Steering Through Stormy Seas

  —Dirk Olin

Several visionary leaders have used looming crises to reshape their businesses and their markets: PepsiCo’s Indra Nooyi, IBM’s Sam Palmisano, and Infosys’s Narayana Murthy.

 

In May 2009 PepsiCo CEO Indra Nooyi made a profound speech about the new breed of CEOs and their responsibility to society. “The hard-edged leader, delivering return on capital at no matter what emotional or social cost, is yesterday’s leader,” she said. “The new breed of CEO has to create sustainable value. A company is granted a license to operate from society and therefore owes society a duty of care. Pursuit of short-term performance is not enough. That performance needs to be allied to a purpose; otherwise, the performance disappears too.” To Nooyi, these were not just words but the hallmark of her leadership at PepsiCo. Promoted to CEO in August 2006, India-born Nooyi immediately recognized that PepsiCo was facing difficult social issues. She anticipated rising concerns about obesity, diabetes, and the availability of clean water, coupled with the move to healthy foods. Rather than resisting those trends, she turned them in to the vision that she is using to reinvent PepsiCo: “Performance with Purpose.” Nooyi knew that PepsiCo had to broaden its business beyond sugar-based drinks and snack foods, which accounted for the vast majority of its profits. As U.S. News noted in her 2008 selection for America’s Best Leaders, she is taking the company “from snack food to health food, from caffeine colas to fruit juices, and from shareholder value to sustainable 

enterprise.” Nooyi has her people working on new products that appeal to health-conscious consumers, building off   Gatorade and the True North line of healthy snacks. She didn’t stop there. She committed PepsiCo to generate half of its U.S. revenues from healthy foods, to campaign against obesity, and to give $16 million to bring safe water to developing countries, as well as conserving five billion liters of water in its operations. Nooyi has positioned PepsiCo to ride the trends rather than swimming against them, and to be a positive force in addressing major social concerns. She has unified her global organization around these strategies and the values implicit in them. That’s why she is a role model for the 21st Century CEO.

 

When Sam Palmisano was elected CEO of IBM in 2003, he replaced an iconic leader in Lou Gerstner. Palmisano, who has spent his entire career with IBM, recognized the daunting task of rebuilding IBM. He neither tried to emulate Gerstner nor did he reverse direction on his gains. Instead of waiting for the challenges of globalization to have an impact on IBM, Palmisano anticipated where globalization and technology were headed. Based on that vision, he reshaped IBM’s strategy to become a total systems supplier to meet the needs of its global customers, with emphasis on services, not hardware.

Palmisano also wanted IBM employees to focus on “leading by values.” Rather than reinforcing IBM’s historical values from the top down, he initiated a “values jam.” This event gave all IBM employees around the worked the opportunity to go online over a 72-hour period and contribute to selecting IBM’s values.

The bottom-up process yielded IBM’s three new core values: dedication to every client’s success, innovation, and trust. As a result, Palmisano was able to gain the commitment of IBM employees to these values. In the words of 1960s marketing guru Marshall McLuhan, “The medium is the message.” Palmisano used the medium of IBM’s own network technology to engage employees in creating a broadly supported message.

He also reshaped the mammoth IBM global organization of 344,000 employees away from geographical and product silos into the “globally integrated enterprise.” In a carefully crafted 2006 article in Foreign Affairs magazine, Palmisano laid out the case for an organization that paralleled the needs of its global customers with a weblike structure that looked more like the Internet than the traditional hierarchy IBM had deployed for decades. In 2006 Palmisano got the opportunity to demonstrate IBM’s new global capabilities when it landed a massive commitment to provide a new information and communications system for Industrial and Commercial Bank of China (ICBC). Along with Goldman Sachs, IBM helped ICBC restructure its far-flung network of 50,000 loosely connected branches into 18,000 centers, all connected by the new IBM system. The chairman of ICBC proudly told me that it was the largest computer network ever installed in China. “We could not have accomplished it without Mr. Palmisan’s commitment,” he said. In his early years as CEO, Palmisano was criticized for not getting IBM’s stock price up. He recognized then that the strategic and 

cultural changes he was implementing would take five to seven years to yield results. Since the start of the global economic crisis, IBM has been one of the few technology companies to produce consistent increases in its earnings and shareholder value. Palmisano’s ability to anticipate the pending globalization crisis enabled his company to come of it a big winner.

 

At 35 years old, Narayana Murthy founded Bangalore-based Infosys with five colleagues from his former company. Starting with an investment of less than $100, Murthy envisioned that his custom software firm would become “India’s most respected company.” Murthy explained how hard it was getting started in 1981. “It was a crisis throughout,” he said. “We were forced to finance growth out of our earnings, but that instilled discipline. The hardships and financial challenges didn’t sap our enthusiasm.” Because Murtha refused to pay a bribe to telephone installers, Infosys waited an entire year to get its telephone line installed. “What drains your energy is not the fiscal problem but violating your value system,” said Murtha. “We always believed the softest pillow is a clear conscience.” If you refuse to [knuckle under] on the first couple of transactions, they go after someone else.” Every company comes close to death at least once in its early years, and Infosys was no exception. It faced a near-death experience in 1989 when U.S. visa restrictions made it impossible to send its programmers to U.S. customer locations. Compounding Infosys’s problems, the Indian government relaxed its trade restrictions, permitting multinational giants like IBM to reenter the country. Believing that Infosys was as good as dead, one of its founders quit, and the others were deeply shaken. Murthy was so committed that he offered to buy out any founder who wanted to sell. That turned the tide. As one cofounder said, “If you are staying on, then I am with you.” Later Murthy admitted he didn’t have the money to buy anyone out. Necessity is the mother of virtue. The crisis caused Murthy to develop a new strategy to compete directly with the giants by matching or exceeding their software quality. Infosys leveraged its access to a pool of low-cost, highly skilled talent, which it recruited with a stimulating work environment and equity-based compensation. Murthy’s strategy was wildly successful. From fewer than 100 employees, Infosys has grown to more than 100,000 employees and has a market capitalization of $10 billion, all due to Narayana Murthy’s courage in the face of crisis.