As broad-based as it is up-close-and-personal, the consultant’s perspective on how business leaders manage uncertainty is informed and valuable.

Such is the particular case with Orit Gadiesh, chairman of Bain & Company, the Boston-based global strategy consulting firm.

Ms. Gadiesh first learned about strategy while serving in the Israeli Army during the early 1970s. She was an assistant to Ezer Weizman, the deputy chief of staff who went on to become President of Israel, and later worked in the war room, where the fabled General Moshe Dayan was in charge. After receiving her MBA from Harvard Business School (despite knowing little English, she graduated in the top five per cent of her class), Ms. Gadiesh joined Bain in 1977. As she demonstrated immediately, she is complex, intense, driven and direct. Above all else, Ms. Gadiesh is a brilliant leader and consultant. She was made chairman of Bain & Company in 1993.

Photography by Anthony Loew







Journal: Can you tell me how companies have reacted to the events of September 11, and also to the economic uncertainty that prevailed before September 11?

Gadiesh: I was in Europe giving a couple of talks and meeting with clients just before September 11. It was still some of the “Well, you guys in America, you had all this over-exuberance which we didn’t get into, so now you’re paying for it and we’re not.” That’s not true any more. Europe is beginning to feel a very similar kind of pressure, not quite as much as the United States. But events today in one country tend to become global events more quickly because people really are tied both in terms of where they sell, where they access, how they work together and so forth. So the chances that this will be a more global recession or downturn than people perhaps expected atthe beginning, I think, are actually quite high.

How is uncertainty affecting the way leaders and managers run their companies?

I think it’s made everybody more focused. It’s true—and it’s always been true—that confident leaders who think strategically have continued to think strategically. Good leaders continue to be good leaders, and people who are not as good continue their trend.

But it’s not that an average leader ultimately becomes an awesome leader. Jack Welch was an awesome leader for 20 years. During downturns and upturns, he actually didn’t change much of what he did. He took advantage of things as they came around and didn’t talk about cost only when it was a downturn. He talked about and managed cost when there was an upturn too.

Many leaders before the downturn—and before it became clear there might be a downturn—were overly confident that their company would be safe; either the downturn wouldn’t touch them or it wouldn’t affect their sector. But thoughtful or strategic-thinking CEOs—and I use the word “thoughtful” for lack of a better word because I don’t think of it in terms of “good” and “bad”—were building contingency plans into their culture even before they thought that something might be happening. That is good corporate hygiene.

With the conventional approach, many people hedge their bets and diversify so that they won’t be caught in one sector or one type of geography. They feel that their wins will offset their losses. But in fact the strategic CEOs really focus on their core, where they have the best chance of winning. It might sound a little counterintuitive, but in fact they not only focus but also try to reinforce and strengthen the core during that time.

In a downturn, the conventional approach is also to cut costs everywhere. I have nothing against prudent cost managing; I think it’s a very rational reaction to downturn. But the thoughtful CEOs, who have been focusing on cost both in bad times and in good times, actually find themselves in a far better position during the bad times. If you really think about it, prices in good times are often sent by the people who have the highest cost. Prices in bad times are always set by people with the lowest cost. So people who’ve been managing well all along actually may not be as profitable as they were before but they’re going to be around coming out of it. They’re positioning themselves for growth, which inevitably will eventually return.

Another thing that characterizes the more conventional approach is to cancel plans for any investments. Well, again if you’re a really thoughtful CEO—and this goes back to strengthening your core—you understand that this is actually a time to pick some places to invest, whether it’s getting the best people that other people are actually letting go, or investing in your customers by doing one extra thing for them.

Cancelling acquisitions is also part of the conventional approach to managing uncertainty. But again, strategic CEOs scoop up bargains that add to the core and strengthen it. It is a great time to actually go after companies that are weaker and come out of it in the number one position instead of number three, for example.

A company can really be its own worst enemy in a downturn. Aside from what you’ve mentioned, are there other things they should or should not do?

Some companies cut people in a way that actually causes the good people who remain to look for a first opportunity to leave when they come out of a downturn.

Thoughtful CEOs are actually very thoughtful about the way they do it, the way they treat the people, the way they explain what they’re doing, the way they actually make the people who are still in the company feel really good. This is actually a time to strengthen your loyalty among all your constituencies. What you’re trying to do is really protect your core assets, and actually focus on getting close to those assets and protecting them at all costs, whatever those assets are—people, customers, vendors.

How does one reconcile very sudden change with a set strategy?

I think your question is, What do you do when you have a strategy and you have a sudden change. I’ll answer that in two ways. I started by saying that if you are a thoughtful CEO, you’re always going to have a contingency plan built into your culture. So a sudden change is not going to be a sudden change, it’s going to be something that you have thought about, something you actually prepared for and have an idea of how to react to.

The second thing is that companies that have what we at Bain call “a True North,” a common set of values that make it easier for them to cope with change, so that when they’re in trouble, they rely on their collective values. And though this is a soft thing, I don’t think one should underestimate it.

What also helps in time of great change is something we at Bain call a “strategic principle.” This all sounds very much like a mission statement. It’s not really, as I will explain in a moment. A mission statement informs a company’s culture and gives people something to strive for. It inspires front-line workers. It’s aspirational.

A strategic principle drives a company’s strategy. It’s a memorable and actionable phrase that distills a company’s corporate strategy into its unique essence and communicates it through the organization. For example, Dell’s strategic principle is “Be direct.” America Online’s is “Consumer connectivity first-time-anytime, anywhere.” The strategic principle is precisely what allows you to adjust in uncertain times.

What impact have the events of September 11 had on your clients’ thinking?

In all my conversations with CEOs, I could make a distinction between people who were compassionate and people who were sentimental.

Between being compassionate and sentimental?

Compassionate is good and sentimental is not.

Certain companies are doing a good job of managing volatility, others are not. Why?

Part of the answer to that I gave you before when I made a distinction between the conventional approach and thoughtful and strategic CEOs. But there are a whole lot of things that people need to think about in a recession. Then different people use different tactics. I’ll give you some examples of the things you need to think about in a recession.

When you’re thinking about contingency, even now, there are key questions you should ask yourself. For example, what if your risk profile shifted dramatically? What happens if demand suddenly falls off? Where do you go? Do you have a backup plan of where you want to shift? Do you have a distribution plan there? What if global events disrupt your supply chain?

I think the most important thing is not to overreact. I hear a lot about people talking about starting to build inventory again. The reality is that most people aren’t at the stage that Dell was at, where it literally had no inventory. Overreacting and starting to stock up on inventories is an overreaction that is actually pretty risky. What if prices dropped all of a sudden? Well, now we go back to knowing whether you are low-cost or are you high-cost. Firms really need to scrutinize their purchasing costs and cycle times relative to their competition to detect inefficiencies and fix them.

What if a global recession hit, and I emphasize the word “global.” I believe it is going to be global. This is when you start thinking about making sure you have the cash reserve so you can actually consolidate your industry. By doing that you actually save jobs. This is a time to acquire rather than stay away from any kind of investment.

There’s a school of thought that says “scale and scope are all that matters.” Is that essentially true?

I’m not sure about scope because scope is a tricky one, because I do believe that you really have to focus on your core, and scope does suggest that you’re further from your core.

AOL/TimeWarner is an interesting example of a company that’s trying to redefine an industry or a business, so they might actually need the scope in order to create scale in a new business…it’s a complicated and interesting one to look at.

I don’t remember the exact words of Jack Welch…but I think they’re still true, when he said that being number one or two is very different from being number four or five. When things get bad, one or two will catch a cold, and four or five will get pneumonia and number six will disappear. But he was talking also about quality, not just about size. So if scale is well managed it’s a great asset, no question about it. So if scale is well managed it’s a great asset, no question about it. But a lot of companies with scale are not managed to take full advantage of their scale. For example, if an upstart gets into a business and strategically takes advantage of an asset that it has, it can absolutely leapfrog a large company. That is very true and it has become in my mind a really important issue. A lot of large companies are very bureaucratic. And one of the important things for large companies with scale and scope is that they need, more than ever, to become more nimble. Smaller companies oftentimes don’t have that problem and so they can move faster and make decisions faster, etc. It has a lot to do with the quality of management in whatever sized company you are in. In the end, it has to do with conventional thinking and ways of doing business, and strategic thinking an ways of doing business. That distinction in leadership makes a huge difference.

When people talk about scope, it’s a number of things. Are you trying to redefine an industry the way AOL and TimeWarner are, or are you just diversifying? I don’t think GE was particularly helped by scope, although towards the end Jack Welch found a way to actually create some synergies and scope among companies that were not related to each other. But there again, we’re talking about very unique leadership.

As you observe companies in North America, Europe and Asia, what is the mail challenge for a leader these days?

First, to be very focused on getting close to their assets right now and protecting them at all costs, whatever those assets are. And then the good leaders are actually growing those assets and taking advantage of the fact that a lot of people around them are confused. For each company, this will be different, but as a theme, this is extremely important.

A second extremely important thing for CEOs is to be very clear in their communications in this confusing time. They must be clear about what they’re trying to do, about what the assets are. Come up with a strategic principle that is easy to understand for people. In a confusing time, when people have to react to a lot of things, everyone will be better off if you have a clearly understood and widely held strategic principle, and the more you reinforce this culture thing that I characterized as “True North.” People will not be frozen when they have to react to something and they will actually be willing to experiment and do things that are innovative. You can have that as long as the culture is shared and the strategic principle is understood.

What are the mistakes that a leader can make in trying to manage uncertainty?

One of them is to become invisible. It’s really important that your people see you. It’s true in countries during wars and true in companies during crisis. It’s true, period. I learned that in the Israeli Army, when I was in the war room watching those people do what they were doing best, and it’s a lesson that’s stayed with me for a long time. Projecting confidence is extremely important to people. The flip side of that is not being visible.

Another mistake is to overreact to things. I gave you an example before about the supply chain and all the people who are talking about having to build inventories. It’s not so much overreacting as it is being strategic.

It’s highly unusual to have a CEO who has served in her country’s intelligence operations. Have you taken and applied certain things you learned in that experience to your situation?

I think I learned a couple of things. I was young, so I obviously wasn’t making decisions. But I did have the privilege of working for the Deputy Chief of Staff. I was in the war room where things were happening. I think I learned a couple of things that the Israeli Army is characterized by. The Israeli Army is known for the fact that its officers’ theme is “Follow me” as opposed to directing people to go into something. I don’t know if you’ve heard about it, but the officer in the Israeli Army is up front. That goes back to what I just said about CEOs and leaders, and visibility and being there.

I think the second thing is that when you’re in a small room you’re very focused on achieving results and reacting quickly. There is no place for bureaucracy. Military organizations, like every organization, have a bureaucracy embedded in them. In times of war, the bureaucracy disappears. People put aside their bureaucratic style and make practical, pragmatic decisions on how to ensure that results actually happen. I really do think that’s the hallmark of Bain & Company. It’s always stayed in my mind and always reinforces everything that I do and what we do when we work with a client.

I also learned not to be intimidated by people with a lot of power, but to respect them and realize that they were people. I think that has served me and our company well…the ability to look people in the eye and sometimes tell them something that somebody else might not have told them. People are people, and when you respect them, it gives you a licence to really tell them the truth and have a real dialogue and cut through all the bureaucracy that sometimes exists in business.

Do you have a particular vision of what the business world will look like whenever the economic environment stabilizes?

Everybody believes that nothing will ever be the same. I don’t remember who said this, but I believe it was somebody talking to Tip O’Neill (former Leader of the U.S. House of Representatives) not too long after the Kennedy assassination. That person said that “America will never laugh again.” Tip O’Neill came back and said that “America will laugh again. It’s just that it will never be young again.”

There’s a little bit of that in this, and the fact is that America went back to laughing and being young again. You just learn from things like that quite a bit. And some of it stays with you.

But the business environment will go back to being the business environment. Having said that, there is no such thing as going completely back to being normal. Let me remind you that in what used to be the boom years, it was a very abnormal time for a lot of large companies who were struggling to understand what it was all about. They felt almost as much uncertainty, though for different reasons, as people feel today. I was talking to CEOs then who were wondering if they were even going to be around, when people were saying “forget about the old…the old economy versus new economy…the old economy was not going to survive.” Remember that? Those who were running those old economy companies felt as much uncertainty, or even more, than they feel today. At least today they understand what is causing some of that. The culture that prevailed before will come back. Coming from Israel, I can tell you that. I think businesses will learn something from that, hopefully along the lines of what we were talking about before. During really good times, developing a contingency plan is extremely important.

I don’t even know what “normalcy” means, especially since the last 10 years have been actually abnormal in a sense. They’re abnormal not only because of the over-exuberance of all the internet stuff and e-stuff. They were abnormal in the sense that there were some very real technology innovations, true killer applications…first the PCs, then the cell, then the internet applications, and there was the Y2K buying spree. And you had a basis for a real boom that came out of all those things. Add the over-exuberance on to that, and you’ll see that it was completely abnormal. It’s probably going to go back to something that will not feel like that and yet will be more normal, because right now I don’t see any real breakthroughs in technology, only incremental developments. There are obviously breakthroughs, but not like the PC, for example. There are no new killer applications on the horizon to match the ones I just referred to. There will be more investment in technology because people will have to catch up. But people who only invested in technology to create efficiencies will only be putting themselves on a par with their competitors. Gadiesh3 Those who are thinking about technology and the internet in strategic ways, to leverage their unique assets in a way that other people aren’t, are going to come out of this stronger.

What is your outlook for 2002?

I might be behind the times or ahead of the times, but I have consistently refused to even try to guess whatthat will be. I do sit on the Board of the Federal Reserve of New England and I have watched a lot of economists try to do that. And I think the most important thing is to stay the course of the things you’re doing. I don’t know if it will be the second quarter or the third quarter, and I don’t pretend to know. I think getting out of where we are now is going to be slower than we would like it to be. And a slower pace than we would like it to be, but whether it’s 2002 or 2003, I can’t answer that.

It may not be 2002?

It may stay the course that it is on now or start inching up a bit in 2002. I really don’t know. I think what’s important is that CEOs think and behave along the lines that we talked about before. And in fact, when things start to pick up, to stay the course. In other words, not just start spending like crazy to get back into the good graces of employees and customer and vendors, but incrementally, or smoothly shift gears and move to a higher level of growth. If you’ve done the right things in the downturn, you’ll be more prepared for and successful when things begin to improve.


Thank you for your time.

You are most welcome.