 The Best CEO’s Grasp Change with Enthusiasm
But They Need to Stay Out of Shark Infested Swamps.
Most chief executives, will need to fundamentally transform their enterprise within the next five years. Shareholders and the Market are demanding it and Boards are increasingly appointing CEOs with that explicit charter, easing the current CEO out. Established CEO’s recognize the need to take even successful enterprises to new levels of performance and to do this they know they need to structurally change but often they find it beyond their skill set and their comfort level. We can learn much from those that succeeded and even more from those that lost their way and failed. What are the lessons of PayPal, Google, Eko India, Commerce Bank and Hewlett Packard
 PAYPAL -Even New Companies need to change their Business Models. Pay Pal was not founded to be the online payment service that it is today. Max Levchin the founder of PayPal originally envisioned it as a cryptography company, and then later as a means of transmitting money via PDAs. Only after several years of trial and error and overcoming user fraud that almost destroyed the company did PayPal find its sweet spot as the default online payment system of millions. The transition wasn’t effortless, or without pain and angst but ultimately, their flexibility proved to be a major asset. Despite being founded in 1998, PayPal was swift enough to change course in time to go public in 2002 and later get bought out by eBay for $1.5 billion.
GOOGLE is known for the massive investments it is making in new business models within their company. However it struggled at the beginning. John Battelle explains in his book The Search that Google struggled mightily with their business model. After making only marginally profitable forays into selling search appliances to businesses and its own search technology to other search engines, Google radically changed course and in 2003 launched its AdWords product which allowed businesses to advertise to people searching for things on Google. Almost overnight, Google took the leap from popular search tool to advertising juggernaut. In 2010, Google reported almost $30 billion in advertising-driven revenue alone, a 23% growth. To this day, AdWords comprises the lion’s share of Google’s total revenue and profits.
EKO India Financial Services is a start up with a disruptive business model that will shake America’s banking industry. This fast growing company uses cell phones, software, and text messaging to allow migrant workers without access to traditional banking to transfer funds and save money. It has totally changed the economics of banking and is a low cost answer to a traditionally big problem. In just 18 months, the company has 180,000 users doing 7,000 transactions a day and is already turning a profit. Abhishek Sinha the company’s founder explains; “Eko is not a bank, insurance provider or Micro-finance company. We are providing an infrastructure and servicing layer supported by technology, user-interface and processes that allows traditional financial institutions like banks, insurance companies to extend last mile reach and convenience to small ticket customers – who may be un-served or under-served. We bring the ability to reduce the transaction costs to a level that makes it viable to serve this customer”.
Commerce Bank - Vernon Hill, was founded in 1973 with a handful of employees, $1.5 million in capital, and one location in New Jersey. It sold itself 35 years later to Canada's TD Bank for $8.5 billion, after Hill and his colleagues created one of the most original and distinctive brands in all of banking. In a bland, stodgy, colorless field, it created a banking experience around fun, light hearted, surprising gestures that encouraged customers to visit the branches and spend time there with the kids rather than engage in online transactions and treat banking like a utility. Their business practices and corporate culture were so unlike any other bank that their competitors would not dare copy them, even when results showed how effective they were.
We know that to succeed as leaders we need to grasp change with enthusiasm but too many of us do not feel we have the power or leadership to take our organizations through dramatic change.
Hewlett Packard This month’s example of a CEO that had what he thought was a vision but could not pull it off has to be Leo Apotheker past CEO of Hewlett Packard with his job costing proposal to spin off the company's market leading personal computer division when they were the largest seller of personal computers. It is surprisingly reminiscent of the move made by Sam Palmisano, IBM chairman and CEO in 2004 to save IBM when it sold its PC group to China-based Lenovo in a deal valued at $1.75 billion.
Apotheker’s move would have cost the company $1.5 billion in one-time expenses, $1 billion a year in ongoing costs related to replicating functions and the spun-off company might have ended up competing with its parent in servers and other markets, according to Whitman as reported in Business Week.
The company stock has rebounded more than 18% in Meg Whitman’s first month as CEO but at $28.00 it is still dramatically behind its recent high of $48.00 less than a year ago.
How can a major Fortune 500 company falter so badly?
The best CEO’s grasp change with enthusiasm but first they must be sure they have the support to execute their vision and the vision to take the company down a successful path. One enthusiastic change can end you in the swamp with the alligators.
There is no greater thrill than thinking about the critical issues today and applying our judgement as to how we might act in these situations. It is clear a leader must have a vision of growth not one of chopping up itself – IBM had a clear vision well conceived and planned before it sold its PC division to Lenova.
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