Thought leader, author and consultant, Jim Champy is one of the most influential business thinkers. His first book, Reengineering the Corporation, sold more than 3 million copies and much like its sub-title, became a “manifesto” which drove many, if not thousands, CEOs and managers to re-shape the way their businesses operated. Mr. Champy is now the chairman of Perot Systems’ consulting practice. Above all, perhaps, Mr. Champy values counter-intuitive thinking, a quality that underlines the success of the eight entrepreneurs and start ups he profiles in his latest book, Outsmart! How To Do What Your Competitors Can’t(FT Press). The book serves up a series of lessons that smart leaders will want to apply to their own business.
Stephen Bernhut: In your book you say that there’s not a lot that’s new in management today, though there is a lot that’s new in business. Could you please elaborate?
Jim Champy: Maybe the most important thing that’s “new in business” is the way that strategy is shaped. The obsessive, ego-driven Captain Queeg-like CEOs have been replaced by CEOs who realize that big egos produce big problems (Queeg is the central character in The Caine Mutiny). These new CEOs, eight of whom are profiled in my book, recognize and embrace the crucial truth that strategy is best shaped by a company’s collective wisdom, not by the people in the executive suite. They realize that strategy develops organically from whatever happens on the front lines and everywhere in between. All of the companies in the book are outsmarting and outgrowing the competition by finding distinctive market positions and sustainable advantages in all kinds of ways.
With regards to managing, one of the few things we’re learning is how we really operate in what’s sometimes called a “global delivery” model, or what Tom Friedman calls a “flat world” (author, The World Is Flat). So, how do you really operate when you’re sourcing from multiple countries, and in fact from cultures that you’ve never dealt with before and know nothing about? One of the trends that are really interesting is that we’re actually much more prepared to put people in China, to put people in India, to have folks in your company really be there.
It used to be that you operated with a kind of outpost mentality. Companies said that they were multinational – but just about every office outside headquarters was an outpost. One of the biggest trends today is what companies are going through to really implant their people in other cultures and learn to manage in that way. It’s both exciting, by the way, and disruptive, as you might expect. I think that’s one of the big trends, learning how to manage in a real global environment where you don’t just have a branch that you’re using for selling but that you’re sourcing and selling in whole new environments.
SB: I’m wondering about the decision-making process?
JC: The trend has certainly been, and the wisdom has certainly been, to put more decision-making in the front line up against the customer, so that when a customer has a problem, you can respond. It used to be called “the moment of truth.” You really empower the front line and you can respond when a person has a need. Over the last 25 years, that’s certainly been one of the big directions or drifts in management. Having said that, I would also say that a lot of companies are still controlled from the top. So I think you do find more decision making that’s made deeper in organizations and in more dispersed ways. But a lot of the decisions still come from the top.
A lot has been written recently about how Shultz (Howard) is trying to redo Starbucks. I’m an admirer of Shultz and I think it’s wonderful he’s come back to try to revive Starbucks. I’m a great admirer. I think he’s very hungry to hear from the front and he really wants people to do things. But he’s also got ideas of his own he wants to put in place. For example, people at Starbucks want to change the paintings on the wall and he wants them to do it. But at the same time he’s very directed about the quality of his coffee and how it’s made. I could argue that that’s the right balance. You’ll never get to a point where the front line is making all the decisions. And I think that’s the way it’s happening today. Sophisticated managers are learning how to manage both top down and bottom up, listening to the bottom and letting people exercise their own decision-making; but at the same time, when it’s right, they’re being directed from the top.
SB: About the high-growth companies in your book… you talk about them following Peter Drucker’s observation of knowing where they are, where they want to be and how to get there. You say such an approach blurs the line between strategy and execution…
JC: Here is what blurs the line specifically. The “how to get there” and “how you execute” in the eyes of a classical strategist, the people who write what I call academic books – good books but academic books – and teach about strategy, the classical strategist will argue that the “how you get there” is not part of strategy. Because it can be copied, it’s not distinctive. They argue that how a company operates is not the sustainable distinctiveness because you can be copied. I’m not a believer in that, and I’ve always argued with the classical strategist that a company can be very unique in the way it operates and be very public about it and not be copied at all, because other companies either don’t have the competency or because they have something in their cultural legacy that prevents them from doing that.
For example, if you look at the big names are in retailing these days, Wal-Mart and Target… how these companies operate is very visible. There are no secrets about how Target or Wal-Mart operate, but it’s their operational excellence that creates their distinctiveness. And you see the classical strategist will argue, “No, that can’t be a part of strategy.” But I’m a strong believer that the important point in simple terms is that how you operate can really differentiate you from your competitors.
SB: When I think of promise and delivery I immediately think of “disconnect.” So many companies just don’t get it. What’s the key?
JC: It’s having a manager or an executive who actually has an appetite for execution. I think that’s the key link. And in some way they enjoy getting the stuff out the door as much as they do creating the idea. And if you look at companies that operate very well, it’s really both things. I think of Nike, and interestingly, I think of a lot of the athletic goods manufacturers, because they’ve been so good at the design of their products and at the same time getting them out the door. They don’t make it all themselves, but boy they’ve learned how to really engage the people who do manufacture for them and get the stuff out the door, because they have an appetite for execution. They know that if a sneaker is going to fall apart they’re not going to sell many shoes. And so after they’ve got the great idea, they go to work, and they relish I think what it takes to get it out the door. That’s the key connection. If you think you can just come up with a bright idea and walk from it, boy… These days, it’s all about persistent and constant attention to execution detail.
SB: One of the companies you profile is Minute Clinic, which delivers medical services in a storefront environment. That’s not an easy industry to break into, even in the United States. How is what MinuteClinic did instructive for other companies trying to develop a new model in a tough, tightly controlled industry?
JC: What Mini-Clinic did was they looked at how healthcare was delivered. So you look at your delivery model. In some sense, there’s nothing new in the product, but, like MinuteClinic, I think other companies can change the way an industry operates by looking at how the services are delivered. Mini-Clinic was so rich because it’s an industry where the rules have been terribly rigid and controlled frankly by the clinicians – by the doctors, by the physicians, for so long. I think there are a lot of industries that are open to change… and again a lot of the cases illustrate how you can really change an industry. Healthcare is a particularly closed industry which makes the MinuteClinic story all the more compelling. But most industries are open to a MinuteClinic kind of change. Look at the delivery method. You remember how we used to drop film off at a photo finisher? Well, not anymore.
SB: There’s no sign that the credit crunch is going to ease anytime soon. That’s got to affect a start up. What advice would you give that kind of person who hopes to be as successful as the entrepreneurs in Outsmart!?
JC: The first piece of advice is I would tell them to develop a business plan which is as self-funding as possible. That means that you may experience slower growth, but you may need a plan in which the growth that you have actually is able to fund the next stage of growth.
I grew a business like that many years ago, but it was a consulting business and it didn’t take a lot of capital. If you look at a lot of the businesses, frankly all the businesses I illustrate in the book, they don’t take a lot of capital. And a lot of businesses that are launched today don’t take a lot of capital, particularly in service-based business, it doesn’t take a lot of capital – it takes a lot of hours and time. It can mean slower growth, but I’m a strong believer that too much money makes you dumb. In the so-called tech bubble, I saw billions of dollars being wasted – billions of dollars. Individual companies would get a venture firm to give them a $100 million and they would go through that money so quickly. And they were wasting it, because what they were trying to do, in a lot of cases, was accelerate the adoption rates. They’d have an idea, and they’d say, “Oh we’re going to advertise, we’re going to go on the internet, we’re going to advertise, we’re going to buy TV time.”
The second thing I might tell the entrepreneur is “Don’t worry,” because building a business that is sustainable isn’t an overnight phenomenon anyway. If you’ve got a new idea, there’s always some adoption time that’s required. And so it may be better, but actually you may be better off to move like the turtle or the tortoise these days rather than the hare. You may be better off and learn as you go. And again as I watch these companies, many of them are self-funded. Some of them had early money but not very much, and they learned as they grew.
The third thing I might tell them is that if you go for money too fast, you lose control of your business; that’s what happens historically. You lose control. So I’m an optimist; I tell them there’s some good news in this. It’s going to force you to be very disciplined, to be more disciplined about your business plan. This is tight credit. It’s going to force you to be more discerning.
Another thing I tell them is that one of the wonderful things about tight times is that everybody is looking around for new sources. Markets open up. People are prepared to leave their current suppliers for a better deal, and if you’re better, you can poach your competitors’ customers. Tight times are not the worst of times for everybody.
SB: In Outsmart! you discuss the merits of intuition versus data analysis. If you’re a manager, say for a big bank here in Canada, how do you convince your own manager that your instinct is right?
JC: What it practically takes is some demonstration of success… and when I think of the people who are able to do that, it’s because over time they’ve actually demonstrated success in their approach. And sometimes that’s the sad news. You can also say it’s good news, because you get people who intuitively know what to do; you just see them repeating their success, and hopefully a senior manager, their boss, recognizes the power of their judgment. And when you see brilliance in a big company, that’s usually what’s going on, that you’ve got someone who’s demonstrated success, and so the executives have learned learn to trust that person.
Now the next question may be, “How do you start if you’ve never done it before?” You start small. And you just try to keep doing it, because the unfortunate thing in a big company is that risk isn’t tolerated if the risk will impact the earnings per share. I live in a publicly held company and I’ve worked in publicly held companies. You can take risks, but they’ve got to be bounded. And so you take some bounded risks, you start small, and demonstrate to your boss that your intuition does work.
By the way, one of the strange things about all of this is that folks who run big companies even at the top really need their intuition to work for them. And I find the folks who try to move big companies, actually in spite of the fact that they’re presented with reams of paper and data, still make decisions based on their intuition, what their judgment tells them should be the case. What makes them great is the fact that they will do it. I was talking with an executive yesterday who said to me, “I’m going to make this move, and nobody else here agrees with me, but I’m going to do it.” And I said to him, “You’re right, because by the way my intuition told me he was right.” But you know, really good managers and great managers and great executives make those moves sometimes way against traditional wisdom.
SB: Is this something that can be taught in business schools today?
JC: I’m not sure you can teach it in business schools – you can try. Frankly, if I were teaching it, and I’m not teaching these days, but if I were teaching, I would give the student a set of facts, but the facts would not be all the facts… they wouldn’t be clear, they would be like real life… you don’t know everything. And I’d give them some time, bound the time in which they can make some decisions, because you can’t find out everything, and then get them to kind of exercise their judgment. But your ability to make good and intuitive decisions is so much based on experience that it is hard to teach. And you can’t get the experience in a business school. It really takes spending some time to develop, I think.
SB: This has been very good. Thank you for your time.
JC: You are welcome.