My thoughts on loyalty (as stated in my last post, Whose Bread I Eat, His Song I Sing) run counter to conventional wisdom which currently holds that loyalty between supplier and customer and between employer and employee are tentative at best, subject to change without notice and likely with little regard. Loyalty, it seems to most, is a quaint notion that has neither place nor purpose in a globalized, commoditized world. Perhaps Thomas Jefferson was right: The merchant has no country. Even I do admit that there are circumstances where my confidence in loyalty is put to the test.

Acquired Rights – and Wrongs

Being acquired or merged usually has its down-side or, more precisely, down-size for the acquired or merged company and the people therein. The rationale given invariably revolves around synergy. In the new math, one head is better than two. Redundancy is good only in IT and nuclear deterrence. For example, there is no need for two finance departments, especially since there can be only one treasury into which all cash flows and one set of books into which all the numbers flow. The problem with most rationalizing is that expediency and incumbency trump quality. You go with what and who you know; both are highly prejudiced by proximity, that is, you go with those close to home. The take-away of an acquisition is that something has to give.

It is the same at the commercial level. Looking for synergies will almost always mean the rationalization of suppliers, large and small. This reflects not on the greed of the purchaser but on that of his suppliers, for acquisitions often provide the once-in-a-lifetime opportunity to have it all.

A Changing of the Guard

A change in leadership will likely create a measure of vulnerability for direct reports. As in the case of the acquired company, loyalty can work in reverse, accruing to the original stakeholders or based on prior knowledge. The new CEO will assess the staff he inherits using both objective and subjective measures. At the end of the day – usually by the end of the first 100 days – he will go (or stay) with whom he is comfortable, from whom he knows he can command loyalty through thick and thin, and to whom he can confidently delegate difficult but necessary tasks. Not surprisingly, this may mean bringing along old staffers with whom a rapport has already been built and a necessary level of confidence already established. To the discomfort (though not the discredit) of incumbents, ‘may mean’ very often does mean.

Once again, a new buying team at a key customer could well entail the end of an enduring relationship, contractual obligations notwithstanding. A change may reflect not just pre-existing loyalties, personal and organizational, but also policy shifts. The new buyer may, for example, decide to move from split accounts to sole vendorships or vice-versa. Uncertainty is to be expected and you’d better have a good story to tell.

When the Going Gets Tough

When the numbers don’t add up to where they ought, odds are good that budgets will be cut. Management will, at one point, begin to talk about productivity, i.e., output divided by headcount. To enhance productivity, you can either increase the numerator (always desirable) or decrease the denominator (almost always the default) or, of course, do both. Any of these options becomes a driver for reengineering which, for most, does not mean refocusing the organization but shrinking it. There is a widespread belief that, in any restructuring, less is more. True or not, for those who are victimized, it is certainly less.

So, yes, there are circumstances that will shift loyalty into reverse (as in our first two situations) or move it to a back seat position (our third). Those circumstances invariably arise from a significant change – of leadership or of fortune. Even in explaining loyalty, more of the one would likely mean less impact from the other.

A recurring theme from the corner office will be an argument that the foundation for all successful enterprises over the long haul is integrity. Integrity is a concept impossible to understand if you don’t have it and unnecessary to understand if you do. The cornerstones of integrity are respect, commitment, consistency and loyalty. Each will be dealt with in time; this post is about loyalty.

It is too easily taken as a given that loyalty can no longer be found in business, that it goes as far as the nearest turn of corner and downturn of market. There is no real loyalty between companies and their employees, nor between suppliers and customers. When the slightest push comes to the merest shove, goes conventional - or, more precisely, convenient - wisdom, people will switch on a dime for a dime.

Three decades of experience tells me that this is simply not true. Of course, nothing is so simple, but I would most strenuously make the case that loyalty is alive and doing rather well under difficult circumstances. It takes a great deal of push to topple the walls that most employees build around themselves to maintain the security of their jobs. It takes a most egregious shove to overcome a buyer’s resistance to change.

The case could well be made that employees care more about their jobs than they do about the companies that provide them, that their loyalty travels only so far as their pay cheques will carry it. I would posit that people will almost always try to do their best for their employers and that given the opportunity and appropriate tools, most would succeed. They, equally, want their companies to do well, understanding full well who butters their bread. Despite all the griping around the water cooler and over Kokanee beer, most would be more than happy to wear the company colors and wave the corporate flag. Because now, as always, job security trumps job satisfaction.

Does this loyalty go both ways? Most companies – at least the good ones – know that you can never get enough good people. Most managers – at least the good ones – know that their success depends as much on the support of those below them as on that of those above. It is the sheep, after all, that make the shepherd.

Corporate buyers look for value as much as price. Even those charged with the purchase of commodities know that a secure and consistent supply chain is invaluable. Price will get an order, but relationships will get – and barring catastrophic screw-ups – keep the business. Incumbents will get the first call and the last look. They will be given the benefit of the doubt because buyers have no doubt about the short- and long-term benefits of doing so.

Suppliers will seldom chase business – even potentially more lucrative business – that would jeopardize their relationships with existing customers. Those that do will find out soon enough that what goes around comes around, that loyalty - or lack thereof - cuts both ways. They will come to realize that there is a lifetime value to customers that, while not easy to calculate, is impossible to ignore. Mostly, they will learn that shareholders are not interested so much in profit as in sustainable growth. Sustainable growth comes with protecting the base and growing with key customers.

Everyone will have a tale to the contrary - and nothing upsets the equilibrium of loyalty faster and with more finality than a changing of the guard - but it is precisely these exceptions that define the rule. And so, in general and on principle, I am in agreement with American writer, publisher and philosopher Elbert Hubbard who said, “An ounce of loyalty is worth a pound of cleverness”. At a minimum.

Where lies the future of management? Are the days of top-down management over? Is hierarchy dead? Has Catbert used up the last of his nine nasty lives? Gary Hamel thinks so.

In The Future of Management (Harvard University Press, October 2007), Hamel makes the case - showcasing several companies that have abandoned traditional models - that we are slowly but inexorably moving towards more democratic, bottom-up systems of management.

One example given is Whole Foods which has the people in, say, the vegetable department, managing the vegetable department. Managing includes hiring, buying, pricing, merchandising and selling. The theory is that the people at ground zero would be in the best position to know who would fit comfortably in the group, what products people are looking for and how best to serve them.

Of course, one might argue that hiring in these circumstances would be self-serving. A traditionalist would claim that buying is best done by professional buyers who understand the dynamics of pricing in the context of a global supply chain, who keep close tabs on the fluctuating prices of commodities (including vegetables), and who are skilled negotiators. Old style marketers would protect their turf by pointing out that the value of the Whole Foods brand is predicated on convincing consumers that they are buying non-industrialized foods and that this image requires careful nurturing and merchandising. Pricing would be particularly sensitive since consumers buying into the Whole Foods positioning strategy are generally willing to pay more.

Senior managers protecting their creaky hierarchies would insist that building an organization requires a broad accounting of human resources, that hiring, developing and rewarding staff must be seen - and managed - globally. Those who cannot escape their administrative and financial roles would want to centralize reporting, perhaps impose an ERP system, track GMROIs and the like. All in all, it would be tough to keep old style managers at bay.

Over the years, I have seen companies decentralize and then, some time later, recentralize. I have witnessed, first-hand, the effectiveness or lack thereof of a variety of organizational models, including something that on paper looked vaguely like a pizza. I have lived through corporate de-layering or flattening (take your pick). In the end, none of it means anything unless everyone, at all levels, executes.

Trust me on this: if an organization’s head is screwed on straight and each person does his or her job properly, the old management system works just fine.

Woman’s place is in the wrong. (James Thurber)

The Marketing Department bulletin board of my old company was – and appears to still be – the place for things weird and wonderful. Last week, while visiting, I found this piece from Savvy & Sage prominently posted.

Savvy & Sage is a bimonthly magazine for seniors, with topics running from Alzheimers to annuities. In its September / October 2007 issue, S&S published an excerpt from a 1943 issue of Transportation magazine. A Guide to Hiring Women, it was “written for male supervisors of women in the work force during World War II”. Among the 11 tips:

- Pick young married women. They usually have more of a sense of responsibility than their unmarried sisters and they’re less likely to be flirtatious.

- When you have to use older women, try to get ones who have worked outside the home at some time in their lives. Older women who have never contacted the public have a hard time adapting themselves and are inclined to be cantankerous and fussy.

- Husky girls are more even-tempered and efficient than their underweight sisters.

- Retain a physician to give each woman you hire a special physical examination – one covering female conditions. This would reveal whether the employee-to-be has any female weaknesses which would make her unfit for the job.

- You have to make some allowances for feminine psychology. A girl has more confidence and is more efficient if she can keep her hair tidied, apply fresh lipstick and wash her hands several times a day.

- Be tactful when issuing instructions or in making criticisms. Women are often sensitive; they can’t shrug off harsh words the way men do.

In the early ‘70s, I worked for a large engineering company. My boss was loathe to hire women on the basis that they were unreliable, constantly missing work to take care of domestic problems. Worse, they would almost certainly go off on maternity leave just as soon as they started to become useful. (I can only imagine now what he considered ‘useful’.) In a case of misplaced paternalism or, perhaps, simple misogyny, the women in that firm had to ask their male supervisors for the key to the ladies’ washroom. The attitude was both a cause and an effect of the demographics of professional engineering at the time: only one percent of registered engineers were women. Of course, ignorance may have also had a little something to do with it.

Times have changed, right? Fast forward, if you will, to 2007. Only 13 FORTUNE 500 companies were run by women, only one in the top 50 (Angela Braly, President and CEO of health insurance provider WellPoint). The baker’s dozen is a record, up from just 10 in 2006.

In the past few years, there have been countless articles profiling women in power, analyzing what motivates and deters women from seeking leadership roles, trying to ferret out those particular-to-women personality traits that make them perfect or imperfect candidates for the corner office.

I have worked with many women executives over the years and those with promising careers whose climb ended just short of the top rung. Most brought high levels of integrity to their jobs. Most often, the principle driver to succeed was what often became the biggest stumbling block: respect from others. Know what? These things are hardly peculiar to women.

Rethinking and remaking the corporation means that some measure of innovation – in product, process, technology, distribution or whatever it is that drives the business – is imperative. You don’t have to be innovative in all things (though you should be competitive in most), but you must look to lead in what is fundamental to your business’ success.

Fast Company’s March issue features its own list of The World’s 50 Most Innovative Companies. These companies span a range of industries, geographies and drivers. They include known quantities like the ubiquitous Google (which sits comfortably atop the pile) and a small quantity of others soon certain to appear in fine portfolios everywhere.

The magazine makes no claim that this list is definitive. But the things that motivate innovation and that ultimately make the innovations successful for their respective companies are clearly defining. Put another way, what is different about these companies is, ironically, what binds them – and other innovators – together.

It begins with recognizing the need for innovation. From there, creating an organization where innovation is a primary focus and second nature is somewhat akin to planting and nurturing a garden.

The Innovator’s Garden

It doesn’t really matter whether the seeds for new ideas come from within an organization or are made available to it from outside sources (via partnering, JVs or independents). What matters is that these seeds are properly germinated, watered, and then provided copious amounts of sunlight (visibility) and TLC by their constant gardeners.

It goes without saying that the architect of the innovation landscape is, in all cases, the CEO. There is no question that an organization-at-large takes its cues from its leader. He or she sets the tone and the ground rules. Critical funding, i.e., fertilizing, comes from senior management budget approvals. Without proper funding - ‘proper’ referring both to the extent and continuity of funding - there will just not be enough topsoil to enable the crop of new ideas and technologies to take root.

You will also need patience to ensure that these ideas and technologies become established. Too often, companies set unreasonably short payback horizons (as little as two years) and excessively high return-on-investment goals (30-40%). Projects and programs that don’t pass through these target filters never see the light of day or are turfed before given a reasonable chance to succeed.

Senior management support notwithstanding, it is the day-to-day tending of the garden, from the tilling of soil to the propagation of new species, that ensures success. You have to invest in the right people and give them the right tools to do their jobs. And then let them go at it.

Hopefully I haven’t overworked the analogy. At least I didn’t try to transform the Nitrogen Cycle into an Innovation Cycle. But, to rework an old and unfortunately anonymous reminder, you can’t plant toads and expect to raise toadstools. You’ve got to understand how your company interfaces with its competitive environment and then…well…work the soil. This is the only way to keep the business growing.

You can be pretty much assured that, regardless of the industry you are in, there will be overcapacity in the product - and services - you sell. Sure there will be short term spikes in demand and short-lived openings for newly-minted niche products, but do yourself a favor and give short shrift to the quick profits that accrue to these; take a long-term view of your business. All products become commoditized and all markets democratized in time. It is one of the ineluctable, inescapable, immutable laws of nature: in a free market economy, there WILL be overcapacity.

Sooner or later, overcapacity will plunge your company into the maelstrom, the on-going, off-putting madness of a hyper-competitive market. If it is to survive, the organization must continuously rethink its business model and continually update its offerings.

I am reminded of Jack Welch’s parting advice to Jeffrey Immelt when the latter ascended to the GE throne in September, 2001. The man some anointed as one of the greatest CEOs of all time, the hard-nosed head of arguably the most successful company on the planet at the time, told his successor to “blow it up”!

And he did. The GE that we had grown to know, if not necessarily love (unless, of course you owned shares), the GE buoyed by boundarylessness and buttressed by Six Sigma, began to change. The famed management machine moved from the primacy of its promote-from-within policy to looking for the best people – and if that meant going outside, so be it. A tightly-managed organization saw the black belt disciples of Six Sigma and continuous improvement embrace the creative imperative of Imagination Breakthrough. Cash cows in decline were jettisoned in favor of hot prospect biosciences, wind power and entertainment. How is it going? For all the right reasons, GE makes everybody’s list of Most Admired Companies.

In the homogenized, globalized world of overcapacity, even the swiftest corporate leopard must change its strategic spots. It isn’t easy. I know. My previous employer responded to an influx of cheaper imports by moving from a strategy of diversification to one of focus. I was part of the decision making process (which was interesting) and some of the resultant dislocations (which were not).

In the end, though, our willingness to face the issue of capacity head on will enhance our capacity to deal with it.