How to become a great CEO

Kevin Freiberg is a recognised authority on leadership and business best practices. The founder and CEO of the San Diego Consulting Group, Freiberg has worked with some of the top companies in the world, including American Express, Ernst & Young, Eli Lilly, General Electric and Southwest Airlines.

His first book Nuts! Southwest Airlines' Crazy Recipe for Business and Personal Success (co-authored with his wife Jackie) sold more than 500,000 copies world-wide and was named by Financial Times as one of the top five global business books of the year. His second book, also written along with his wife, is Guts! Companies that Blow the Doors Off Business-as-Usual. Freiberg was in Bangalore last week to address a leadership seminar.

In a conversation with Meenakshi Radhakrishnan-Swami, he spoke on the leadership principles behind unconventional companies and how organisations need to create cultures that recognise and reward creativity in individuals. Excerpts:

Why are you against business-as-usual?

Business-as-usual is okay, to some degree, because you need stability in the economy. But it's a competitive world. And if you get stuck with business-as-usual, you get left behind. Technology and the global economy wait for no one. You either get on board, or you get left behind.

Remember that societies, cultures and business communities advance because of those who are thinking unconventionally, breaking the rules and creating new ways of doing things.

Can unconventional companies exist anywhere? Or are there any prerequisites?

First, you have to have a culture of freedom. By that, I mean a culture where people are not afraid to think in new ways, to challenge the status quo, to test new ideas. In  many cultures - I don't know about India, but I suspect it's  true here, as in the US - there is a culture of fear where people are afraid to step out of the comfort zone.

So how do you create an environment of freedom? You reward intelligent failure. That translates as: I understand the values and the strategy of the business, and within that that strategy and those values, I'm going to try new things.

Now, if I fail, the question is, do I get my hands slapped or am I rewarded? It's not enough to not punish people who fail intelligently; you need to reward them. If the company gets across the message that it values the fact that you were thinking outside the box, and it does that with enough people in a company, it's creating a DNA in the culture that says it's okay to try new things.

Jack Welch was famous for asking people to try new things. And if somebody tried something that didn't work out, they would sometimes win a trip or a TV set would show up at their home with a card that said something like "With compliments from Jack Welch. Glad you tested this. Sorry it didn't work out."

You do that with even one person and word travels fast. "Hey, did you hear what Welch did? Did you hear what he said? Wow." And people get this sense that it's okay to try new things.

You also need to learn from failures. One of the classic examples in American business history is 3M with Post-it notes. That was a mistake: it started with an adhesive that failed. A 3M scientist was in church trying to keep his page open for the hymnal, and he needed something to mark the page. He remembered that at 3M they were working on an adhesive that had not served the original purpose.

He thought, "Maybe it will work for this." Well, as you know, Post-it notes are now all over the world. But had he not had the freedom to say, "Let's try it, let's see if it works", it would have remained a failure.

Is there a cost advantage in doing business-not-as-usual?  Or is it cheaper to stick with the old, proven methods?

A company like SAS spends millions on its campus and its people. That's a lot relative to what other companies spend on their people. But relative to what SAS saves in retention, it's minimal. Large computer companies like Oracle, Microsoft and Siebel lose about 1,000 people a year.

The average software developer is paid $75,000-125,000 a year. It takes them a year to be fully productive, to learn the culture and the systems. You do the math, but a 1,000 times 100,000 -- that's a big number. SAS loses a 100 people a year. They figure they save somewhere between $60 and $80 million yearly in lower attrition costs.

Blowing the doors off business-as-usual can be more cost effective. Look at Southwest. Its entire success is because it is cost effective. And disciplined. You can't be cost-effective if you're not disciplined. You also can't be cost-effective if you're not creative. A lot of people don't think the two go together. But I believe boundaries can actually be freeing.

What do I mean by boundaries? I mean that the values the vision and strategic intent of the company are clear.

All those set boundaries. You get more innovation and creativity in a company where boundaries are clear because when boundaries are not laid out, people gravitate towards the safe area, the middle, instead of getting out on the radical fringe. When you make the boundaries clear, people can push the edge of the envelope.

What's missing in organisations today?

Leadership that truly understands that any business is a people business. Yes, you have to have the right operating strategy, understand market trends and build a brand. But at the end of the day, it's about people.

What's missing is leaders who truly understand what it takes to draw the best out of every individual. One size doesn't fit all. You have to be a world-class student of people. And I think most CEOs get preoccupied with doing deals, mergers and acquisitions, with new technology.

All organisations need to ask themselves whether they want to remain in a sea of sameness or they want to radically differentiate themselves. If they want to radically differentiate themselves, they need gutsy leadership to do things differently. It takes guts to break with the norm. And it takes guts to look in the mirror and say if this company is to change, what about me needs to change first? Those are not easy questions to answer.

What you're advocating is a change in the culture of organisations. How easy is that?

You have to have a lot of backbone to change the culture of an organisation. It's not for the faint hearted. Cultures are designed to protect themselves. And if you try to change a culture using the old values, the old mores and rituals, you'll have a difficult time. And that's the mistake a number of companies make -- they try to take the old rules and apply them to the new ways. To really succeed, you have to blow up the old ways.

That's why Jack Welch was so successful at GE: he exaggerated things. I met with Welch and he said to me, "If you're going to take an organisation of 350,000 people and move them from Point A to Point B, you've got to be at Point Z."

Would it be easier for a new company to implement unconventional ideas?

Yes. It's much easier to start from scratch than it is to try and change a culture. The airlines have been trying this for years. Everyone is trying to emulate Southwest and so Delta has tried to spin off a piece of its business called Song, Continental did it a number of years ago with Continental Light. I think it's very difficult.

That's not to say it can't be done: Welch did it at GE. But it takes a lot more guts to change an existing culture than to create a new one.

Does size matter? Would be easier for a small company to try gutsy things?

Yes and no. It's easier for the entrepreneur of a small organisation because you can change on a dime. It's like a speedboat versus an aircraft carrier. An aircraft carrier has to negotiate its turn miles in advance while a speedboat can move at will.

But then, a large company like GE can absorb the mistakes from people who're doing intelligent failures much more easily than a small company.

The consequences are far greater for a small company, so it requires even more courage. If a small company bets the farm on an innovative idea and loses, the company could go out of business. If GE bets on a piece of the business and loses, it's a blip on the radar screen.

Of course, if a small company loses, it's that much easier to start over. There's less at stake. If GE goes under, it's like the Titanic just went down.

Southwest's success has a lot to do with its founder-CEO Herb Kelleher. Every organisation can't have a Kelleher. How important is the CEO?

Kelleher is a media icon because he's so crazy and so out there. It's natural to assume that all the success at Southwest is because of him. But if pause a moment to think about it, any great company is infinitely more than its CEO. CEOs get far more credit than they deserve and they get far more criticism than they deserve. The position serves as a lightning rod.

At the end of Nuts! is a chapter on will there be life at Southwest after Herb? The answer was an emphatic yes. Why? Because the culture is so ingrained, the values are so steeped that it would take years to unravel that.

People said that when Mr Sam [Walton] dies, Wal-Mart will fall. What's happened since Mr Sam died almost a decade ago? Wal-Mart has quadrupled its size and continues to grow explosively.

The reason we wrote Guts! is because a number of people asked us the same question. You don't have to have a Kelleher in every company. If you look at the companies featured in Guts!, you have Kelleher on one end -- wild, crazy, extroverted -- and you have SAS's Jim Goodnight on the other -- introverted, very private. Both are running world-class companies, both are doing things that the rest of the world says can't be done.

Your new book is on what you call the "victimisation" of the workforce. How does that translate into bad business?

We speak to many CEOs, frontline and middle-level people every year. And everybody has a victim role to play. CEOs say, "If I could only get my people to be more entrepreneurial and tell me the truth about what's really going on in the organisation, we could run a better company."

The middle managers and frontline staff say, "If only our senior management would give us the freedom to act. If only they would reward us and recognise us when we do act."

The message we're trying to get across is that leadership is not about a position. It's a relationship of commitment versus compliance. It's about saying, "How do I get people to want to do what needs to be done rather than just comply?" That doesn't take a position. You can do that laterally or even from the bottom up.

Leadership of the future is going to be from the person who has the best ideas. In a world where information is the pivot around which business is conducted, it's the person with the best ideas who wins.

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