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Learning Leadership

Volume 2
Leadership and Knowledge Management

Brought to you by the Executive Program in Work-Based Learning Leadership

 Leadership and Knowledge Management

Building knowledge in an organization is a challenge that begins at the very

top—with the C-level executives who are tasked with seeing a company through
all sorts of changes, ranging from exponential growth and sudden market changes
to mergers and layoffs. To maintain a firm’s performance and set an example for
employees, leaders need to be flexible, willing learners who understand that their
own knowledge development begins with an accurate assessment of their leadership
style and a clear understanding of how their skills match the company’s needs. They
should also be aware of the messages their strategies convey about the importance
of institutional knowledge, especially in times of upheaval. The following articles
from Knowledge@Wharton examine how executives—in good times and bad—can
function as exemplary learners in their organizations.

The University of Pennsylvania has developed the Executive Program in Work-Based Learning Leadership
to provide a top-tier university program for learning leadership. Please visit our website for more
information or to apply: http://executiveeducation.wharton.upenn.edu/clo.cfm

Contents

Leading for the Next Act: Why CEOs Must Evolve or Step Aside 4
The secret to long-term CEO success, according to David Nadler, is conceiving of a CEO’s tenure
as a performance with a series of distinct acts. “Each act requires the CEO to lead, think, and
behave in fundamentally different ways. The successful ones are those who are able to make the
transitions,” he said during the 11th annual Wharton Leadership Conference.
Pl ay Au d i o

Steve Ballmer Speaks Passionately About Microsoft, Leadership…and Passion 7

Microsoft CEO Steve Ballmer—who spoke at Wharton as part of the school’s Leadership Lecture
series—says that the company’s latest products serve as a reminder of his goals, which include
transforming a firm with $44 billion in sales into an agile innovator and recruiting enough talent
to keep the software giant relevant 25 years from now.
Pl ay Au d i o

To Marshall Goldsmith: Thank You for Writing This Book (and We’re Not Sucking Up) 11
Marshall Goldsmith, the founder of executive coaching firm Marshall Goldsmith Partners, has
worked closely with more than 70 CEOs during his career. Forbes has named him one of the five
most respected executive coaches. His new book distills his thoughts about the bad habits that keep
managers from becoming more successful.
Pl ay Au d i o

Wipro: Leadership in the Midst of Rapid Growth 14

As vice chairman of the Indian conglomerate Wipro and CEO of Wipro Technologies, Vivek Paul
took the global information technology company from $150 million in 1999 to its current $1.3
billion. At a Wharton Leadership Conference, Paul shared his thoughts on leading an organization
as it goes through such rapid growth, not only in revenue but in employees.

Michael Porter Asks and Answers: Why Do Good Managers Set Bad Strategies? 16
Errors in corporate strategy are often self inflicted, and a singular focus on shareholder value is the
“Bermuda Triangle” of strategy, according to Michael E. Porter, director of Harvard’s Institute for
Strategy and Competitiveness. Porter, who recently spoke at Wharton as part of the School’s SEI
Center Distinguished Lecture Series, challenged managers to stop trying to be the best company in
their industry and instead deliver “a unique value” to their customers.
Pl ay Au d i o

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 Leading for the Next Act: Why CEOs Must Evolve
or Step Aside

Have you ever seen a mother come up and

smooth the hair of her older teenager, to the chagrin
and irritation of the teen, who says, “Come on, Mom,
I’m not a kid anymore.” It’s an awkward moment: The
parent has failed to recognize that overseeing her child’s
appearance, once a good practice, is now inappropriate.

It is common sense that parents must adapt and change

their roles as children grow up. But what about CEOs,
who may be hired for one task, but face an entirely
different one years or even months later?

The secret to long-term CEO success, suggests David

Nadler, a consultant to boards and senior executives,
is conceiving of a CEO’s tenure as a performance with
a series of distinct acts. “Each act requires the CEO to
lead, think, and behave in fundamentally different ways.
The successful ones are those who are able to make the
transitions,” Nadler said during his presentation at the
11th annual Wharton Leadership Conference, sponsored
by the Center for Leadership and Change Management,
the Center for Human Resources, and Wharton
Executive Education. The theme of the conference was
“Developing Leadership Talent.”
According to Nadler’s model, a CEO’s tenure follows
a “natural arc,” which begins when the CEO takes the
stage, prepared or not for his or her new role, and has
to solve the problems presented. “In almost every CEO
succession I’ve seen, it isn’t a case of, ‘Here’s the company,
it’s going great, don’t screw it up.’ Usually there is some
crisis or strategic challenge, and the CEO’s job is to figure
out how to respond.” Often, says Nadler, a CEO may be
hired precisely because he or she is perceived to be strong
in the area where the company most needs help, whether
that be changing the culture or bringing innovation.
“The problem comes after the CEO solves that first
issue; then it is act two, and something else is needed,”
he says. Many CEOs fail because of what Nadler terms
“success syndrome,” that is, codifying a certain way
of doing things and then charging ahead with the old
game plan no matter how the context has changed.
Exiting Stage Right
To make the point, Nadler referred to the five-and-a-
half-year tenure of Carly Fiorina as CEO of Hewlett-
Packard. Although her controversial acquisition of
Compaq and high-profile firing in 2005 led many critics
to say she failed entirely as CEO, Nadler asserted that,
in his view, Fiorina actually made the right moves, at
least early on in her leadership. “In act one, she was
required to create a transformation at HP, develop a
new strategy, break the static elements, and reshape the
business through the acquisition,” says Nadler. “Given
that [current CEO] Mark Hurd has kept the same
fundamental strategy, she probably did the right things.”
Fiorina’s problems began, adds Nadler, when her act
one concluded, and a new task emerged—execution.
A “hunkering down,” not a CEO in the limelight, was
needed to get the job done. “Instead, she continued on
the same approach, and the leadership model that had
been successful in act one killed her in act two.”
For a counterpoint to Fiorina’s failure, Nadler looked to
E. Stanley O’Neal, who took the helm of Merrill Lynch
just 3 months after the terrorist attacks of 9/11 literally
blew the business advisory company out of its global
headquarters in Manhattan. Unfortunately for O’Neal,
the business’ problems ran deeper and were reflected
in a low stock price and rumors of a takeover. O’Neal

 Wharton on Learning Leadership | Leadership and Knowledge Management, Vol. 2 | © 2007 University of Pennsylvania
approached this set of challenges with a management
style Nadler described as “demanding, almost brutal
at times;” he focused relentlessly on control, discipline,
and cost. “His feeling was, ‘I have to save the company.
If I don’t do this, we’ll be finished, and thousands of
jobs will be gone.’”
The company began to recover, however, and by the
fall of 2003, O’Neal did something different: He
changed his entire executive team, focused on growth,
and rethought his own leadership style. Today, says
Nadler, with Merrill Lynch stock trading at nearly three
times the amount it did in 2001, O’Neal is focusing on
building up the next generation of leaders. For example,
he created two co-presidents who operate alongside him
as co-CEOs and now “conceives of his job primarily as
being a mentor, coach, and supporter,” says Nadler.
What leaders who successfully transition from one
act to the next share is an awareness of what kind of
leadership is required at the right moment—and they
don’t rest on their laurels. According to Nadler, O’Neal
appreciates his past success but continues to worry
about missing other transitions in the future. This is
because even CEOs who manage to navigate multiple
acts will find themselves with a final challenge: exiting
the stage successfully. It’s a task that usually means
answering the question: “Did I leave the business with
effective leadership?”
“The Death Spiral”
Nadler knows something about being a long-lived
leader. He founded Delta Consulting Group in 1980
and ran that company for 25 years. Several years after
Delta joined Marsh & McLennan Companies to
become Mercer Delta Consulting in 2000, Nadler says,
“I looked around and realized the only CEO in power
longer than me was Fidel Castro.”
After planning for his succession, he retired in 2005—
only to be drafted in 2007 into the role of vice chair of
Marsh & McLennan; he now divides his time between
that job and research and writing about leadership,
particularly CEO leadership. He accepted the position
as vice chair of the $12 billion public company because
it was a “new challenge.” After a career often spent
advising boards, “I thought I’d learn something sitting
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on the other side of the table,” notes Nadler, author of
the 2005 book, Building Better Boards. Nadler’s comfort
on both sides of the table may reflect his academic
training, which included not only an MBA from
Harvard Business School but also a PhD in psychology
from the University of Michigan.
Early in his consulting career, Nadler says, he was
privileged to work with “fabulous leaders who created
fabulous institutions,” including David Kearns, who led
a turnaround at Xerox in the 1980s, James Houghton,
who was CEO at Corning for 13 years, and Henry
Schacht, who oversaw the 1997 spinoff of Lucent
Technologies from AT&T.
What leaders who successfully transition
from one act to the next share is an
awareness of what kind of leadership is
required at the right moment—and they
don’t rest on their laurels.
In the mid-1990s, however, Nadler began to see CEOs
who performed well in their first 7 or 8 years “and then
suddenly something happened.” For example, Nadler
worked with Robert Allen, who served as CEO of AT&T
for nearly 10 years. “Had he retired in 1995, he would
have been seen as the hero for splitting and reshaping the
company—but his career didn’t end that way.” Rather, he
was blamed for sparking a leadership crisis by picking an
inappropriate successor. Other failures Nadler witnessed
first hand included that of Richard Thoman, the short-
lived CEO at Xerox, and Richard McGinn, who was
ousted by his board at Lucent.
“That started me thinking about the difference between
success and failure,” says Nadler. “I realized it might
be more interesting to study failure because success is
transient, but failure is reasonably permanent.” Together
with his colleagues, Nadler looked first at “early” CEO
failure, in which individuals had fantastic careers before
they became CEOs and then promptly failed at their
new job. Then Nadler became interested in “late” CEO
failure, in which CEOs who have a solid tenure screw
up at the end, often because of staying too long or not
having the right successor.

 Finally, Nadler focused his research on CEOs who
came into the job, did well for a time, but, when the
situation changed, had a hard time adjusting their
leadership accordingly—in other words, CEOs who
couldn’t move from one act to the next. “They fail to
recognize that things are changing, and often, they
are unable to assess their own capabilities.” With
these blind spots in place, the CEOs continue to
press ahead, widening the gap between their vision
and the company’s reality. “We call that ‘the death
spiral,’” said Nadler, giving the example of Thoman’s
insistence on setting higher and more ambitious goals
at Xerox, even as his leadership team was falling apart
around him.
Feeding into this negative cycle is the hard fact that
CEOs may not hear frank words from their insular
circle of advisors—or care to listen when the truth is
spoken. “Normally, we think of learning-disabled kids,
but I see learning-disabled executives, who lack the
ability to take in new information and determine the
insider implications for it.”
The Need for Self-Assessment
The most “heartbreaking” kind of failure, says Nadler,
is when CEOs try to change but can’t. “We are not
infinitely malleable. Asking a person who is 55 to act
dramatically differently, and pull it off naturally, is
setting a very difficult-to-achieve goal.”
Part of the CEO’s task, then, is to ruthlessly assess him
or herself as the business context changes. “Do I have
an understanding of what’s needed now in terms of
new leadership requirements? Do I have a sense of my
own leadership capabilities? Can I understand the gap
between what’s required by the new situation and what
I’m capable of doing?”
According to Nadler, Kenneth Freeman’s recent decision
to retire as CEO of Quest Diagnostics at age 52, after
overseeing Quest’s successful spinoff from Corning,
is an example of good self-assessment. “He took the
firm from a period of trouble, in a troubled industry,
and created a great organization. He was able to say, ‘I
loved turning this thing around, and the next stage is
probably not a good fit with who I am.’” Interestingly,
says Nadler, Freeman is now with the private equity
 Wharton on Learning Leadership | Leadership and Knowledge Management, Vol. 2 | © 2007 University of Pennsylvania
firm KKR, working serially with companies who need a
short burst of turnaround leadership.
The implications of Nadler’s research for the boards that
make CEO hiring decisions are several. First, boards
should look for what Nadler calls the “sustainability
factor.” This means assessing the candidates’ range of
experience to see if they cannot only handle the current
crisis but also deal with unknown future crises. “Have
they run mature businesses? Handled compliance
issues? Done a turnaround? Grown globally? That’s
different than someone’s who has done the same act
over and over again.”
Locating such a jack-of-all-trades may be near
impossible in some situations; and in these cases,
Nadler recommends that boards consider the idea of
a “one-act CEO,” hired on the basis of a renewable
contract. “To find someone who is going to be a three-
or four-act CEO may be an unreasonable expectation.
Maybe we ought to make it okay to hire someone who
takes the company to a certain point, understanding
that then we’ll need a different set of skills.”
Such a rethinking of the CEO role, however, requires a
change of mindset for both boards and chief executives.
Early succession “is not part of our normal view of the
heroic CEO, who stays on the bridge until he brings the
ship home,” says Nadler.
But as one questioner in the audience pointed out after
Nadler’s talk, having a one-act CEO requires a “multi-
act board,” one that can fit the current CEO into the
board’s long-term vision. Nadler agrees, pointing to
how, in the past 7 years, boards have become much
more involved with CEO succession, whereas before
they had only a signing-off role.
And with this greater freedom to select the CEO comes
a greater responsibility to manage his or her tenure.
Boards, says Nadler, “need to face the facts when they
need to make a change.”
Full text of this article is also available in audio format at
http://knowledge.wharton.upenn.edu.
Steve Ballmer Speaks Passionately about Microsoft,
Leadership…and Passion
For Microsoft, 2006 was a year of new product
introductions: the Windows Vista operating system, a
new version of Office, and the Zune music player, to
name a few.
Microsoft CEO Steve Ballmer’s job: convince customers
that Microsoft’s latest products are ground-breaking
enough to purchase, transform a company with
$44 billion in sales into an agile innovator, compete
against new business models that challenge Microsoft’s
traditional approach to software development, and
recruit enough talent to keep the software giant relevant
25 years from now.
Ballmer joined Microsoft in 1980, 5 years after its
inception. He has witnessed the company grow from
30 employees to almost 80,000. In 1998, he was named
president of Microsoft, responsible for day-to-day
operations, and 2 years later was named CEO. With
a management style that he characterizes as “more
bubbly” than most, Ballmer says leadership “requires a
heavy degree of personalization” and the ability to adapt
to new conditions.
The day before Microsoft’s Vista launch for business
customers in New York City, Ballmer spoke at
Wharton as part of the school’s Leadership Lecture
series. During his talk, Ballmer emphasized that
Microsoft’s style is to focus on the long term: His
troops target a market and work until their products
are competitive—an ethos that has been apparent in
nearly every Microsoft product from Windows to Xbox
and, most recently, Zune.
“We’re going to bet on our long term. We don’t do
things for the short term. And if we don’t at first
succeed, we keep trying,” he says. “If we don’t get what
the customers really want, we keep going. It took us
three attempts to get Windows right; and if we had
given up after attempt one or attempt two, Microsoft
wouldn’t look anything like” it does today. “Leaders
have to set the tone that says, ‘We’ll be patient.’”
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Leaders Must Continuously Adapt
Ballmer’s patience will be crucial as Microsoft targets
new growth areas. The company has two primary cash
cows—its Windows and Office franchises—and has
been spending heavily to expand into new markets.
Microsoft’s Zune is designed to compete with Apple’s
hugely successful iPod. Despite a third-place market
share in search (behind Google and Yahoo), Microsoft
is trying to close the gap. In addition, the company
is facing the rise of entirely new ways of developing
and distributing software that, according to Ballmer,
present a challenge greater than that posed by any
individual company.
The one characteristic that Ballmer believes
is “universally applicable to anybody who
wants to be a leader” is passion. “You’ve
got to love what you are doing.”
To make a dent in these new markets, Microsoft has
to instill the agility typically associated with startups
into a massive company with $32 billion in cash
and equivalents. Ballmer’s challenge is to adapt to
the different markets that Microsoft is targeting. “I
believe that good leaders will…adapt themselves to
whatever the situation is that they face,” says Ballmer,
adding that there is no single blueprint for leadership.
“Leadership requires a heavy degree of personalization.
A lot of lessons are valuable, but what’s probably more
valuable is hearing people talk about their experiences
and then developing your own model,” he says. The one
characteristic, however, that he believes is “universally
applicable to anybody who wants to be a leader” is
passion. “You’ve got to love what you are doing.”
Ballmer readily admits that when he joined Microsoft
he was not a computer expert, but he developed a
passion about Bill Gates’ vision to put a computer on
every desk and in every home. The company “spoke to
this notion [that] most people [want] to have some kind

 of grander purpose about what they are doing,” Ballmer
says. “And, yes, it’s about a career and, yes, it’s about
taking care of family, and, yes, it’s about winning…
But, generally, people want to know that there is some
bigger, more important thing out there [worth] really
striving for. Leaders must set the tone about what the
real purpose of any organization is. If you really want
to inspire people and inspire their passions, you have to
appeal to them in some way that is a little less generic
than, ‘Hey, it’s good for the company. The company
can earn a lot of money.’”
Developing passion is particularly critical in the
markets where innovation is essential. “Because our
business is software, and software doesn’t wear out, we
have to be about innovation,” says Ballmer. “If our new
release isn’t any good, people will not upgrade to it.”
He disputes the notion that Microsoft doesn’t innovate,
adding that the company’s overall culture is about
innovation. “No matter how you will judge…[what]…
we have done or will do in the future, the culture, the
leadership tone has got to be about innovation.”
According to Ballmer, Microsoft has maintained
a position of leadership throughout a number of
transformations in its business. The company helped
to create the PC industry, transitioned from text-
based interfaces to the era of graphical computing,
and evolved again when the Internet transformed
information technology. “Unless you are really
committed to building a culture of continuous change
and innovation and transformation, you are not in good
shape,” says Ballmer, who makes a distinction between
personal adaptability and adaptability in response to
evolving competitive threats. Indeed, Ballmer sees his
job as assuring that Microsoft adapts to these new ways
of doing business.
Competing Against New Business Models
“You know, everybody likes to have someone, a
competitor, who is more interesting,” stated Ballmer.
“We have many competitors. We have had very good
competitors for years. We competed with IBM when
nobody gave us a chance of succeeding—and we did
[succeed] with Windows. We competed with guys like
Lotus and WordPerfect and Novell, who started out
ahead of us.”
 Wharton on Learning Leadership | Leadership and Knowledge Management, Vol. 2 | © 2007 University of Pennsylvania
Today Ballmer sees two major competitors for
Microsoft—the open source software movement and
advertising-supported software. According to Ballmer,
the threat comes not from specific companies, but from
the business models represented by these two trends.
“Right now, the emblem of the first one is Linux, and
the emblem of the second one is Google. But it’s not the
companies, it’s the phenomena” that present the greatest
challenge to Microsoft.
The question surrounding open source software like
Linux is whether this approach to software development
can surpass that of commercial companies. “Will open
source do a better job than a proprietary software
company—any software company?” asks Ballmer.
“It’s an interesting question—not just for us, but for
anybody who is interested in business. The question
is, can paid, commercial people do a better job than
unpaid volunteers? The answer, I think, will be yes, but
we’re going to have to push ourselves.”
The other threat facing Microsoft is what Ballmer
characterizes as “ad funding”—software, such as that
provided by Google, which is delivered for free over
the web and monetized through advertising. Ballmer’s
take on the rise of Google is that “getting search right
was actually not the hardest part of the issue. They got
ad funding—they really figured that out. And now
the rest of us are going to have to learn that game.”
Advertising is a new model for software; and the
question is, “Will we be as good at ad-funded software
as we were at paid software?”
Squaring off against Google and figuring out an
advertising-funded model for Microsoft software
excites Ballmer more than other competitive challenges
because it requires the software giant to be “extra agile,
extra clever. I get extra fired up about that possibility.
And yet, I’m confident in how we’ll do in that game.
Certainly I’m confident in the long run.”
Why Innovation and Agility Matter
Microsoft’s confidence largely comes from a history
of entering markets where it wasn’t top dog and yet
eventually becoming a strong competitor. For example,
Ballmer says that Microsoft is up to the challenge of
being a late comer to a market like digital music players.
“When you are not the first guy in the market, you have
two choices at the beginning of the day: Get in or don’t
get in. You just have to decide. Are you a company that
is afraid to get into something where there is a clear
market leader? We put our hands up and said, ‘No, we’re
not going to be afraid of that.’”
The key “isn’t trying to put everybody on
the same treadmill. The key is to strike
the theme, set the tone, set the priorities
among all of the leaders, and then let them
interpret what makes sense….”
To Ballmer, these new markets are marathons. “It’s
going to take…patience and long-term innovation to
win. It’s what it took us with Windows and, frankly,
what it has taken most companies in our business.”
Google, for example, “didn’t invent search. They
weren’t the first guy to the party.” Ballmer points out
that Google spent “6, 7, 8 years before it established
a position [in search] and beat AltaVista and Yahoo.
It took Apple a while to come in on top of MP3 and
music players. SAP was at it for almost 20 years before
they really got to critical mass with the SAP R/3
product.” For Ballmer, the issue is simple: “If you’re not
the first with an innovation, do you shy away or not?”
And search is an area that Ballmer believes is ripe for
innovation. Realizing that the company is playing
catchup to Google, Ballmer says Microsoft had to get
in the game, but he also acknowledges that advancing
search will be a long-term project. “We’re getting the
basics right. We think that we have some clever ideas
coming, but you know we’re going to be in there
battling for years and years and years.”
Meanwhile, Microsoft is betting that there is
opportunity for additional players to improve search.
“Fifty percent of all searches still don’t ever result in an
answer that answers the person’s question. And of the
other 50 percent, most people will tell you that it took
them longer than they thought it should have. That’s
got to be a world where innovation matters.”
Innovating is one thing. Being agile enough to turn
on a dime and take advantage of innovation is quite
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another. Ballmer acknowledges the challenge. “It’s not
easy to change cultures…. We have almost 80,000
people working for us these days…. [What we] are
working hardest on now is agility. What does it mean
to be agile in the marketplace? Agility means that you
are able to turn things around, that you can invent
new things, and yet you can still do things that require
scale, discipline, and execution.”
For a company the size of Microsoft, Ballmer says he’s
trying to cultivate pockets of agile groups, some of which
are “incredibly fast, but shallow,” and others that are
slower, but “incredibly deep.” “How you knit [together]
and enable people to get the best of all the cultural
aspects in the organization is a challenge right now.” He
insists that Microsoft can become more agile. While there
is one overall Microsoft culture, beneath that is a wide
range of subcultures that operate at different paces.
For instance, the Windows group, which is responsible
for creating an operating system that needs to satisfy
multiple requirements, will move slower than the Zune
unit, which is targeting a specific niche. “What it means
to be agile in the Windows product is quite different
than what it will mean to be agile in delivering Zune.
Windows shouldn’t update itself every 3 months….
Windows needs to be more things to more people
than any other product I can name on the planet…so
Windows has to try to be more encompassing.” Zune, on
the other hand, is in a very different position, according
to Ballmer. “Zune is nowhere in the market. So hit, run,
work, find your niche—go, go, go, go! This is a whole
different agility profile than what you need in Windows.”
The key “isn’t trying to put everybody on the same
treadmill. The key is to strike the theme, set the tone,
set the priorities among all of the leaders, and then let
them interpret what makes sense relative to what we are
trying to get done in a given context,” says Ballmer.
Breaking With the Past To Compete in the Future
Sustaining this level of agility often involves making
difficult choices. With the launch of Zune, for example,
Microsoft introduced a product that was incompatible
with the “PlaysForSure” digital rights management
(DRM) scheme the company had been previously
encouraging all its partners to use. Following the model

 that made Microsoft’s Windows so successful, Microsoft
licensed PlaysForSure to multiple hardware vendors of
digital music players. “We thought that was a brilliant
strategy—[develop] an open ecosystem, get a lot of
people [to support it].” What happened? As Ballmer
puts it, “In this particular case, the whole was not bigger
than the sum of the parts.” And, as a result, “Apple—
with one model that was simple and consistent—wound
up taking 75 to 80 percent of the market.”
Microsoft believed it needed to move quickly to change
its strategy. “So we said, ‘Okay, what do we have to
do here?’ …We had to make the market, not just let
our partners make the market…. We needed to get an
absolutely consistent…user experience [and] retailer
experience…. We said, ‘Look, we’ve got to take a
different approach, build a new ecosystem, and, by the
way, we better do something that Apple hasn’t done.’”
Microsoft saw an opportunity in music sharing. “We
believe in community; community means sharing….
How do I share my music with you? I want to be
able to do that legally. So we said, ‘We’ll go out and
negotiate for the rights.’ If I share a song with you, you
can listen to it three times, or for 3 days, whichever
comes first, then you can mark it and buy. That’s one of
the features of Zune. But, as soon as you say that, it is
inconsistent with PlaysForSure. The DRM information
doesn’t know anything about that.”
The change in strategy was, in Ballmer’s words, a
“very hard call.” But his conclusion was: “We could
be consistent with what is out there, which hasn’t
succeeded. Or, we can try a new approach, which we
think has…merit and can succeed.”
As for the impact on Microsoft’s partners as a result
of this change of strategy, Ballmer states, “Some of
our partners will say ‘This wasn’t partner-friendly.’
But having our partners only have 20 percent of a
market share between them is also not very partner-
friendly. One of the key things…that I have learned
about business partners is that business partners are
your partners because they make money with you, they
succeed with you. And if you don’t succeed, eventually
you don’t have any partners.”
10 Wharton on Learning Leadership | Leadership and Knowledge Management, Vol. 2 | © 2007 University of Pennsylvania
Attracting, Retaining Talent
Ballmer believes that the key to all of these goals is
talent. Can Microsoft effectively recruit and retain the
brainpower to expand its traditional markets while also
tackling the challenges of the new business models
introduced by the growth of the web? The task is
even more crucial as rivals like Yahoo and Google are
increasingly competing for talent.
Throughout Microsoft’s evolution during his tenure,
Ballmer says the “number-one thing that has consumed
my time is attracting great people, retaining great
people, and enabling people.” In the end, Ballmer says
he’s recruiting for Microsoft’s next generation, trying
to find people willing to continually reinvent the
company. “If I were to do surveys with Microsoft right
now [asking], ‘How many of our folks were around
before Windows was a success?’ [The answer would be]
it’s a low percentage. As a leader, then, my job has got
to be to connect the dots for people who have had all
different kinds of experiences.”
Ballmer recalls a question once posed to him by an
intern: Where will Microsoft be 25 years from now?
After some thought, Ballmer says, the only thing
he could predict is that “we’re going to have great
people…. And if we have great people and we have a
leadership position today, then everything will take care
of itself,” says Ballmer. “We’ll be driving the leading
edge of technology. We’ll be making good money. We’ll
be earning good returns for shareholders and all of
that kind of stuff. But at the end of the day, the only
thing that could be the magnetic north compass for the
place over the next 25 years has got to be this notion of
prioritization of people.”
Full text of this article is also available in audio format at
http://knowledge.wharton.upenn.edu.
To Marshall Goldsmith: Thank You for Writing This
Book (And We’re Not Sucking Up)

In r ecent years, the corporate self-help book has

become a staple of the publishing industry. In the world
of big business, books that claim to offer the secret to
managerial success are themselves big business, routinely
topping the bestseller lists and, in turn, anchoring the
high-profile careers of executive coaches such as Gary
Ranker, Kevin Cashman, and Stephen Covey. Marshall
Goldsmith is one of the most successful of corporate
America’s celebrity coaches—he typically makes upwards
of a quarter-million dollars for a year or so of work with
each individual client—and is also one of the best.

The founder of executive coaching firm Marshall

Goldsmith Partners, LLC, Goldsmith has worked closely
with more than 70 CEOs during his career. The chief
executives of Ford Motor, GlaxoSmithKline, Getty
Images, the American Heart Association, Allergan, and
Cessna, to name a very few, all sing his praises. Forbes
has named him one of the five most respected executive
coaches. The Wall Street Journal ranks him among the top
10 executive educators. Now Goldsmith has assembled a
book that distills the wisdom that he and his stable of
coaches usually dispenses in person. Listed at $23.95, What
Got You Here Won’t Get You There: How Successful People
Become Even More Successful, written with Mark Reiter,
is a bargain compared to the six-figure cost of receiving
Goldsmith’s wisdom in person. And, as a poor man’s
substitute for the real thing, it’s a very good deal indeed.
The power of Goldsmith’s approach lies in its
simplicity. There are no fancy formulas for becoming
a better boss, no therapeutic gimmicks, no arcane
methods or patented techniques. There are no extended
parables about moving cheese or melting icebergs.
In fact, when you peel away all the corporate language
in which Goldsmith’s advice is necessarily steeped,
a remarkable truth is revealed: What Got You Here
Won’t Get You There is not actually a corporate
book. It is an etiquette book. More centered on
basic interpersonal behavior than refined managerial
technique, Goldsmith’s primary insight is that good
manners is good management.
A tacit companion piece to Stephen Covey’s Seven
Habits of Highly Effective People, Goldsmith’s book is
built around the bad habits that keep highly successful
people from succeeding even more. Goldsmith notes
that at a certain professional level, neither intelligence
nor skill accounts for the fact that some people continue
to advance while others plateau. What differentiates
the one from the other, he observes, has nothing to
do with one’s abilities, experience, and training—and
everything to do with behavior. Simply put, Goldsmith
explains, successful people often limit themselves with
behavioral tics that they don’t even know they have.
Likewise, successful people tend to assume that the
behaviors that got them this far will, in time, get them
further still. They are delusional on this last count,
failing to realize either that their success has come in
spite of their behavioral flaws or that their behavior is
preventing them from realizing their potential, not only
at work, but also in life.

Wharton Executive Education | Penn Graduate School of Education | Knowledge@Wharton 11

 Everyone’s Bad Habits
Goldsmith’s work centers on helping people identify and
break the bad habits that are getting in their way. The
meat of What Got You Here Won’t Get You There is thus
his elaborate and revealing discussion of the “Twenty
Habits That Hold You Back From the Top.” They are:
1. Winning too much
Goldsmith notes that the hypercompetitive need to
best others “underlies nearly every other behavioral
problem.”
2. Adding too much value
This happens when you can’t stop yourself from
tinkering with your colleagues’ or subordinates’ already
viable ideas. “It is extremely difficult,” Goldsmith
observes, “for successful people to listen to other people
tell them something that they already know without
communicating somehow that (a) ‘we already knew that’
and (b) ‘we know a better way.’” The fallacy of this sort
of behavior is that, while it may slightly improve an idea,
it drastically reduces the other person’s commitment to it.
3. Passing judgment
“It’s not appropriate to pass judgment when we
specifically ask people to voice their opinions…even
if you ask a question and agree with the answer.”
Goldsmith recommends “hiring” a friend to bill you
$10 for each episode of needless judgment.
4. Making destructive comments
We are all tempted to be snarky or even mean from
time to time. But when we feel the urge to criticize, we
should realize that gratuitous negative comments can
harm our working relationships.”The question is not, ‘Is
it true?’ but rather, ‘Is it worth it?’” This is another habit
Goldsmith recommends breaking via monetary fines.
5. Starting with “No,” “But,” or “However”
Almost all of us do this, and most of us are totally
unaware of it. But Goldsmith says if you watch out
for it, “you’ll see how people inflict these words on
others to gain or consolidate power. You’ll also see how
intensely people resent it, consciously or not, and how it
stifles rather than opens up discussion.” This is another
habit that may take fines to break.
12 Wharton on Learning Leadership | Leadership and Knowledge Management, Vol. 2 | © 2007 University of Pennsylvania
6. Telling the world how smart we are
“This is another variation on our need to win.”
7. Speaking when angry
See number four.
8. Negativity, or “Let me explain why that won’t work”
Goldsmith calls this “pure unadulterated negativity
under the guise of being helpful.”
9. Withholding information
This one is all about power. Goldsmith focuses on
ways even the best-intentioned people do this all the
time. “We do this when we are too busy to get back
to someone with valuable information. We do this
when we forget to include someone in our discussions
or meetings. We do this when we delegate a task to
our subordinates but don’t take the time to show them
exactly how we want the task done.”
10. Failing to give recognition
“This is a sibling of withholding information.”
11. Claiming credit we don’t deserve
To catch ourselves doing this, Goldsmith recommends
listing all the times we mentally congratulate ourselves
in a given day and then reviewing the list to see if we
really deserved all the credit we gave ourselves.
12. Making excuses
We do this both bluntly (by blaming our failings
on the traffic, or the secretary, or something else
outside ourselves) and subtly (with self-deprecating
comments about our inherent tendency to be late, or
to procrastinate, or to lose our temper, that send the
message, “That’s just the way I am”).
13. Clinging to the past
“Understanding the past is perfectly admissible if your
issue is accepting the past. But if your issue is changing
the future, understanding will not take you there.”
Goldsmith notes that quite often we dwell on the past
because it allows us to blame others for things that have
gone wrong in our lives.
14. Playing favorites
This behavior creates suck-ups; rewarding suck-ups
creates hollow leaders.
15. Refusing to express regret
“When you say, ‘I’m sorry,’ you turn people into your
allies, even your partners.” The first thing Goldsmith
teaches his clients is “to apologize—face to face—to
every coworker who has agreed to help them get better.”
16. Not listening
This behavior says, “I don’t care about you,” “I don’t
understand you,” “You’re wrong,” “You’re stupid,” and
“You’re wasting my time.”
17. Failing to express gratitude
“Gratitude is not a limited resource, nor is it costly. It is
abundant as air. We breathe it in but forget to exhale.”
Goldsmith advises breaking the habit of failing to say
thank you by saying it—to as many people as we can,
over and over again.
18. Punishing the messenger
This habit is a nasty hybrid of 10, 11, 19, 4, 16, 17, with
a strong dose of anger added in.
19. Passing the buck
“This is the behavioral flaw by which we judge
our leaders—as important a negative attribute as
positive qualities such as brainpower, courage, and
resourcefulness.”
20. An excessive need to be “me”
Making a “virtue of our flaws” because they express
who we are amounts to misplaced loyalty—and can be
“one of the toughest obstacles to making positive long-
term change in our behavior.”
Goldsmith even includes a bonus bad habit: Goal
obsession, or getting so caught up in our drive to
achieve that we lose track of why we are working so
hard and what really matters in life.
The beauty of Goldsmith’s approach lies not just in the
simplicity of his insights but also in the clarity of his
advice. Because it is our behavior that holds us back,
he argues, we can change our future by changing how
we act. The key to a better future likewise comes from
learning to listen to what others have to tell us about our
behavior. We learn best if the lessons others have for us
come not in the form of “feedback”—which focuses on
an irrecoverable past, centers on judgment, and makes us
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defensive—but on “feedforward,” which is constructively
centered on the future and takes the form of helpful
advice about things we have the power to change.
Goldsmith’s message is, ultimately, a very straightforward
one: The secret to corporate success is that one must be
able to work well with others. If this sounds an awful
lot like kindergarten criticism, that’s because it is. But
it’s also the stuff of top-level corporate coaching, and for
good reason.
Reality television shows centered on professional
competitions dramatize the essential truth of Goldsmith’s
argument. Consider Donald Trump’s “The Apprentice,”
or any of the other career-oriented shows about getting
ahead, such as Bravo’s “Top Chef,” “Project Runway,”
and “Top Design.” More often than not, these shows
demonstrate that what really keeps talented people from
moving forward is a fundamental inability to play—or
work—nice. Because the gifted people on these shows are
so competitive, they won’t cooperate with their coworkers.
Because they are so full of themselves, they don’t listen to
their clients. Because they are reluctant to give credit to
others and tend to take undue credit for themselves, they
alienate potential allies and partners. On episode after
episode of show after show, we see otherwise brilliant,
innovative, capable professionals failing miserably because
they don’t listen, they won’t share, they fail to say thank
you, and they refuse to say they are sorry.
That’s why these shows, so appealing to individual egos
in their promise of professional advancement, devote so
much time to challenges that center on teamwork. In
framing competition around collaborative ventures, they
highlight how self-defeating the need to win can be.
Goldsmith’s insights need hardly be confined to the
workplace. They work at home, as he himself notes,
and can do wonders for family harmony. After all, the
reason Goldsmith is able to make a living teaching top
executives how not to interrupt and how to say thank
you is that so many people never learn these skills at
home, as children. If they had, Goldsmith would be
out of business. As it stands, Goldsmith has written a
leadership manual that could double as a guide to good
parenting and marital peace.
Full text of this article is also available in audio format at
http://knowledge.wharton.upenn.edu.
13
 Wipro: Leadership in the Midst of R apid Growth
Vivek Paul is, as the pundits say, a man on the
move. In 2004, Time magazine picked him as one the
year’s 25 best young leaders. BusinessWeek named him as
one of the best managers of 2003. His resume is enviable:
10 years at GE, most recently as head of GE’s global
computer tomography business, reporting to GE’s current
CEO; before that, positions at Bain & Co. and PepsiCo.
Also enviable is his record at Wipro. As vice chairman
of the Indian conglomerate and CEO of its Wipro
Technologies, he took the global information
technology services company from $150 million in
1999, when he joined the company, to its current
$1.3 billion, representing about 75 percent of the
corporation’s total income.  Institute at Carnegie Mellon, which views employees
Speaking at a Wharton West Leadership Conference,
Paul shared his thoughts on leading an organization as
it goes through such rapid growth, not only in revenue
but in employees. Wipro has been adding about 2,500
new people per quarter, net of replacement for attrition,
with its total employee population now at 39,700. It
started as a vegetable cooking oil business some 45
years ago, launched by the father of its chairman, Azim
Premji, who still owns 83 percent of the company.
The DNA of Talent
When he joined Wipro, Paul didn’t start with
something as grand as a vision. “First we had to earn
the right to have a vision,” he told conference attendees.
“When I came on board in 1993, the company wasn’t
performing well on its operating metrics…. We had to
just grind away and improve those first.”
But, when the vision came, it was grand indeed: to be
among the top 10 global technology service providers by
the year 2000. That meant massive changes in scale, as
well as in technical sophistication and quality in three
arenas: service lines, processes, and talent. Talent was
Paul’s focus in his presentation to the Wharton group.
“We knew we couldn’t develop from a small local
leader to a large global leader if we didn’t develop
14 Wharton on Learning Leadership | Leadership and Knowledge Management, Vol. 2 | © 2007 University of Pennsylvania
talent inside the company. We could never hire all the
talent we needed,” said Paul. So he and his team set
out to discover “the DNA of building talent.” Given
the software engineering culture of the company, Paul
good-humoredly admitted that it was probably more
“nerd-like” than most. “Everything is process to us, and
the people side is one more clear, detailed process that
needs to be nailed down, element by element.”
The Wipro team started with three propositions: Talent
can’t be a goal in itself; vision and goals must go hand
in hand; talent and performance metrics must go
hand in hand. They adopted a framework for people
development, devised by the Software Engineering
in five maturity levels, gradually evolving skills so that
they are not asked to implement behavior without
the tools to do so successfully. Levels 1 and 2 are the
basics—skills that managers need to simply manage
and develop people. Level 3 means defining specific
workforce competencies, over and above performance
metrics. Level 4 integrates competencies and qualitative
performance assessment; and level 5 is a process of
continuous improvement.
To achieve Wipro’s people-development goals and
thus its global vision, “we saw we needed training in
four areas,” noted Paul. “First, we had been a software
factory, and now our people needed to understand the
business context of their customers. Second, we needed
to be prepared for shifts in technology—for example,
the growing need for web skills. Third, we needed to
provide a cultural toolkit for the 10,000 or so employees
who are working away from home at any given point
in time, on assignments ranging from 3 months to 2
years. We have done that for the U.S., the U.K., and
Japan. And, finally we saw the need for behavioral
skill training since there’s a big difference around the
world in communication skills, interpersonal skills, and
relationship management.”
The effort has resulted in 40 state-of-the-art classrooms
on the sprawling Wipro campus in Bangalore—India’s
equivalent to Silicon Valley. It is a web-based “world
campus” where courses can be broadcast to 1,000
people at a time around the world and where 240,000
person-days of training are held annually. How can you
take so many people out of the business, for so many
days? “We measure very carefully and practice tight cost
management,” said Paul. “We ask ourselves: What does
training cost us as a percentage of sales? How are we
getting productivity out of it?”
“The core of how employees think about us
and value us revolves around training. It
simply isn’t something we can back off from.”
And, if Paul had to cite a single factor that’s most
important in deciding that training is critical in such
a high-growth environment, it would be responses to
regular employee surveys, which ask questions like:
Why do you stay at Wipro? What do you say about
the company to others? What makes you aspire to do
your best here? “Among the top three answers to each
of those questions is, ‘Wipro provides great learning
opportunities,’” said Paul. “The core of how employees
think about us and value us revolves around training. It
simply isn’t something we can back off from.”
Tethered Elephants
Given Paul’s focus on learning, it was no surprise he
came prepared to share with conference participants
some of his own most important leadership lessons.
“The first I learned in the jungles of Bangalore, at an
elephant camp. When you visit such a camp you see
these gigantic elephants tethered with a small stake. I
asked the trainer: ‘Why do they stay tethered when they
could so easily pull up the stake?’ He told me, ‘Well,
the elephant is tethered as a small calf; when it tries to
pull up the stake, it learns it can’t do it…and it never
tries again.’ That’s an amazing parable about how we
always tend to underestimate ourselves. The lesson for
me is: Don’t let self limitations hold you back.
“The second lesson was one I learned from Jack Welch
when I was at GE. Welch loved international trips.
Whenever he came back from one, he told people that
he would get out of the elevator at the office and say
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to himself, ‘This is my first day at GE as CEO. The
previous guy was a real dud. So how can I do better
than he did?’ He understood that as a leader you always
have to be reinventing yourself; you have to have some
tool that helps you to abandon past behavior and look
with fresh eyes at your task.
“The third lesson has come out of my good fortune in
working with and observing lots of really good managers
in my career. But I have also seen that success makes
many of them blind. They refuse to take feedback or
be open to new ideas. They block off opportunities for
growth. What I [realized] from that is the importance of
taking your job seriously, but not yourself.”
In response to a question from the audience about
whether Indian technology companies still share a lot of
information with each other, as they did a few years back,
Paul responded, “We were like kids growing up together
in the same neighborhood. There was a lot of sharing.
There’s a lot less now. Even 3 years ago, there was only
a small chance that we would be competing. Now we
are competing all the time.” Another participant asked
whether the outsourcing backlash in the U.S. has hurt
the company. “We certainly saw a lot of that [backlash]
last year,” Paul noted. “We decided we shouldn’t dive into
the trenches, so we did a lot of talking about it.  During
the worst of the press, we grew 60 percent. Europe
jumped in as it became more aware of outsourcing. The
perception of the problem far exceeds the reality, since
only about 3 percent of job losses in the U.S. are related
to technology outsourcing.”
Not being blindsided by either failure or success
is Paul’s intention as he moves Wipro to the next
stage of its development. Asked what he sees as the
biggest challenges of the next 5 years, Paul cited two
“inflection points.” The first is to finally reach his
stated goal of becoming a truly global business. Wipro’s
employee base is still 85-percent Indian; he wants it
to be 50-50, Indian and non-Indian, throughout the
organization, from the board of directors on down.
The second is to cope with the next stage of growth,
beyond 40,000 employees. “We planned our processes for
40,000, and we’re at 39,700 now. We need to look at what
it means to grow from 40,000 to 100,000—in processes,
in management. Because just as you make sure you
prepare for failure, you also need to prepare for success.”
15
 Michael Porter Asks and Answers: Why Do Good
Managers Set Bad Str ategies?

Errors in corpor ate str ategy are often

self inflicted, and a singular focus on shareholder value
is the “Bermuda Triangle” of strategy, according to
Michael E. Porter, director of Harvard’s Institute for
Strategy and Competitiveness.

These were two of the takeaways from a recent talk by

Porter—entitled “Why Do Good Managers Set Bad
Strategies?”—offered as part of Wharton’s SEI Center
Distinguished Lecture Series. During his remarks,
Porter stressed that managers get into trouble when
they attempt to compete head-on with other companies.
No one wins that kind of struggle, he said. Instead,
managers need to develop a clear strategy around their
company’s unique place in the market.
When Porter started out studying strategy, he believed
most strategic errors were caused by external factors,
such as consumer trends or technological change. “But
I have come to the realization after 25 to 30 years that
many, if not most, strategic errors come from within.
The company does it to itself.”
Destructive Competition
Bad strategy often stems from the way managers think
about competition, he noted. Many companies set
out to be the best in their industry and then the best
in every aspect of business, from marketing to supply
chain to product development. The problem with that
way of thinking is that there is no best company in any
industry. “What is the best car?” he asked. “It depends
on who is using it. It depends on what it’s being used
for. It depends on the budget.”
Managers who think there is one best company
and one best set of processes set themselves up for
destructive competition. “The worst error is to
compete with your competition on the same things,”
Porter said. “That only leads to escalation, which leads
to lower prices or higher costs, unless the competitor
is inept.” Companies should strive to be unique, he
added. Managers should be asking, “How can you
deliver a unique value to meet an important set of
needs for an important set of customers?”
Another mistake managers make is relying on a flawed
definition of strategy, said Porter. “‘Strategy’ is a word
that gets used in so many ways with so many meanings
that” it can end up being meaningless. Often corporate
executives will confuse strategy with aspiration. For
example, a company that proclaims its strategy is
to become a technological leader or to consolidate
the industry has not described a strategy, but a goal.
“Strategy has to do with what will make you unique,”
Porter noted. Companies also make the mistake of
confusing strategy with an action, such as a merger or
outsourcing. “Is that a strategy? No. It doesn’t tell what
unique position you will occupy.”
A company’s definition of strategy is important, he
said, because it predefines choices that will shape
decisions and actions the company takes. Vision
statements and mission statements should not be
confused with strategy. Companies may spend months
negotiating every word, and the results may be valuable
as a corporate statement of purpose, but they do not
substitute for strategy.
In the last 10 years or so, Porter added, companies have
become increasingly confused about corporate goals.
The only goal that makes sense is for companies to earn

16 Wharton on Learning Leadership | Leadership and Knowledge Management, Vol. 2 | © 2007 University of Pennsylvania
a superior return on invested capital because that is the
only goal that aligns with economic value.
Recently, companies have developed “flaky metrics of
profitability,” he said, pointing to amortization of good
will as an example. Some of these measures began as a
way for managers to stay a step ahead of the demands
of Wall Street. “What starts as a game for capital
markets then starts to confuse the managers themselves.
They [then] make decisions that are not based on
fundamental economics.”
Porter said that the “Bermuda Triangle of strategy” is
confusion over economic performance and shareholder
value. “We have had this horrendous decade where
people thought the goal of a company is shareholder
value. Shareholder value is a result. Shareholder value
comes from creating superior economic performance.”
To think that stock price on any one day, or at any one
minute, is an accurate reflection of true economic value
is dangerous, he noted. Research shows companies
can be undervalued for years. Conversely, during
the Internet bubble, managers whose motivation
and compensation were tied to stock price began to
believe and act as if the share price determined the
value of the company. Managers are now beginning to
understand that the goal of their companies is to create
superior economic performance that will be reflected
in financial results and eventually the stock price. “We
know there’s a lag, and it’s ugly. But it’s important that
a good manager understands what the real goal is—not
spend time pleasing the shareholders.”
Corporate strategy cannot be done without strong
quantitative analysis, said Porter, adding that each year
students take his strategy course thinking they will
have at least one class in which they don’t have to worry
about numbers. Not true. “Any good strategy choice
makes the connection between the income and the
balance sheet.”
Right Time, Right Price
Companies hoping to build a successful strategy need
to define the right industry and the right products and
services. Bad strategy often flows from a bad definition
of the business, said Porter.
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He pointed to Sysco Corp., the number-one foodservice
supplier in North America. Defining Sysco simply as a
food distribution firm would eventually lead to a failed
strategy. The industry is actually two distinct sectors.
One delivers food to small restaurants and institutions
that need help with finance and product selection.
The other has large, fast-food franchise customers, like
McDonald’s, that are not interested in any additional
services. McDonald’s just wants industrial-size
containers delivered on time at the best price. Sysco has
developed two separate strategies for its two customers.
Geographic focus is another type of business definition
that can trip up strategy. He gave the example of a
U.S. lawn care company that developed a plan to
grow through international expansion. The business,
however, was not suited to operating on a global scale.
The products were bulky and expensive to ship, and the
company had to deal with different retail channels in
different regions.
One more mistake managers make is confusing
operational effectiveness with strategy. Operational
effectiveness is, in essence, extending best practices.
Good operations can drive performance, Porter said,
but added, “The trouble with that is it’s hard to sustain.
If it’s a best practice, everybody will do it, too.”
None of this is easy, he conceded. “The real challenge
of management is you have to do these things together
at the same time. You have to keep up with best
practices while solidifying, clarifying, and enhancing
your unique positions.”
Managers often tend to let incremental improvements
in operations crowd out the larger strategy of building
a unique business that will retain its competitive
advantage, Porter noted. To bypass this problem,
managers must keep the competitive strategy in
mind at all times. “Every day, every meeting, every
decision, has to be clear…. Is this an operational best
practice or is this something that’s improving on my
strategic distinction?”
He went on to describe key principles of strategic
positioning, including a unique value proposition, a
tailored value chain, clear tradeoffs in choosing what
not to do, and strategic continuation or ongoing
17
 improvement. The underpinnings of strategy are
“activities that fit together and reinvigorate each other.”
Enterprise Rent-A-Car is an example of a company
that stumbled onto its strategy more or less by luck,
according to Porter. The company started as an
auto-leasing firm, but customers frequently asked if
they could rent cars for short periods. The rental car
industry was completely geared toward travelers, with
pickups at airports and a price structure suited to
expense accounts or vacationers willing to splurge.
It is difficult to sustain the kind of strategic advantage
Enterprise enjoys without a patent, Porter pointed
out. Hertz has tried to connect with this business but
remains geared toward the traveler and cannot compete
with Enterprise in its specific market.
Porter stressed that continuity is critical to successful
strategy. “If you don’t do it often, it’s not strategy,”
said Porter. “If you don’t pursue a direction for 2
or 3 years, it’s meaningless.” Many companies start
out with a good strategy but then grow their way
into failure, Porter continued. Research shows that
among companies that fade in 10 years, many enjoyed
phenomenal growth in the beginning but then put
growth ahead of sticking to their strategy.
Dividends are one way to avoid the pressure to boost
stock price with rapid growth, Porter said. Dividends also
return capital to all investors, not just short-term investors
who benefit from trading on gains in share price.
Leadership and Strategy
Porter cited some capital market biases that result in
barriers to strategy. First, Wall Street tends to create
pressure for companies to emulate their peers. He
said that analysts often anoint a star performer in
each industry, which encourages others to follow that
company’s game plan. Again, this leads to the no-
win approach of companies competing on the same
dimensions, not on unique strategies.
Analysts also tend to choose metrics that are not
necessarily aligned with true value or meaningful for
all strategies, said Porter, noting that analysts apply
pressure to grow fast and have a strong bias toward
deals, which lead to a quick bump in the stock early
18 Wharton on Learning Leadership | Leadership and Knowledge Management, Vol. 2 | © 2007 University of Pennsylvania
on. Managers are made to feel like “Neanderthals” if
they resist mergers and acquisitions or other financial
market tactics, he added. “What happened in a lot of
companies was that the equity compensation was [tied
to share price], and people became crazed and very
attentive to these biases. All the corporate scandals
came from pressure to do things that were stupid.”
Research shows that among companies that
fade in 10 years, many enjoyed phenomenal
growth in the beginning but then put
growth ahead of sticking to their strategy.
Other barriers to strategy include industry conventional
wisdom, labor agreements or regulations that constrain
choice, inappropriate cost allocation to products or
services, and rapid turnover of leadership. Increasingly,
he is struck by how important leadership is to strategy.
“Strategy is not something that is done in a bottom-
up consensus process. The companies with really good
strategy almost universally have a very strong CEO,
somebody who is not afraid to lead, to make choices,
to make decisions.” Strategy is challenged every day,
and only a strong leader can remain on course when
confronted with well-intentioned ideas that would
deviate from the company’s strategy. “You need a leader
with a lot of confidence, a lot of conviction, and a
leader who is really good at communication.”
Years ago, corporate strategy was considered a secret
known only by top executives for fear competitors
might use the information to their advantage, said
Porter. Now it is important for everyone in the
organization to understand the strategy and align
everything they do with that strategy every day.
Openness and clarity even help when coping with
competition. “It’s good for a competitor to know
what the strategy is. The chances are better that the
competitor will find something else to be unique at,
instead of creating a zero-sum competition.”
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