Winning Now, Winning Later

How Companies Can Succeed in the Short Term While Investing for the Long Term

David M. Cote

• Publisher: HarperCollins Leadership
• Year: 2020
• ISBN:
  9781599510224
• Topic: Business
• Subtopic: Sviluppo organizzativo
• Index: Business

LEARN HOW TO GROW YOUR BUSINESS IN A TOUGH ECONOMY

In this unpredictable business landscape, everyone is struggling to choose between chasing short-term objectives and creating a secure future for their company, but both are crucial.

As CEO of Honeywell, David Cote understood this dilemma well. He turned the company around despite facing the 2008 recession. In these pages, he shows you how taking the same revolutionary approach might be the smartest business decision you'll ever make.

Presenting a comprehensive solution to a perennial problem, Winning Now, Winning Later is a go-to guide for you and leaders everywhere to finally transcend short-termism's daily grind and leave an enduring legacy of success. This tested and proven approach can strengthen your business like never before and even rescue it from the brink of disaster, no matter how dire the current circumstances may seem.

In Winning Now, Winning Later, Cote shares 10 essential principles for winning today and tomorrow such as:

• Spot business practices that seem attractive in the short term but will cost the company in the future
• Determine where and how to invest in growth initiatives for maximum impact
• Sustain both short-term performance and long-term investments even in challenging times, such as a recession or leadership transition
• Feel inspired to stand up to investors and managers who are solely focused on either short- or long-term company objectives
• Step back and foster independent thinking among those around you

PART ONE

LAY THE FOUNDATION

CHAPTER ONE

Banish Intellectual Laziness

In 2003, about a year after becoming Honeywell’s CEO, I traveled to the headquarters of our Aerospace division in Phoenix, Arizona, to conduct a review of the business. I was working hard at the time on implementing wide-ranging cultural change across Honeywell, and the Aerospace division seemed reluctant to buy in. No surprise: the executive leading it—I’ll call him Rich—had interviewed unsuccessfully for my job, and likely harbored some resentment. In making the trip, I hoped to strengthen my relationship with Rich and his team, familiarize them with my desire to focus Honeywell on both short- and long-term goals, and offer up ideas for improving the division’s performance.

My visit began smoothly enough. Shaking hands with members of Rich’s team, I found them polite and seemingly happy to see me. We sat down in a conference room so that team members could present their strategic plan to me. A copy of the plan had been placed on the table facing each seat. Flipping through mine, I saw that it was thick—maybe 150 pages long, full of charts and tables. Uh-oh, I thought, not good. I had found so far at Honeywell that executives and managers often made presentations far longer than necessary, overwhelming audience members with facts, figures, and commentary in an effort to preempt sharp, critical questioning. “Looks like you guys have done a lot of thinking here,” I said, pointing to the thickness of the binder. “I can’t wait to hear it.”

Rich nodded at a member of his team, who began running through the presentation. It started with a review of the market. So far, so good. But a few minutes later, when we were on page five, I stopped to inquire about the status of Primus Epic, a terrific new cockpit avionics system we were developing. The team assured me the project was proceeding on schedule and on budget. Then, a page or two later, I posed another question about maintaining our lead in another product line of ours, auxiliary power units, the engines that provide power to an aircraft when it is on the ground. Although Rich’s team members answered my question and smiled politely at me, they seemed unhappy, exchanging glances with one another that seemed to say, “Can you believe this guy?” They continued with the presentation, but about five minutes later, when they were on page fourteen, I stopped them yet again, inquiring about overruns that had exceeded $800 million on our biggest programs.

Rich had had enough. “You know, Dave,” he said, “if you don’t mind, I’d really like the team to continue. We’ll get to that point soon enough.”

I glanced over at him. “I’d like to know about it now.”

“Really, we cover it later. I can assure you, all of your questions will be answered.”

“Okay,” I said, “I believe you. What page is it on?”

He glanced at one of his team members, who flipped through his copy of the presentation. “Top of page thirty-six,” this executive said.

I went to the top of page thirty-six and scanned the chart there. “Nope, that covers just Primus Epic overruns. I want to understand the root cause of our overrun problems. Is it bad estimating? Bad executing? Something else? I want to get us to the point where we can anticipate the real cost so that we can plan for it and execute.”

Rich shot me a hard look. “Dave, before we go any further, I have to object to how you’re running this meeting. We put a lot of time and effort into crafting this pitch for you. Please show us the courtesy of listening to it all the way through.”

“I understand, Rich,” I said, “but let’s discuss the purpose of this presentation. If we’re here for the team to put on a show for me, then you’re right, I should sit back and listen. But if the point is for me to learn about your business and its issues, then we need to conduct the presentation in a way that facilitates my learning. I need to ask questions right away, get the answers I need, and then move on. Can we do that?”

Rich relented, and I was able to review their business in a rigorous and productive way that ultimately uncovered opportunities for better short- and long-term management. What I learned, to my chagrin, was that Aerospace had become adept at lying to itself, shoehorning costs here and there into a budget without acknowledging them openly. This put enormous strain on the organization, which then had to patch together significant short-term fixes throughout the year, including more aggressive bookkeeping and special deals with customers and others, to make its goals. A dysfunctional approach if I’d ever seen one.

Fundamentally, managing for both the short and long term isn’t about changing specific processes, policies, or strategies, but rather about adopting a different, more intellectual mind-set. Planting seeds for the future while also achieving short-term results is much harder to pull off than just aiming for one of these goals exclusively. It’s so hard, in fact, that many executives and managers throw up their hands. Absolving themselves of any responsibility to achieve both short- and long-term goals, they shrink from asking tough questions and actively shield themselves and others from probing too deeply. Instead of finding new ways to support innovation and investment while achieving short-term goals, they fall back on the same old strategies, policies, and procedures, relying on accounting sleight-of-hand to make it all work.

Don’t let this be you. You can achieve short- and long-term goals simultaneously, but that means you will need to puzzle it out, quarter after quarter, year after year. Challenge yourself, your team, and your organization to think harder about customers, markets, and processes than you previously have. Cultivate a mind-set of analytic rigor and attention to detail. Ask challenging questions of yourself and others, and push hard until you’ve uncovered satisfying answers, even if that means acknowledging difficult truths. Decide right now to become a serious, engaged, and honest scholar of your business instead of a passive overseer of it.

ACCOMPLISHING TWO SEEMINGLY CONFLICTING THINGS AT THE SAME TIME

My own heightened appreciation for intellectual rigor dates from the early 1990s, when I served as CFO at General Electric’s major appliance business. We were trying to reduce the amount of capital we deployed in operating our businesses, and in line with that goal, my boss had decided that our business unit needed to reduce the $1 billion in inventory we maintained. Guess whose job it was to lead the inventory reduction effort? The assignment caught me by surprise—I wasn’t sure how to proceed. I had seen other businesses flounder when pursuing such initiatives. The boss would decree that henceforth the company would only keep a certain amount of inventory on hand to shrink the amount of cash it had locked up. Months later, inventory levels would creep back up, and the amount of cash locked up would increase as well—again.

I wanted to try a new approach, but I didn’t know what that would be. We convened a cross-functional team and asked them: Why did inventory reduction initiatives usually fail? What can we do differently? “If we’re going to fail,” I said, “let’s at least do it differently. The definition of insanity is doing the same thing over and over, always expecting a different result.” A manufacturing leader identified dissatisfied customers as the reason why these initiatives usually failed. Once a business reduced inventory, customer delivery usually suffered because we didn’t have the items we needed in stock. Customers complained, and the sales force applied pressure on the business to stock more product. Eventually inventory levels were right back where they had been. Inventory levels and customer satisfaction were directly related. You could have lower inventory levels or high customer satisfaction, but not both. You had to choose between two seemingly conflicting things.

That, at least, was the conventional wisdom. We wondered if we could find a way to reduce inventory levels while also keeping our products readily available and ready to ship so that customer satisfaction wouldn’t plummet. My team and I spent an entire day puzzling over it. At some point, a team member urged us to take a step back and assess our entire process, from forecasting, to supply chain, to manufacturing, to transportation, to distribution. Running an analysis, we found that it took eighteen weeks end-to-end, from when a product was shipped out of the warehouse to the point when manufacturing was told to replace it. and then it was produced, shipped, and replaced in the warehouse. That seemed like an extraordinarily long time. What if we could render the whole process more efficient, shrinking our “cycle time,” as we called it, down to a couple of days? We’d be able to reduce warehouse inventory while still providing great customer delivery because we’d be able to replenish our stock much more quickly. The dramatically improved efficiency would also help us reduce a lot of operational cost. The overall impact could be huge!

Our team began working on improving our processes to reduce cycle time in forecasting, supply chain, production, and distribution. We began providing immediate feedback to plants on what had shipped that day, shortening supplier lead times, dramatically reducing lot sizes (the quantity of a product model we made during a given production run), and reducing transportation time to warehouses. Over a four-year period, these ongoing efforts reduced cycle time to about two weeks. We were able to cut inventory levels in half, while also improving our on-time delivery rate from the low 80s to above 90 percent. By striving to achieve two seemingly conflicting goals at the same time, instead of just focusing on one goal, we had prompted ourselves to think far more carefully about our business as a whole, and to pose questions nobody had asked before. This fairly intense intellectual process led us to reengineer a significant part of our business so that it functioned better across a range of metrics, not just one. Because our subpar process had been the underlying problem, and because we’d improved that process, we could sustain these gains over time.

MY “ANY NINNY” THEORY

Coming away from this episode, it was clear to me: leadership was, at its core, an intellectual activity. Any ninny could improve a given metric—that didn’t take much thought or creativity. The best leaders acknowledge the tensions that pop up all the time in organizations, and they get better results by probing deeper to resolve them. Conventional wisdom said that you could earn high margins on the goods or services you sold, but only at the expense of your sales volume. It said that you could empower frontline employees to make decisions, but only at the expense of your ability to maintain control and prevent mishaps from happening. It said that you could improve customer delivery, but only at the expense of your inventory reduction efforts. Great leaders, I came to believe, challenge themselves and others to understand their businesses better and rethink them so that they can achieve two seemingly conflicting things at the same time. That same intellectual discipline—that mind-set of rigor and curiosity—allows leaders to master what is arguably the most important conflict of all: attaining strong short-term results while also investing in the future to achieve great long-term results.

Even as I came to this realization, I was keenly aware that most executives and managers didn’t challenge themselves to pursue conflicting priorities, nor did they appreciate the intellectual effort this took. During the early 1990s, leaders at General Electric were so pleased with our inventory reduction efforts that they asked us to speak with other GE businesses to share what we had learned. After hearing our presentation, audience members would raise their hands and ask, “So, what was the single big thing you did to achieve these great results?”

“Well,” I said, “there was no single best practice. It was a mind-set of intellectual rigor we had adopted that made the difference. It’s this mind-set that you should be striving to replicate in your own organization.”

Audience members would nod their heads, but they didn’t really get it. A few minutes later, someone would raise his or her hand and say, “Okay, yeah, it was a mind-set. But tell me: What was the one thing you did that really made a difference?” Audience members wanted an easy answer that would excuse them from having to think hard about their businesses, when in truth, thinking hard was the only real answer.

INTELLECTUAL LAZINESS RUN AMUCK

To my dismay, such intellectual laziness was endemic at Honeywell. When I arrived at the company a decade later, I stepped into an organization utterly unused to probing for root causes to problems and to advancing new and creative solutions. Executives and managers pursued goals along a single dimension, doing whatever it took to make their numbers in the current quarter without concern for their actions’ broader consequences. “We’ll worry about next quarter next quarter, and about next year next year,” people said. Businesses went around in circles, struggling to achieve short-term results and stagnating over the long term. Leaders never pushed themselves to develop the kind of new and interesting solutions that would permanently change their businesses for the better and achieve multiple goals at once.

Inevitably, such intellectual laziness coarsened the level of discourse that existed day-to-day. Many businesses operated the way Rich and his crew at our Aerospace division did. Lacking any drive to think deeply about their businesses, and unchallenged by leadership to do so, teams held meetings that were essentially useless, their presentations clogged up with feel-good jargon, meaningless numbers, and analytic frameworks whose chief purpose was to hide faulty logic and make the business look good. When you did a bit of digging, you found that most executives and managers didn’t understand their businesses very well, or even at all.

Certainly they didn’t understand their customers. I’ll never forget a trip I took early on in my tenure to an air show to visit with a customer of our Aerospace unit. The team had briefed me on the visit, and I had gone into the meeting, along with the leader of the business unit, his product manager, and the salesperson, thinking we would discuss a great new product we had. As is my practice, I kicked off the conversation by asking if Honeywell was meeting their expectations. “I’m glad you stopped by,” the customer CEO said, “because we have just about finalized the lawsuit we are filing against you for nonperformance on our development project.” What!? My colleagues looked at one another and at me in shock—none of them had known how angry this customer was. They had lacked the slightest bit of insight into how our customers were experiencing their relationship with us. I begged for time, and with a bit of scrambling on our part we were able to prevent the lawsuit from materializing.

But it wasn’t just this team, and it wasn’t just customers. Leaders at Honeywell hadn’t studied their operational processes in any depth. They didn’t understand the fundamentals of their technologies, their markets, or their business cycles. They didn’t know their supply chains. They weren’t in touch with how rank-and-file employees viewed the business. They didn’t understand key liabilities, such as the environmental lawsuits we faced. And they didn’t understand why their businesses were generating so little cash.

No wonder our company was performing so poorly.

MAKING SMARTER, MORE INFORMED DECISIONS

My first and most enduring challenge as CEO was to dramatically improve the quality of both our individual thinking and our group discussions. To convey how I...