sense of "Hang on a minute. That's not right. And I'm not going to settle for half-assed excuses about why something can't be done".

Do management teams actually become stale? Absolutely. High-performance is fragile. So I want to just cover off a few of the reasons why teams sometimes lose their lustre. The first reason is personalities. Can everyone keep their place in the team? If you're hiring really good people, you'll have a bunch of rugged individualists and there'll be disagreements. When people are driven to excellence, it's sometimes a bit tricky to harness that properly and keeping constructive tension from boiling over into destructive forces is a leadership challenge. Now you've probably heard me say before, it's a lot easier to rein in a stallion than it is to flog a donkey, and I maintain this is absolutely true. But sometimes the stallions themselves are really hard to lead, particularly when they're at each other's throats. Second reason why teams tend to lose their lustre is that ambition is tough to nurture and manage in the long term.

So an awesome 2IC is someday going to want to be number one, but not everyone can be the big dog in the fight. High performers are by definition, quite ambitious. So in Douglas' question, he mentioned the McLaren Formula One team. It relies on one driver on the team being the number one, and the second driver supporting him, to win the driver's championship. How many extremely talented high performers who are at the top of their game, do you know, likes to play second fiddle? Whether it was Louis Hamilton and Nico Rosberg at McLaren, Michael Jordan and Scottie Pippin at the Chicago Bulls or Tom Brady and Jimmy Garoppolo at the New England Patriots. The third reason why teams lose their lustre and performance declines is that the people you lead sometimes just simply stop listening. They've heard it all before. Your effectiveness actually wanes over time.

And the organisation builds an immunity to you, funnily enough, you become predictable. And as much as I hate to say that, predictability is the downside of consistency. So there's a balance to strike there. It reminds me of a dinner I attended about 12 months ago, a little select group, which was hosted by a private equity firm. And I had a baby stoush with one of the other guests, who'd been a longterm CEO of a mining company, and in fact over 20 years in the same role. And he was adamant that if you were a good CEO, you could lead the same organisation indefinitely. When I told him that I thought my effectiveness was significantly reduced after only five years at CS Energy, he looked at me with that cheshire cat grin that said, "Yeah, mate, that's because you're a shit CEO". But I still believe that familiarity breeds contempt, and it's no different as a leader than it is anywhere else.

Fourth reason why sometimes teams decline. A high pressure environment can really take its toll. Now, when you're moving really quickly and creating the type of team that's dominating, it can be stressful. Pushing to be the best takes boundless energy, pragmatic optimism, and a real commitment, and not everyone has the resilience to handle this comfortably. People struggle to keep this pressure from blowing up. Let's think about professional sports. Now a lot of a professional athlete's time is spent in injury management and recovery. So they have teams of doctors, physical therapists, nutritionists, and psychologists to maintain them between the fierce bouts of high level competition. We tend not to think of business in this way though, but it's every bit as stressful at the highest level as elite sports and requires the same level of attention to the individual to keep them in a condition where they can perform week after week.

Do you know any organisation that thinks about this properly? There aren't many. The fifth reason is poaching. Great people develop great reputations, so they're going to be sought after. The magic in a team can sometimes be lost with the loss of one or two key players. Sometimes just leaving one ingredient out of a cooking recipe can turn an incredibly delicious meal into a very average one. So it'll be really interesting to see how the New England Patriots fare in the coming years now that the Tom Brady/ Bill Belichick era is over and the team needs to form around a new leader. Finally, I just want to hark back to Sidney Finkelstein's book, Why Smart Executives Fail, that I mentioned earlier. In a little play on the Stephen Covey, Seven Habits of Highly Successful People, he comes up with Seven Habits of Spectacularly Unsuccessful People. Now you really need to read the book, but he does talk about some of the reasons why companies fail because the people who are leading them struggle to get across some of these concepts.

First is, they see themselves and their companies as dominating. So in other words, they're blind to some of the competitive forces outside and what other companies are doing. Just think J&J and Guident. One of the other things is they think they have all the answers, so they stop listening to the input they're getting from people around them. One of the other things is they underestimate their major obstacles. So when things arise, they treat it as though it's going to be a breeze to get over them. And they tend to rely too much on what worked in the past, which means they can easily be out innovated by the competitors.

Let's finish off with just a quick run through some of the signs you should look for to know when it's time for you to go from a role you're in. I'll start this by saying there is no optimum time and it is highly situationally dependent. So at exactly the same time in my career, I could find an organisation where I could be incredibly impactful for seven years, or I could walk down the road to another where I'd reach my use by date in only two years. It's super complex and it relies on a lot of organisational factors that you don't control. But here's a few guides that I've used in the past to work it out. The first thing I always look at is, do I still love what I'm doing? If not, I should probably leave because my people are going to see this and their performance will dip accordingly. High performance takes energy.

And if you lack that energy and commitment, it's a real problem. One of the other questions I asked myself, are my people still listening? Or is what I'm saying just falling on deaf ears? Another acid test is the company performance still on an improvement trajectory? I want this to be quantitative, not just gut feel. Are we really improving? Are things really going forward and changing? So to do this, you need to examine the numbers and the trends. Also, are there any areas where I'm finding it difficult to shift the needle? Do I feel as though I'm stuck on any of those core issues and I'm not being effective in being able to overcome them? All of these things are questions that are going to help you realise whether or not you are past your use by date, in a particular role. Now I spoke about it at my level, at the CEO level, but for every level you can ask the same types of questions and they'll serve you pretty well.

But to wrap up, for Douglas' question, when it's time to go, my answer is this, leave when you think everything is going super well, because that's going to tell you one of two things. Either, it is going super well or you've been corrupted, and you've completely lost the ability to see that it's actually not.

Alright, so that brings us to the end of Episode 99. Thanks so much for joining us. And remember at Your CEO Mentor, our purpose is to improve the quality of leaders globally. So please take a few moments to rate and review the podcast because this is how we get to even more leaders. Next week, we release the 100th episode of No Bullsh!t Leadership. So to celebrate, Em and I going to record a special episode to let you in on what's next for Your CEO Mentor and the No Bullsh!t Leadership podcast.

Until then, I know you'll take every opportunity you can to be a no bullsh!t leader!

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