Mavericks at Work

William C. Taylor, Polly G. LaBarre

• Publisher: HarperCollins e-books
• Year: 2009
• ISBN:
  9780061842573
• Topic: Negocios y empresa
• Subtopic: Gestión

The first book to document this change, Mavericks at Work is business "edutainment" for a smart, ambitious readership, profiling some of the most exciting—and often eccentric—CEOs in the United States, while detailing their remarkable strategies for success.

Who's going to write the next chapter in the saga of American business? Who's going to chronicle the best way to compete, the new way to win? That's the mission of Mavericks at Work, a book that profiles a network of rebels who are creating a new business model that makes use of fresh principles and captures what it means to be a state-of-the-art organization. Including such pioneering companies as ING Direct, Southwest Airlines, Pixar, HBO, Anthropologie, Craigslist, Netflix, and Commerce Bank, this book is nothing short of a lively new intellectual agenda for business.

PART ONE

Rethinking Competition

Chapter One

Not Just a Company, a Cause:
Strategy as Advocacy

One reason we’re in Wilmington, Delaware, is because this is home to so many credit card companies. Every morning, when I drive to work, I see their signs and it makes me angry. They provide the opium of consumerism in American finance. There are restaurants in town that won’t take my reservation, because they know I might offend people. But that’s what keeps me motivated. That’s what gets me charged up to do battle.

—ARKADI KUHLMANN, PRESIDENT AND CEO, ING DIRECT USA

At times, Arkadi Kuhlmann can sound a lot like consumer activist Ralph Nader or crusading reformer Eliot Spitzer. He rails against the banking industry’s exorbitant fees. He expresses contempt for the needless complexities and hidden charges that infect the home mortgage business. And don’t even get him started on credit cards. He’s fed up with a financial culture that encourages people to save too little, invest too recklessly, and spend too much.

“In the beginning, people loved credit cards,” Kuhlmann declares. “Customers were proud to pull them out of their wallet. Today people hate credit cards—the nonstop marketing, the sky-high interest rates, companies pushing cards at kids in college. Everybody knows that credit card excess isn’t good. That’s not a popular message here in Wilmington, of course. As I explained to the local newspaper, ‘It’s sort of like preaching, and why not preach among the heathens?’”

But Kuhlmann is not a consumer activist or a politician, and he’s certainly not a preacher. He’s a banker. In fact, he’s the founder of one of the fastest-growing retail banks in the country, which happens to be a subsidiary of ING Group, a 150-year-old company headquartered in Amsterdam that ranks as one of the largest financial services conglomerates in the world. His operation, ING Direct USA, opened for business in September 2000. At the end of 2005, it had signed up 3.5 million customers, attracted nearly $40 billion in deposits, and begun generating consistent (and rapidly increasing) profits. During its first two years, the start-up absorbed losses of $56 million as it banked on future growth. Over the next two years, it posted profits of $127 million. In 2004, with just 1,000 employees, the operation generated profits of $250 million.*

Sometimes it seems that righteous indignation can pay handsome dividends. But Arkadi Kuhlmann is more than a banker with a brash attitude. He is a hard-charging maverick with a full-throated message about the future of his industry. He and his colleagues insist that they are not just building a bank. They are challenging the common (and misguided) practices of the whole banking business—a business that they believe is ripe for change and renewal. “People want to do business with companies that share their values,” Kuhlmann says. “We speak with a new voice—a different kind of voice for business.”¹

Expressing that voice often puts Kuhlmann’s company at odds with its bigger, richer, more traditional rivals. We paid one of our many visits to Wilmington in June 2005, two months after President George W. Bush signed the laughably misnamed Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The law, the most sweeping revision of U.S. bankruptcy procedures since the 1970s, cracked down hard on cash-strapped individuals and families seeking protection from creditors. Its passage was met by howls of protest from consumer groups, law professors, even many bankruptcy judges, but inspired squeals of delight from banks, credit card companies, and giant retailers—powerful organizations whose executives and lobbyists had marched in lockstep for years on Capitol Hill. Virtually everyone who was anyone in the financial services sector applauded their glorious political victory.

Everyone, that is, except Arkadi Kuhlmann. He was the only CEO of a U.S. bank to oppose the bill publicly, comparing it to “using a cannon to kill a mosquito.” He submitted written testimony to a U.S. Senate committee, participated in a press conference with liberal Senate stalwarts Ted Kennedy and Russ Feingold, and took out a full-page ad in the Washington Post. Time and again, he raised the ire of his industry colleagues by raising a host of uncomfortable questions about their pet project on Capitol Hill. What about the tens of thousands of families who go bankrupt because of catastrophic illnesses and huge medical bills? What about the 16,000 military personnel who declared bankruptcy in 2004? What about the credit card industry’s stubborn refusal to curb its most aggressive marketing practices?²

“To the banking establishment, I’m sort of the bad guy,” Kuhlmann declares with undisguised relish. That reputation applies far beyond its challenge to the industry’s political strategy. Indeed, it’s at the heart of ING Direct’s business strategy. “Before we launched the company, we looked around and said, ‘The banking industry is bust. The consumer always loses.’ Then we said, ‘How can we do something radically different? How do we re-create and re-energize an industry? How can we build a company around a big new idea?’”

That big idea involves using the future-forward power of the Internet to champion the timeless virtues of thrift and financial security. ING Direct USA, essentially an Internet-based savings bank, is a direct-to-the-customer operation. (Customers can also bank by mail or phone, but more than 70 percent use the Web.) Everything about its operations emphasizes speed, simplicity, and low overhead. ING Direct has no brick-and-mortar branches, no ATM machines, no highly paid commercial bankers or smooth-talking financial advisers. It also charges no customer fees, requires no minimum deposits, and avoids paper like the plague. Most importantly, the bank offers a limited number of easy-to-understand product offerings: old-fashioned savings accounts (with no minimum balances), a selection of CDs (with no minimum deposits), nine easy-to-understand mutual funds (which can be combined into portfolios described as conservative, moderate, and aggressive), and no-frills home mortgages with an online application that takes less than ten minutes to complete.

The intentional simplicity of the company’s products and business model keeps ING Direct’s costs extremely low: in some parts of the business, they are one-sixth the costs of a conventional bank. Low costs enable ING Direct to guarantee higher interest rates to depositors (with some basic savings products, as much as four times the industry average) and charge lower rates to its mortgage customers. The end result is an online money machine that adds 100,000 customers (40 percent of whom are referred by word of mouth) and $1 billion in deposits every month. Indeed, by the end of 2004, ING Direct had become the country’s largest Internet-based bank, the fourth-largest thrift bank, and one of the forty largest banks of any sort.

But the bank’s animating spirit isn’t about low costs or fast growth. It’s about an agenda for reform. Kuhlmann and his colleagues declare that they are “leading Americans back to savings”—presenting a clear-cut business alternative to the excesses and shortcomings of how the financial sector does business. “Everything we do starts with our big idea,” the CEO says, “which is to bring back some fundamental values: self-reliance, independence, having a grubstake. One way or another, most financial companies are telling you to spend more. We’re showing you how to save more. What’s better than apple pie, the little guy, fighting for the underdog? We want to own that space.”

WHAT IDEAS DO YOU STAND FOR?
STRATEGY THAT MAKES A STATEMENT

For decades, a well-defined set of parameters governed the logic of business competition. Strategy was about delivering superior products: Is your company’s automobile or appliance or computer cheaper, better, nicer to look at? Strategy was about selecting attractive markets: What demographic segments or customer categories matter most to your organization? Strategy was about mastering economics: What advantages in scale, costs, margins, and pricing allow your company to deliver superior performance in productivity, profitability, and shareholder returns?

Which is why, truth be told, so much of strategy has been about mimicry. Big companies in most industries have been content to compete from virtually identical strategic playbooks and to vie for advantage on the margin: Whose products can be a little better? Whose costs can be a little lower? Whose target markets can be a little more attractive? Think General Motors versus Ford, CBS versus ABC, Coke versus Pepsi. Every once in a while, of course, something genuinely new alters the trajectory of an industry: the rise of sport utility vehicles or zero percent financing in the auto business, the creation of reality programming in the television business, the ubiquity of bottled water and natural drinks in the beverage business. But inevitably (and almost immediately), innovation gives way to duplication. Every big player is quick to copy the original creative impulse (or acquire one of the creators), so that strategy returns to its familiar and predictable formulas.

In the 1990s, with the explosion of the Internet and the rise of a generation of ambitious, venture-funded start-ups, business competition took on a more heated, more frenetic, less copycat tone. Strategy was about designing radically new business models that would overthrow decades of perceived wisdom on how specific industries worked: Who could apply high-speed computers and networked communications to slash production costs, vastly increase consumer choice, and otherwise do violent harm to established economic models? Who could, in the dot-com-driven lingo of the era, “Amazon” their rivals or “Napsterize” their industry?

No book better summed up this revolutionary fervor than the aptly titled Leading the Revolution by Gary Hamel, the celebrated strategy guru. Hamel is one of the most influential business thinkers of his generation, a brilliant speaker, consultant, and professor who’s been affiliated with the London Business School and the Harvard Business School. Hamel’s core constituency is senior executives in the world’s most powerful companies, and his book took these power players to task for the groupthink that afflicts so many of them in the executive suite. “Most people in an industry are blind in the same way,” Hamel warned. “They’re all paying attention to the same things, and not paying attention to the same things.”

So what’s the solution? Revolution! Hamel urged aspiring “corporate rebels” and “gray-haired revolutionaries” to “start an insurrection” in their industries. “You can become the author of your own destiny,” he thundered to his readers. “You can look the future in the eye and say: I am no longer a captive to history. Whatever I can imagine, I can accomplish. I am no longer a vassal in a faceless bureaucracy. I am an activist, not a drone. I am no longer a foot soldier in the march of progress. I am a Revolutionary.”³

Phew! Of course, this period of explosive innovation ended the way most revolutions do—badly and bloodily, choked on its own excesses. Some of the most celebrated business revolutionaries of the 1990s— Enron and Worldcom leap to mind—became some of the most notorious corporate outlaws of the early 21st century.

This is the backdrop for the emergence of a new generation of maverick companies and the arrival of what we believe is the next frontier for business strategy. The logic of competition has evolved from the imitative world of products versus products to the revolutionary fervor of business models versus business models to, now, the promising realm of value systems versus value systems. Call it strategy as advocacy: Who can redefine the terms of competition by challenging the norms and accepted practices of their business before disgruntled customers or reform-minded regulators do it for them? Who has the most persuasive and original blueprint for where their business can and should be going—not just in terms of economics but also in terms of expectations? Who can unleash a set of ideas that shapes the future of their industry and reshapes the sense of what’s possible for customers, employees, and investors?

To be sure, these questions are hardly without precedent. More than a decade ago, Jim Collins and Jerry Porras published Built to Last, which became one of the best-selling business books of all time. As Collins and Porras examined the success of venerable companies such as Johnson & Johnson, 3M, and Procter & Gamble, they discovered a sense of purpose at each of the companies, a “set of fundamental reasons for a company’s existence beyond just making money.” And this sense of purpose, they added, tends to be timeless and enduring—“a good purpose should serve to guide and inspire the organization for years, perhaps a century or more.”⁴

Each of the maverick companies you’ll meet in the next two chapters exudes an undeniable sense of purpose. But it’s a sense of purpose that provokes: each company’s strategy tends to be as edgy as it is enduring, as disruptive as it is distinctive, as timely as it is timeless. In an era defined by the business, cultural, and social hangover from the excesses of the nineties boom—a period of Wall Street scandal, CEO misconduct, and unprecedented levels of mistrust between companies and their customers and employees—the most powerful ideas are the ones that set forth an agenda for reform and renewal, the ones that turn a company into a cause.

Roy Spence, cofounder and president of GSD&M, the free-spirited ad agency based in Austin, Texas, is a colorful and charismatic voice on the future of business strategy. Spence has been a guiding force behind some of the most visible brands and high-impact organizations in America, from Wal-Mart to the PGA Tour to the U.S. Air Force. But the client that first put his agency on the map was Southwest Airlines. According to Spence, Southwest’s remarkable climb to industry leadership (it carried more domestic passengers in 2005 than any other airline) is not just about low-cost economics or high-touch service. Ultimately, it’s about the edgy and disruptive sense of mission that drives every aspect of how it does business.⁵

Southwest has become such a mass-market icon that it’s easy to lose sight of the utter distinctiveness of its approach to the airline business. The company’s direct point-to-point route system avoids the high costs and endless delays of the hub-and-spoke system around which the mainstream industry is built. The company has never offered first-class service or assigned seating or in-flight meals, and it was a late (and reluctant) participant in frequent-flier programs. Southwest’s no-frills approach to interacting with customers keeps fares low and makes for easy-to-understand offerings.

Yet low fares don’t mean sullen service. Quite the opposite: the company’s gate agents, flight attendants, even its pilots, are famous for their flashy smiles, showy personalities, and corny sense of humor. Anyone who has flown Southwest on Halloween, an almost-sacred holiday at the fun-loving airline, and marveled at the costumes worn by everyone from baggage handlers to mechanics, understands that this is an airline that flies on a different kind of fuel from its competitors. Indeed, Southwest may be the most colorful and instructive example ever of the power of strategy as advocacy. This is a company whose distinctive value system, rather than any breakthrough technology or unprecedented business insight, explains its unrivaled success.

GSD&M signed on with Southwest in 1981, back when the ten-year-old airline, cofounded and run by Herb Kelleher, a gutsy, chain-smoking, whiskey-swilling adopted Texan (one of the Lone Star State’s most legendary entrepreneurs was born in New Jersey), was considered a flighty sideshow to the blue-chip companies that ruled the sky. Today, in an industry that hovers on the brink of disaster (the old guard lost a collective $30 billion from 2001 to 2004), Southwest soars alone as a consistent moneymaker and fast-growing enterprise. A few years back, Money celebrated its 30th anniversary by identifying the best-performing stock over the magazine’s three-decade history. The winner wasn’t General Electric, IBM, Merck, or some other revered name. It was Southwest Airlines, a maverick force in one of the least attractive industries in the world. (It does pay to be a maverick. According to Money, a $10,000 investment in Southwest shares in 1972 was worth more than $10.2 million 30 years later.)⁶

Spence i...