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 / Autumn 2010 / Issue 60(originally published by Booz & Company)


Getting Tensions Right

If the CEO, the top team, and the board aren’t spending the majority of their time on issues that address at least one of these three tensions, they are wasting their time on matters that are relatively unimportant. Conversely, they are engaged in the right fights when they wrestle with how to get more growth without sacrificing profitability (or the other way around); when they fight about how to improve current results without mortgaging the future, or how to sustain investment for the long term when short-term results are suffering; and when they battle over individual versus collective performance. Three examples — one for each tension — illustrate our point:

1. Profitability versus Growth. John Sunderland, the former CEO of Cadbury Schweppes, often responded with a parable when an executive argued that the business could increase either margins or sales, but not both. Sunderland would remind the executive of a time when people lived in mud huts and struggled to get both light and heat: Put a hole in the side of your hut, and you let the daylight in, but also the cold; block the opening, and you stayed warm, but sat in the dark. The invention of glass made it possible to have both light and heat. He would then ask, “Where is the glass?” He wanted them to look for ideas that would expand both their margins and their top line. By demanding both growth and profitability from the company’s strategies, Sunderland purposely added tension for his executives. He found that it created more energy and raised the quality of thinking and debate.

2. Short Term versus Long Term. Norman Bobins was the chief executive of LaSalle Bank (now a subsidiary of ABN AMRO) in the 1990s and early 2000s, when it was one of the most successful middle-market banks in the United States. He tells this story about how he turned the short term versus long term tension into a productive tool for driving performance: “One of my managers came forward and proposed a [US]$180 million profit plan. I had in my head that $200 million should be possible. The manager’s response when I challenged him was, ‘Just tell me what you want and I’ll deliver it.’ I said to him, ‘You don’t get it. It’s not what I want; it’s how I want it achieved.’ The quality of earnings is as important as how much earnings are produced. It would be easy to achieve $200 million just by lending more to customers with poor credit histories. That’s why in the budgeting and negotiating process with my managers, understanding how earnings will be generated next year is as important as how much earnings will be generated this year.”

Bobins’s approach was a masterful example of using the tension between short term and long term to improve the quality of management. He neither let the manager off the hook nor left him alone to sort out the tension for himself.

3. Whole versus Parts. Soon after Matthew Barrett became chief executive of Barclays PLC in 1999, he purposely introduced tension into a meeting of his executive committee (Exco), which included the executives who led different parts of Barclays. Barrett had become frustrated with how everyone put his or her part of the bank first. “When I’d been at Barclays about six months,” he recalls, “I took the Exco out for an away-day. Over dinner the night before, I said, ‘I’ve got some good news: I’m disbanding Exco.’ There was a stunned silence around the room. Then the question: ‘Why?’ I said, ‘I’m really respectful of your time, and it’s not good for any of us to have a series of bilateral meetings with an audience.’ They all objected. No one wanted to lose the status of being a member of Exco. So I said at the end, ‘You either persuade yourselves that your first job is the co-management of the group and your second job is managing your piece, or I’m disbanding Exco.’ I wanted to create a sense of ownership for the [group’s most important] issues wherever they sat in the organization. It really turned things around. [They] understood I was serious.”

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