What makes some companies take off while others struggle?
Apollo 7 launch. Source: NASA
There are lots of examples: Facebook created the dominant digital social network, while other platforms failed. Costco is a huge discount club while Wal-Mart has struggled. Johnson & Johnson has succeeded across a broad range of health-care businesses, while others have faltered, brought down by scandals or shrinking markets. What’s the difference?
It comes down to leadership. Successful companies need vision: leaders who create a sense of community where their people can grow and develop and succeed; where they can try out new ways of doing new things; where workers know that their boss is genuinely interested in them, not just for their work, but as people.
The military has a phrase for this: “officers eat last.” The higher you rank, the further back in the chow line you stand. The brass may make the decisions, but the enlisted folks are the heart and soul of any outfilt. Without enlisted men and women, there’s no need for officers. The attitude of the front line troops is critical to any mission’s success. And morale can’t be commanded. It has to grow organically.
Photo: Lt. Col. John Hall. Source: US Army
But leadership isn’t enough. To succeed on the battlefield, a unit can’t just believe and trust in its commanders. It needs to head in the right direction. Having the right strategy is critical. Steve Ballmer tried to be a visionary leader at Microsoft. But he missed the boat on mobile applications and devices. Their software was over-engineered with “feature-creep” that made it confusing and impossible to fully understand. And they focused on desktops for too long. During his tenure, Microsoft was a wealth-destroyer.
Leaders inspire people to perform because they present a vision that’s bigger than themselves. But they need to be going the right way. Proctor & Gamble had a vision for where they wanted to go when they acquired Gillette. They paid a high price, and the market was skeptical that the acquisition would be successful. But P&G used its expertise to create an ecosystem of shaving products around the dominant brand, and the merger created value for everyone: consumers, employees, and shareholders. Everyone, that is, but the competition.
An important investment factor is quality. When investors look for high-quality companies, they need to look beyond the bottom line: return on assets, cash-flow management, or the structure of the balance sheet. These measurements are important, but they’re not enough. We need to look at people across the firm to see if they’re inspired, and inspiring others, to move in the right direction.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”