In Search of the Leadership Threads

After finalizing the list, each of the leaders and the company he led was subjected to another kind of analysis. The goal of this exercise was different from that of the work that finalized the list of seven. The sole aim of this research was to identify the leadership threads that tied these CEOs together. In other words, what did these seven extraordinary leaders have in common? While there is some overlap between these criteria and the traits that narrowed the list, in this phase we subjected the seven identified leaders to even more scrutiny, and ultimately identified what we consider to be the keys to exceptional leadership.

Six characteristics and/or traits describe and connect the seven CEOs in this resource:

1. THE BEST CEOS START WITH A VIEW OF THE MARKETPLACE AND INSTILL AN "OUTSIDE-IN" PERSPECTIVE INTO THE COMPANY. In other words, the most effective CEOs start with a view of the market, then work back to create an organization focused on satisfying customer needs. The best example of this is Dell Computer, a company that puts the customer at the center of virtually everything it does.

   Michael Dell said that he did not create what became known as the direct model out of any great vision. That model, though, is what makes the company unique and has helped it expand into a $30 billion-plus organization. "The direct model has a number of attributes," Michael Dell stated. "Of course, being in touch with customer needs is one of its most fundamental." It is difficult to imagine a more customer-centric organization than Dell's, since each product is custom-ordered, and the company is structured around customers or customer groups.

   One person who might disagree with that last sentence is David Glass, the man who worked with Sam Walton for decades and later succeeded him as chairman of Wal-Mart. Glass felt that one of the reasons Wal-Mart succeeded against long odds was Walton's fierce commitment to offering his customers the lowest prices, regardless of where they lived.

   Sam Walton once said, "Every time Wal-Mart spends one dollar foolishly, it comes out of our customers' pockets." That sentiment is still deeply embedded in the psyche of the company, more than a decade after the founder's death. Glass, who led the company to even greater heights after Walton stepped down, said that he couldn't be Sam Walton. His task, he said, was to "build on his legacy and build on his philosophies and use all of those as strengths." Clearly, he succeeded in that task.

   Lou Gerstner inherited a company that was anything but customer-centric. Gerstner said that the company "had lost touch with the marketplace and its customers." That explains why the company was losing so much money (and goes some distance toward explaining why at that time almost no self-respecting manager was willing to take the CEO job at IBM). When the company failed to grasp the personal computer revolution and other important changes within its industry, the stock fell below $15 for the first time since the early 1980s (when adjusted for subsequent stock splits). IBM badly needed someone who could put a customer mindset back into the company.

   Here's how Gerstner viewed IBM when he looked back on the company in 2002:

   In the spring of 1993, a big part of what I had to do was get the company refocused on the marketplace as the only valid measure of success. I started by telling virtually every audience I spoke to in the first couple of months that there was a customer running IBM, and that we were going to rebuild the company from the customer back. Those are pretty simple statements, but hugely important in reshaping the mindset. Fortunately, as I delivered this message internally, I discovered that IBM was brimming with people who were not only ready to change, they were eager and able to make those changes.

   Jack Welch admits that GE could have been even more focused on the customer. In 1999, after learning that some customers were not feeling the effects of the Six Sigma initiative, he revised the GE values and implemented other tactics designed to ensure a more customer-oriented perspective. "Outside-in is a big idea," Welch argued. "We've been inside-out for over a hundred years. Forcing everything around the outside-in view will change the game."

   Most of the leaders in this resource were keenly aware that it was the customer who determined their company's fate, and so they spent significant portions of their time meeting with customers (in some cases upwards of 50 percent). Sam Walton put it very well when he said, "There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else."

2. MANY EXCEPTIONAL CEOS HAVE AN "EVANGELICAL LEADERSHIP GENE." This particular trait should not be confused with what many people characterize as charisma. This is a critical point. Management theorist Peter Drucker feels that effective leadership has little to do with charisma. Drucker wrote, "Effective leadership doesn't depend on charisma. Dwight Eisenhower, George Marshall and Harry Truman were singularly effective leaders, yet none possessed more charisma than a dead mackerel." He adds that leadership is "mundane, unromantic and boring." Jim Collins, coauthor of the book Built to Last and Good to Great, agrees with Drucker's assessment, arguing that "a high-profile, charismatic style is absolutely not required to successfully shape a visionary company."

   What's the difference between evangelism and charisma? The American Heritage Dictionary defines evangelical as "characterized by ardent or crusading enthusiasm; zealous." ^[2] The same dictionary defines charisma two ways. The first definition is "a rare personal quality attributed to leaders who arouse fervent popular devotion and enthusiasm." The second (or b definition) is "personal magnetism, or charm."

   Drucker and Collins were invoking the "magnetism" definition when they argued that charisma is not required for effective leadership. And at the risk of offending my subject CEOs, I don't think there is an overrepresentation of magnetic personalities in this resource. On the other hand, the definition that speaks of arousing "popular devotion and enthusiasm" does seem to pertain. In fact, it's a most apt description of the seven leaders in this resource.

   My subject CEOs are secular evangelists. Without exception, they demonstrate an "ardent or crusading enthusiasm" for their jobs, their companies, and their causes. Each had a fire-in-the-belly excitement that helped to arouse enthusiasm in others. They felt strongly about a particular idea, product, or process, and were able to use the bully pulpit of their office effectively to spread their "gospel."

   This evangelical trait has little to do with personal magnetism and everything to do with devotion or commitment to a cause or idea. Even a casual examination of the records of the seven leaders profiled in this resource reveals evidence of their crusading traits. For example, Lou Gerstner didn't strike many people around him as the most magnetic of individuals, but he did display his evangelical trait when it came to shifting the company's mind-set. He was intensely focused on restoring an outside-in perspective. If you were around him for any period of time, you simply couldn't miss it.

   When David Glass was asked whether "evangelical" was an apt description of the late Sam Walton, he answered unflinchingly, "He probably fits that description more than anyone else I know. That absolutely describes Sam." He added, "Strategically, you can make great decisions and that will not do a lot for you unless you have got that charismatic inspirational leader. And I have seen many businesses that are built on one or the other. You have to have both if you are ever going to have a great company. And that's what we happened to have at Wal-Mart."

   It should be noted that Walton, like the majority of the CEOs profiled in this resource, was the founder of his company. When Glass refers to building great businesses, he is referring to starting them. Once a company is established, particularly if it is a market leader, the importance of the founder's evangelism diminishes. As Glass stated, once the founder is gone, the company is able to follow his or her principles and philosophies, and to continue to build on them as the business expands. But when the company gets into trouble somewhere down the road— and it happens to almost every company sooner or later—evangelical leadership once again becomes important to the success of the organization.

   Herb Kelleher was another CEO who could rightly be called a zealot, although his off beat approach to leadership—which dates back to his earliest days at Southwest—sets him apart from other large-company executives. (The best-selling book written about him was affectionately entitled Nuts.) Like Wal-Mart's Sam Walton, however, Kelleher was deeply committed to fostering a community-like culture among both customers and employees.

   In early 2002, he offered the following advice:

   Don't use the abstraction of "profit" as your goal in dealing with each other and the public. Instead, focus on great internal and external Customer Service so that the Customers will both rejoice and return, which is, of course, a key to profitability, most especially in difficult economic times.

   He also wrote that Southwest "has many times sacrificed with respect to short-term profit levels in order to sustain the job security and livelihoods of our Employees."

   Like all strong leaders, Kelleher practiced what he preached. Anyone who has ever taken a Southwest flight knows that it is a different experience from flying other commercial carriers. Jokes and good humor take the place of meals and assigned seating. Over the years, the airline has used some rather nontraditional methods to create a unique flying experience for its customers, and Kelleher has led the charge. He spent three decades making Southwest's culture one of its defining features, and he feels that it is one of the key assets of the company that cannot be duplicated.

   Jack Welch had a different style from Walton and Kelleher, although he certainly shared their evangelical leanings. In particular, Welch displayed great enthusiasm for GE's growth initiatives. When describing why he would show such excitement over a companywide program like Six Sigma (the statistically based quality program he implemented in 1996), he replied, "One cannot be tentative" about things like this. One has to be on the "lunatic fringe," he asserted, adding that Six Sigma leaders are "changing the very DNA of GE culture."

   So Welch was fiercely committed to Six Sigma, and the success of that initiative became part of his legacy. He never stopped communicating the message, and he used every weapon in his arsenal to convey it (everything from companywide emails to changing the list of GE's values to include the quality initiative). Like the other leaders in this resource, Welch backed up his language with action. He made Six Sigma training mandatory for all professional-level employees, and he also made 40 percent of his senior managers' bonuses dependent upon the success of the program.

   Welch had the ability to get hundreds of thousands of GE employees to fundamentally change the way they worked. Once he bought into a concept or initiative, he was able to use GE's operating system to spread it through all of GE's diverse businesses. And what sparked it all was Welch's commitment to an idea or program that he felt could strengthen GE's competitive position. His stated goal was to make GE the world's most competitive enterprise— an evangelical statement, certainly, designed to get others to commit to a particular driving passion.

   Welch said that the best leaders are those who can articulate a vision and get others to execute it. His four Es of leadership, which he felt were the keys to effective leadership, were "energy," "energize," "edge," and "execute." Without an evangelical quality, it would be difficult to spark others to superior performance (energize). In Welch's Authentic Leadership Model, which was a precursor to the four Es, he includes the following success traits: "a good communicator," "a team builder," "energizes others," "has infectious enthusiasm," and "has fun doing it."

   In the mid-1980s, as noted above, Andy Grove and his senior management team had to switch the entire focus of the company from memory chips to microprocessors. This was a monumental task. It would have been impossible to pull off without Grove's evangelical ability to convince others that he was leading them down the right path—even when he wasn't so sure himself. Says Grove, "You have to pretend you're 100% sure. You have to take action; you can't hesitate or hedge your bets. Anything less will condemn your actions to failure."

   Each of the seven CEOs in this resource had the benefit of an inner fire that was infectious. Each was able to set a strategic direction and use "ardent or crusading enthusiasm" to get people to work toward the company goals.

3. THE MOST EFFECTIVE BUSINESS LEADERS UNDERSTAND THE CRITICAL ROLE OF CULTURE, AND HOW DIFFICULT IT IS TO BRING ABOUT MEANINGFUL CULTURAL CHANGE.

   Authentic cultural change requires years, not months. Lou Gerstner called the process of transforming a culture "frustrating" and "mind-bendingly hard." Like the other managers in this resource, he knew that his company's culture would be the key to enhancing performance and accomplishing key corporate goals. Gerstner succeeded in turning around IBM because he was able to transform the company's complacent culture into one that was outwardly focused and far more competitive.

   Andy Grove also felt that company culture was the key to maintaining a company's edge, but he had a unique approach. Having saved his company from several crises, he felt that it was important to maintain a culture in which employees were always on their guard. In fact, he argued that instilling fear in the ranks of the organization was a good thing. Only a culture that knew fear, argued Grove, could keep the organization out of the deadly trap of complacency.

   By "instilling fear," of course, Grove did not mean fear of management or of colleagues; he meant fear of mortal external threats to the organization. "The most important role of managers is to create an environment in which people are passionately dedicated to winning in the marketplace," writes Grove. "Fear plays a major role in creating and maintaining such passion. Fear of competition, fear of bankruptcy, fear of being wrong and fear of losing all can be powerful motivators." Grove also claims that the only way to instill such a feeling in the rank and file is to lead by example—that is, by feeling fear yourself. Only then will the company be sufficiently inoculated against deadly organizational diseases.

   As discussed earlier, Herb Kelleher felt that culture was the key to his company, but his approach was almost the opposite of Grove's. Kelleher thought it crucial that employees have fun on the job, and he fostered a culture that encouraged good humor. He believed that if he succeeded in this goal, his pilots and flight attendants would serve customers in much the same spirit. He even found ways to turn deadly serious disputes into light-hearted wrangles—like, for example, the time he turned a trademark dispute with another airline into an arm-wrestling contest between himself and his counterpart at the other company. Rather than generating rancor and huge legal bills, Kelleher further fueled the public perception that Southwest must be a hell of a fun place to work.

   Jack Welch also understood the importance of culture, particularly after he made some of his most drastic restructuring moves in the mid-1980s. By the late 1980s, he had performed radical surgery on the company—a transformation unlike almost anything corporate America had ever seen. After downsizing GE by more than 100,000 workers and selling off more than 100 companies, he knew that he would have to restore the confidence of those who had survived the bloodletting. In 1989, therefore, he created Work-Out, a cultural initiative that gave the workers a say in how the businesses were run. That was Welch's key companywide cultural initiative, but it was a key step in building the learning culture that would become his trademark.

   Michael Dell says, "Culture is one of those things where you know it when you see it, but it's a little bit hard to describe. Our culture is very results-oriented, very pragmatic. It stresses goals. ...Now that we have the momentum of success, the reinforcement of that, it's kind of powerful." Michael Dell also described his culture as performance-oriented, suggesting that if you don't perform at Dell, you go someplace else. "Defensiveness is not something that works well within our culture," he adds. "We tend to be very self-critical, and we look for what we can fix and what we can improve, and we do it fast."

   Wal-Mart's David Glass thinks that most managers don't fully grasp the importance of company culture: "I think it's way underestimated how important the culture has been to the company's success.... His [Walton's] philosophy in building the company that he built was, if you could make everyone a partner in the business, give them a voice in it, share the profits with them, make them an integral part of it, that worked a lot better than an employer/employee relationship. And that was sort of the basis for the Wal-Mart culture that got started."

   To sum up: Although there were some major differences in how these seven leaders approached culture, they all knew how important a strong culture was to the company's success. Walton's and Kelleher's approaches were similar—that is, creating what might be called a more "family-oriented" culture. The others fostered a culture that was explicitly focused on "winning in the marketplace," as Grove put it. Of course, Walton and Kelleher wanted to win just as badly, but they thought that the key to their success would be found in their encouraging of a more nurturing, family-oriented environment.

4. THESE CEOS CREATE OR ADAPT "NEXT-GENERATION" PRODUCTS, PROCESSES, OR SOLUTIONS. This trait has a great deal to do with vision—the ability to anticipate emerging and future needs and to create products, services, and new technologies capable of satisfying those needs. Sam Walton, in describing his years as a football player, admitted that he "had a good sense for where the ball was going to be." That seems like an apt description of how he and the other six leaders in this resource approached their careers and their industries. All of them predicted the future of their industries accurately enough to produce products and businesses that could capitalize on their vision of the future. Few were perfect, but it is not necessary to spot every trend or to create products for every emerging technology. The key is to have just enough prescience—and also, of course, to create an organization capable of moving quickly if that vision does indeed become a reality.

   In several cases, great companies were created because the founder identified an important trend and simply refused to let other companies beat his organization to the "vision." He saw something that portended the future of an industry, and he did not want it to happen without him.

   This is particularly true of the leaders of technology-based companies, and four of the leaders in this resource led such companies: Dell, IBM, Microsoft, and Intel. When it comes to creating technologies, a first-mover advantage (or at least an early-mover advantage) often spells the difference between success and failure.

   Bill Gates recognized this more than a quarter century ago. Gates (and Microsoft cofounder Paul Allen) saw the future in 1975. Once the personal computer appeared on the horizon, Gates and Allen realized that software, not hardware, was the future. (In fact, it was seeing an advertisement for the new machine that panicked Gates: Here was the future; how was he going to be part of it?) The new device had an Intel 8080 microprocessor chip, which acted as its brain, but without software, it couldn't actually do very much.

   In The Road Ahead, Gates wrote of his response to seeing that advertisement for the Altair 8800:

   Oh no, it's happening without us! People are going to write real software for this chip. I was sure it would happen sooner rather than later, and I wanted to be involved from the beginning. The chance to get in on the first stages of the PC revolution seemed the opportunity of a lifetime, and I seized it.

   Andy Grove was obviously a first mover in the microprocessor market, since his company had produced the chip that served as the brain of the Altair 8800. While Gates is correctly perceived as one of the architects of the computer revolution, Intel was founded seven years before Microsoft. Grove wrote that all start-ups are built around a core idea. The idea that sparked the creation of Intel was to produce a chip that would become the source of memory in computers. Although the first chip was primitive by today's standards (it was able to store only 64 data points, in contrast to the many millions of numbers stored by today's chips), it was nevertheless the beginning of a revolution.

   Sam Walton saw the future of retailing in 1962, and it led him to shift his focus to that of a discounter. Discounting had been around in some form or another for years, and in 1962 it was already a $2 billion business. Walton was already a successful retailer, but he understood that he had to change his model or risk being put out of business.

   Before creating Wal-Mart, Walton had a store named Walton's Family Center in St. Robert, Missouri, a town with a population of only 1500. The success of that store gave Walton a key piece of competitive information that would prove to be the deciding factor in launching Wal-Mart. His first deep-discount store—in Rogers, Arkansas—has been described as less like a business and more like a rummage sale. But it didn't matter that his stores were not yet as good as his competitors'; the key was that Walton had spotted the future of discounting and remade it in his own vision.

   To be sure, his company benefited greatly from the economy and demographics of post-World War II America. But Wal-Mart would never have become so dominant if Walton had not looked into the future and improved on the retailing formula. His brother Bud once said that Sam "never stopped trying to do something different."

   Jack Welch saw GE's future in the 1980s, and he knew that it would require a major overhaul of the company. He saw little growth in manufacturing, although that was what had defined the company since its founding by Thomas Edison a century earlier. To create the company he envisioned, Welch turned to technology and services. His decision to sell off GE's Housewares Division, which he felt did not fit his vision for GE, provoked fury among his critics, who considered the venerable division to be sacrosanct. In response to his detractors, he posed a question that not only gave them pause, but helped clarify his vision of the future: "In the twenty-first century, would you rather be in toasters or CT scanners?"

   Welch also proved that adapting a process could catapult a company's culture and productivity to the next level. In 1996, he launched Six Sigma, the quality program pioneered in the United States by Motorola. Although he was the first to admit that GE did not create the program (in fact, Welch was late to the game and required some convincing from former GE vice chairman Larry Bossidy), he implemented the quality program with such vigor and comprehensiveness that he made it his own. It became the largest corporate initiative ever implemented at any company. It helped save the firm billions of dollars, while enhancing the quality of GE's products and services. (It also probably played a role in GE's selection of Jeff Immelt as Welch's successor, given that Immelt was a huge proponent of the program.)

   When he took the reins at IBM, Lou Gerstner did not know all that much about computers, but he knew that IBM would "have to stop standing on the wrong side of history" if the company was to survive. Gerstner said that the company had to decide

   where the industry was going to be 5 or 10 years down the road, [and then] build the company that was going to have a shot at leading the industry again based on this series of fundamental decisions. What matters now is the integration of all the pieces with each other, the integration of technology with business processes, and the integration of all these formerly self-standing processes with one another.

   Along with the six other CEOs profiled in this volume, Gerstner realized that building (or turning around) a successful firm depended on looking past the present and deducing where the company's future market was likely to reside. All seven calculated correctly, and in each case, their stakeholders were rewarded.

5. THESE LEADERS IMPLEMENTED THE BEST IDEAS, REGARDLESS OF THEIR ORIGIN. This is a hallmark of exceptional leaders, and also a key characteristic of a learning culture. In a learning organization, leaders encourage their managers and employees to glean the best ideas from any source. At least two of the companies profiled in this resource—IBM and GE— had run into trouble when their managers stopped searching outside the company for answers, feeling that they already had all the answers.

   Sam Walton's singular obsession with finding the best ideas has already been discussed at length. Of all of the leaders in this resource, none was more obsessive about learning from competitors than Walton. Even before he opened his first Wal-Mart, Walton had gotten into the habit of studying other stores. According to his wife, Helen, Walton spent as much time in his rivals' stores as in his own. And he once confessed that almost everything he tried in his stores he had copied from someone else.

   Although he didn't open his first Wal-Mart until 1962, by 1960 Walton had already made trips to the East Coast to examine E. J. Korvette stores (an early discounter) and to meet with the heads of such discounting pioneers as Spartans, Zayre, and Mammoth Mart. He said that a lesson that had stuck with him throughout his life was that you can learn from anyone, particularly the competitor across the street. In that spirit, he absorbed good ideas, and improved on them.

   Jack Welch later institutionalized that behavior, setting up formal processes to gather, analyze, and act upon good ideas. He declared that learning from competitors not only was fair, but was the job of every GE employee.

   Welch made learning and ideas the centerpiece of GE's culture, and he became intensely focused on spreading good thinking around the company. Over the years, he was more than happy to give credit to other companies that GE had learned from. Lessons gleaned from IBM and Johnson & Johnson, he said, helped the company get a foothold in the Chinese market. He said that it was Canon and Chrysler that had taught GE some of its product-launching techniques. Some leaders like to believe—or would like you to believe—that they thought of everything themselves. Leaders like Walton and Welch couldn't have cared less about whose idea it was. They cared about how quickly, and how effectively, that idea got embraced.

6. EXCEPTIONAL CEOS ADVANCE THE LEADERSHIP BODY OF KNOWLEDGE IN SOME MEANINGFUL FASHION. There are legions of accomplished CEOs who live up to the aforementioned criteria, but who still do not appear in this resource.

   Each of the seven CEOs who are profiled in this resource rewrote an important aspect of the leadership playbook. Bill Gates, the coiner of the phrase "digital nervous system," put information on the desktop and devised revolutionary ways for companies to move that information around the organization and thereby make all employees knowledge workers. Andy Grove wrote extensively about "strategic inflection points," a concept that helped managers better understand the complexities of dealing with radical change.

   Herb Kelleher taught managers that company culture can become one of an organization's great assets, and that work can indeed be about more than numbers and boredom and punching clocks. He inculcated spirit and good humor into the fabric of Southwest Airlines, making it a habit to remember the birthdays and anniversaries of his employees. They rewarded him and the company for it by going the extra mile for the organization. When asked what was the difference that made Southwest a profitable airline for three straight decades, he would answer unhesitatingly: his people.

   The same could be said for Sam Walton, who was surprised that other people were surprised that he drove around in a pick-up truck. ("What am I supposed to drive my dogs around in," he once asked, "a Rolls Royce?") As mentioned previously, his love for learning is something that all managers could learn from. His adherence to a simple yet immensely powerful vision (i.e., everyday lowest prices) carries with it a profound message for the Sam Waltons of future generations.

   When it came to rewriting the leadership rule-book, Jack Welch turned out to be in a class by himself. He said, "Business is simple," and he asserted that there was great power in informality. Up to that point, business had been anything but informal. He created a meritocracy in which the best ("A" players) excelled and thrived. He saw that business is all about building the intellect of the organization—a profound thought, coming from a chief executive. He created certain measurements that would become benchmarks for other corporations around the world, such as double-digit growth and becoming "number one or number two" in all markets. But it was his creation of an effective, coherent learning organization out of a collection of so many disparate businesses that is likely to stand as his major achievement.

A final word on what made these leaders tick—or, more precisely, on what didn't make them tick: As reported earlier in this chapter, Peter Drucker once declared leadership to be "mundane, unromantic, and boring." I think that every one of the seven leaders in this resource would disagree with Drucker on this point. Sam Walton called building WalMart fun and exciting, and wrote of his passion to compete. In a similar vein, Jack Welch once declared, "Business is ideas and fun and excitement and celebrations, all those things."

But perhaps the leader who summed it up best was Michael Dell. In 1999, he was speaking to an entrepreneurship class at his alma mater, the University of Texas, when a student asked why the multibillionaire continued to work. "You've got so much money," the bold young student declared. "Why don't you just sell out, buy a boat, and sail off to the Caribbean?"

Dell's answer said it all: "Sailing's boring. Do you have any idea how much fun it is to run a billion-dollar company?"

What follows are the leadership lessons of seven exceptional leaders who changed the face of business and had a great deal of fun along the way.