Leadership

All managers should be leaders, but most are administrators. If you are spending most of your time on budgets, organization charts, costs, compliance, and detail, you are an administrator. To become a leader, you need to spend more time with people, scanning opportunities, developing a vision, and setting goals.

Your chief executive officer (CEO) should be the firm’s architect; and your chief operating officer (COO) should be the firm’s engineer who optimizes within the firm’s architecture. To do their respective jobs well, both should have selling skills. They need to sell their ideas to their investors, peers, and staff. Leaders need to be teachers and teach others to be leaders.

Bad managers, in contrast, rely on command and control to get their ideas carried out.

A business leader’s job is “to make meaning” (John Seely Brown, chief scientist of Xerox Corporation). The leader needs vision. Vision is “the art of seeing things invisible” (Jonathan Swift).


Vision is the ability to conjure up a picture of great opportunities to inspire the employees and the company’s stakeholders. The vision must burn in the leader’s breast if it is to ignite a passion in others. At the same time, be warned that there is a big difference between vision and hallucination.

The leader must be able to gain respect for his vision and as a person. The followers must believe that the leader is serving them, that he or she is a servant-leader. Napoleon said that “A leader is a dealer in hope.”

Robert Townsend, former CEO of Avis Rent-A-Car, observed: “True leadership must be for the benefit of the followers, not the enrichment of the leaders.” Leadership works best when there are committed followers.

Some think that great leaders need charisma, and point to people such as Franklin Roosevelt or Winston Churchill. They are forgetting Harry Truman. The leader does not need charisma to be effective. Charismatic leaders are often suspect. Some of the greatest business leaders went about their work in a quiet way touching the minds and hearts of their staff.

They are friendly, approachable, and caring. They act as role models. Charles R. Walgreen III transformed Walgreen Co. into a company whose cumulative stock returns since 1975 have beaten the general stock market by over 15 times.

Yet he never takes credit, pointing instead to his great team, and he pins his success on being “lucky.” Katherine Graham of The Washington Post was another quiet leader who built a great newspaper into a greater one. The Chinese philosopher Lao-tzu said: “A leader is best when people barely know that he exists.”

The best leaders want to surround themselves with talented managers. They revel in finding managers who are smarter than they are. CEO Tom Siebel wants the executives in his organization to be significantly smarter than he is in their particular areas.

The chief financial officer (CFO) should be better at managing finances than the CEO, and the head of marketing should be better at marketing than the CEO. The CEO’s main task is to build a team of experts who are aligned with each other and the primary goals of the company.

And good leaders don’t want yes-men. Be ready to fire those who agree with you. Good leaders want the honest views of their colleagues. They encourage constructive debates and out-of-the-box thinking. They invite big-picture ideas. They tolerate honest mistakes. And when they make the final decision, they inspire their people to do their best.

And the best leaders don’t spend too much time poring over numbers. They get out and meet the troops. And they devote a lot of time to major customers. Jack Welch of GE spent 100 days a year talking with major customers. So did Lou Gerstner of IBM.

At the same time, the job of a leader is daunting. It isn’t all about playing golf with other business leaders. One CEO said, “I am only comfortable when I am uncomfortable.” When Dick Ferris, former CEO of United Air Lines, was asked how he sleeps in tumultuous times, he said, “Just like a baby—I wake up every two hours and cry.”

Yet the leader must be more of an optimist than a pessimist. He must see the cup as half full rather than half empty. He is mostly tested when the times are tough. It is a rough sea that can make a great captain. Clearly the leader lives with risks. Followers are lucky because all they have to do is carry out the orders.

Leaders can be corrupted by success. If they are not careful, egotism seeps in. As someone observed: “Egotism is the quality that causes a person to think he’s in the groove when he’s actually in a rut.”

With regard to marketing, too many CEOs see marketing expenditures as just an expense and fail to see that a large part of it is an investment. There are two types of CEOs: those who know that they don’t understand marketing and those who don’t know that they don’t understand marketing.

Loyalty

“Loyalty” is an old-fashioned word describing being deeply committed to one’s country, family, or friends. It came into marketing with the term brand loyalty.

But can people be loyal to a brand? Tony O’Reilly, former CEO of H. J. Heinz, proposed this test of brand loyalty: “My acid test ... is whether a housewife, intending to buy Heinz tomato ketchup in a store, finding it to be out of stock, will walk out of the store to buy it elsewhere.”

That some people will be exceptionally loyal to some brands is incontrovertible. The Harley Davidson motorcycle owner won’t switch even if convinced that another brand performs better.

Apple Macintosh users won’t switch to Microsoft even if they could gain some advantages. BMW fans won’t switch to Mercedes. We say that a company enjoys high brand loyalty when a sizable number of its customers won’t switch.


Brand loyalty is roughly indicated by the company’s customer retention rate. The average firm loses half its customers in less than five years. Firms with high brand loyalty may lose not more than 20 percent of their customers in five years. But a high retention rate may indicate other things than loyalty. Some customers stay on because of inertia or indifference or being held hostage to long-term contracts.

Building loyal customers requires a company to discriminate. We are not talking about racial, religious, or gender discrimination. We are talking about discriminating between profitable and unprofitable customers. No company can be expected to pay the same attention to an unprofitable customer as to a profitable customer.

Smart companies define the types of customers they are seeking who would most benefit from the firm’s offerings; these customers are the most likely to stay loyal. And loyal customers pay back the company in long-term cash flows and in generating a stream of referrals.

Some companies believe that they win customer loyalty by offering a loyalty award program. A loyalty program may be a good feature as part of a customer relationship management program, but many loyalty schemes do not create loyalty. They appeal to the customer’s rational side of accumulating something free but do not necessarily create an emotional bond.

How can frequent-flier miles win customer loyalty in the face of canceled flights, overcrowded planes, lost baggage, and indifferent cabin crews? Some programs are disloyalty programs, as when an airline says the points will be lost unless the customer flies within two months.

Companies should reward their loyal customers. Too often, however, companies give a better deal to new customers than to their old customers. Thus a telecom company may offer brand-new handsets and a reduced-price call plan to attract new customers while old customers are stuck with outdated handsets and pay more.

Why not offer a trade-in plan for old equipment and a call plan that cost less each year that the customer stays with the company? State Farm Mutual Automobile Insurance does this, where each year the insured automobile owner gets a reduced rate if there are no claims.

While every company should aim to build loyal customers, loyalty is never so strong that customers can resist a competitor who shows up with a much stronger value proposition that gives customers everything they now have and more.