#005 - What the Inca’s Can Teach Us About the Rise & Fall of Organizations

Show Notes

Episode Contents

 

In this episode we’ll try to answer some of the following questions and see what the authors Andreas & Paul have to say about these topics:

  • What we can learn from the Inca’s when it comes the long-term survival of companies
  • Why successful companies fail, despite them being market leaders in their respective industries
  • What makes a successful CEO
  • How the ego of CEOs can become a huge problem
  • How the career progression of top managers can make it harder for them to stay grounded in reality
  • How “Management by Walking Around” can help with this
  • What the biggest mistakes are that are made during hiring processes
  • and finally, what their top 3 recommendations are for CEOs that want to avoid a future decline of their company.

 

Links & Resources Mentioned

 

Links from the Episode

 

Articles from the Episode

 

Books from the Episode

 

Studies from the Episode

 

People Mentioned

 

Follow/Add the Podcast Host/Guest on:

David C. Luna:  LinkedIn | XING |

Episode Transcript - Click to Expand

Note: This transcript of the episode was machine-generated and has not been edited for correctness. It’s provided for your convenience when searching. Please excuse any errors.

[00:00:00] Guest (Paul Williams): Thinking that everything that was in Europe was better than what's going on outside, but we realized that the anchors were extremely advanced in many areas compared to what was happening in Europe at the time. And, they were both advanced versus other parts of the world, but also within the context of the South American and the American continent.

[00:00:21] Guest (Andreas Krebs): welcome to innovation, no correctness, a podcast, all about innovation and transformation hosted by David Luna, author keynote speaker and founder of gamma digital and beyond David and his guests discuss real world practical advice on how to best harness the creativity of your employees and go from idea to product giving you unique perspectives and insights into their success.

[00:00:44] All while separating hype from reality

[00:00:47] Guest (Paul Williams): and

[00:00:47] Guest (Andreas Krebs): replacing bullshit. Bingo. With common sense, let's jump right into the show.

[00:00:54] Host (David C. Luna): Welcome back. This is another episode of the innovational correctness podcast. This episode explores why [00:01:00] organizations rise and fall by interviewing the two authors of the book. The illusion of invincibility, the rise and fall of organizations inspired by the Incas of Peru.

[00:01:09] Trying to answer the fundamental challenge that all organizations have. How do establish companies continue to stay competitive? And innovate within an ever changing environment. My guests today are Andree has clips and Paul Williams and transcripts is an entrepreneur and international experience manager and an expert on leadership, globalization, and entrepreneurship.

[00:01:28] He is one of the few Germans that have made it to the executive board of big pharma in corporate America. He currently runs his own venture capital business, which invests in young startups. Andrea has also held various international leadership positions with buyer Augie. And the worth corporations serving on the main board, right in the United States where he was responsible for more than 8,000 employees in 96 countries from 2010 to 2019, he was the chairman of the board.

[00:01:55] Yeah. At merits and hold various support positions. It's in addition, he dedicates his time as a chairman. [00:02:00] To the private NGO, Jura solo, supporting children and young people living in Harvard, in Sao Paulo, Brazil, Paul Williams is also an international experience manager, executive coach and entrepreneur, since 2003, he has also been a manager partner at the consulting firm, Paul Williams and associates, which specializes in leadership coaching.

[00:02:17] Self management and organizational development in the pharmaceutical division at buyer Aggie held positions in international sales marketing in general management in Europe, Australia, Asia, the United States, the middle East and Africa, Andrea and Paul is two very experienced successful managers will help us answer the following question.

[00:02:35] Why do organizations rise and fall and what are the reasons for their success and failure? So in this podcast, we'll try to answer some of the following questions and see what Andrea and Paul have to say about these topics. What we can learn from the Incas, when it comes to longterm survival of companies, why successful companies fail despite them being market leaders.

[00:02:54] In their respective industries, what makes a successful CEO, how the ego of CEOs can [00:03:00] become a huge problem, how the career progression of top managers can make it harder for them to stay grounded. In reality, how management by walking around can help us with that. What the biggest mistakes are that are made during hiring processes.

[00:03:14] And finally what their top three recommendations are for CEOs. That wants to avoid a future decline on their company. I'd also like to apologize in advance for the spiny audio quality of this episode. We had some connection issues, which I only found out in post, which isn't bad at all. But just before Lauren, and just a quick reminder, I want to make this podcast much more interactive.

[00:03:34] So what does that mean? You can either suggest a guest or topic or send your feedback via email or even better as a voice message. This allows me to add your feedback to the podcast. Where all listeners can profit from your feedback and my response, just go to innovation or correctness.com and click on either suggest guests or topic or leave voice message.

[00:03:54] Or if you prefer to send an email to [email protected] also stay tuned [00:04:00] until the end where I as always tried to reflect on the interview and extract the key takeaways for you without further ado, let's jump right into the interview. Welcome to the podcast. Andreus and Paul, thank you for taking the time to come onto the podcast.

[00:04:14] And maybe we can start off by you telling the listeners something about yourselves.

[00:04:20] Guest (Andreas Krebs): Yes, escapes. I live here near cologne between Columbia I'm an entrepreneur company who invests in small startups in the seed and growth phase. Just leave. We have a I'm enjoying. Now it's a book we wrote.

[00:04:34] Guest (Paul Williams): Yeah.

[00:04:35] This is Paul Williams. I'm from the UK originally came across the Germany in the mid eighties to work for Bayer for 20 years, which I did in operational management and HR for the last 15 years, I've been running my own company. Focusing on organizational development. And I also work as a, as an executive.

[00:04:51] Host (David C. Luna): Okay, great. So Paul, you're actually a biologist by trade. So how did that come to be?

[00:04:56] Guest (Paul Williams): Yeah, that's right. I studied biology, but I decided to, I [00:05:00] couldn't see myself staying in an academic type of career and I managed to get myself a good trainee position at buyer in the UK being in management trainee position.

[00:05:09] And so basically. Took a different turn, took a different route, but it was a good background for me because I spent 20 years in the pharmaceutical division. So I was always able to, to understand the technical side of the business without actually having a actually being in what you would call research or development area.

[00:05:24] Host (David C. Luna): So you have no regrets,

[00:05:25] Guest (Paul Williams): none whatsoever. No.

[00:05:27] Host (David C. Luna): I wrote a book called the illusion of inevitability, the rise and fall of organizations inspired by the Incas of Peru and. Obviously as the title suggests, the book is about the rise and fall of organizations and the reason for their success and failure. And not too long ago, I wrote a guide why companies need e-tail children about why companies bit disruptive in an almost, seemingly predictable fashion and not only outlined some of the reasons.

[00:05:53] Most of them were not related to technology. Yeah. But also suggested some of the organizational leadership [00:06:00] strategies to avoid a future decline. And that's where I reached out to Andreas until YouTube, because I thought it might be interesting to invite you to onto the podcast and bring in your perspective on this topic.

[00:06:11] But what I think makes your book so unique is that it adds additional layers and nuances of why companies fail. Because most of the time, it's just some external factor that's discussed such as disruptive technology and sure that it can explain some of the reasons of a company's declined, but surely not all.

[00:06:29] So the challenge is for all companies, how to establish companies, can you to stay competitive and innovative within. Say an ever changing environment, but before we get into detail, tell us what made you write the book in the first place?

[00:06:43] Guest (Paul Williams): Yeah, it's an interesting story and important to understand because it's a, any of the listeners will be wondering how two managers decided to start writing about the inkers.

[00:06:51] I basically was asked by one of my clients to coach a lady who was going to be taking over the general management position in Peru for [00:07:00] the company. And that was a classical. Job for me. Interesting part was that the head of global sales and marketing said that he wanted ends about this. One of them being Andrea's a few weeks beforehand.

[00:07:11] And they said, you can't just spend three days in Peru. You need to have a look at the country and to cut the long story short, it turned into a trip afterwards. So I basically did my job and then undressed and some other friends, my own wife came and we spent 10 days. Traveling through Peru.

[00:07:25] And while we were visiting one particularly interesting archeological site DePaul, our guide was telling us about how the inkers proceeded, how they went about running their empire, and, mentioned a couple of things that really made our ears prick up. You mentioned they had mentioned the fact that the Incas.

[00:07:39]they were an acquisitive people, so they were taking over other tribes and peoples them, but they did it a slightly different way. They made a friendly offer. First of all, they said, look, we can do this together and everybody will benefit or we can do it aggressively thousand troops that I have standing behind me.

[00:07:54] So that was first number first point that, gained our interests. The second was once. They'd taken over this people. [00:08:00] They would then look at what the new tribe does better than the inkers themselves. So they'd look at the, the best of, and within integrated into their culture and society. And this is in real contrast to many other acquisitive empires and also in business.

[00:08:14] And one to say, one of us said, just for fun, you could transport those ideas into modern business. We laughed about it. But out of this joke, we ended up deciding to write a book based on these initial impulses. And we then did some research and came up with some other areas which each of which became a chapter in the book and gave us a structure for the book.

[00:08:33] Host (David C. Luna): Very interesting. So how has the feedback to your book pencil far?

[00:08:37] Guest (Andreas Krebs): Yeah, we had tremendous feedback, we were, so it was all, it was our first book and, we were anxious to Getting feedback when people write to us and people corners, and, they, they've been approaching us in different ways of social media and yeah, very good press response in the first place.

[00:08:53] But we also got wonderful responses and mainly because. We also tried one of the ideas of writing the [00:09:00] book and principles of writing the book was that we want to have a book, which is fun to read with a lot of black humor and our own experiences, good ones and stuff where we could have done a better job.

[00:09:11] And we also interviewed about 20 people and. The feedback is mainly around that. One of the readers wrote that for the first time, she was able to accept the recommendation because they were written on eye level and not necessarily with a, finger wagging or somebody who tells the reader that's the way to do it.

[00:09:29] And, and also as we opened up very much of our own, challenges throughout our careers. And most, very well received by the readers. And, some readers called us for inviting them, inviting us in their companies, all presentations and speeches. And, and that's what,

[00:09:45] Host (David C. Luna): yeah, I can actually attest to that.

[00:09:47] There were quite a few sections in the book that made me laugh. Just because you brought in your. Experience, as you said, it's an eye level. It's not a follow these steps and then you'll be successful. But, you were also, you were [00:10:00] sharing some of your vulnerability and some of the mistakes that you made.

[00:10:03] What were some of the things that particularly surprised you about the Incas during your stay there during your research?

[00:10:10]Guest (Paul Williams): to be Frank, just about everything because, neither of us knew much about the anchors at all. I think we learned was new. And what we realized was that we'd probably been mentally fairly arrogant from our European perspective.

[00:10:21] And then in fact, we're talking about the 12th and 15th century thinking that everything that was in Europe was better than what's going on outside, but we realized that the anchors were extremely advanced. In many areas compared to what was happening in Europe at the time. And, they were both advanced versus other parts of the world, but also within context of the South American and American continent.

[00:10:41] And they had archeologists, absolutely convinced for instance, that the inkers had a form of welfare system that was different to anything that was currently happening in Europe. they, if a soldier was lost the father of a. Family than the, not just the family itself, but the whole community would gather around and make sure that the family was cared for and was welfare.

[00:10:59] We're also extremely [00:11:00] invested in their communication systems and not just roads and things, but automatically associated with the communication at that time. But also certain things

[00:11:07] Guest (Andreas Krebs): got key pools, which was

[00:11:08] Guest (Paul Williams): a string tying way of communication with each other, which in fact to this day has not been solved and decoded by.

[00:11:16] Okay, I'll let you so lots of surprises and very inspirational, aspects

[00:11:20] Host (David C. Luna): of their culture, the society of the inkers and the way they ran their empire similar or different to what we see today in society in business.

[00:11:30] Guest (Andreas Krebs): Yeah. What's important to understand that book is not an analogy. And what we didn't really want to transmit is that we liked this particular behaviors could be inkers or the way they work below succession planning and debating.

[00:11:44]society to compare it with today's life because to adjust like a recommendation to it, like the inkers did it a long time ago, because they were also, at the end of the day disrupted and you have to see it with their eyes and that time in that time. So we use it as a kind of impact for [00:12:00] certain chapters, but we don't really recommend certain stages, dude, like being pissed.

[00:12:05] Do you know, 500 years ago.

[00:12:06] Host (David C. Luna): And I think that's difficult because they, obviously they had different constraints back then and we have different constraints today, but maybe you can share some of the things that made them successful.

[00:12:15] Guest (Paul Williams): Yeah, sure. As I touched on just now, communications was clearly very advanced.

[00:12:19] They were also extremely well organized and a very good balance of centralist organization, but also local Lords. we're also empowered. to run things properly. So this was a major observation, but perhaps one of the things that stuck in our minds most was that they had essentially a vision, one of the inspirations for chapter one in the book, which is all about vision.

[00:12:38] And they basically said bring, they wanted to bring order to the world. And if you imagine we're talking about. 13th century, this is a very attractive proposition to other tribes around them, the chaos of that time that the inkers were saying, yeah, we'll bring order to the world and sure.

[00:12:51] You get fed looked after and, and they gave a sort of a why would it be better to work with us and under us? Then to compete with us or to challenges. so this was, [00:13:00] this was one of the major inspirations, like Andrea said, we didn't want to take analogies, but we used each of these impulses and inspirations to say, okay, that could be an interesting chap.

[00:13:09] So like I said, chapter one was all about vision and the inkers brought order into the world that was there.

[00:13:13] Host (David C. Luna): So you highlighted some of the things that made them unique and successful and seemingly the brand a very powerful empire, but if they were so successful, what were the reasons. Why they failed are for their later decline.

[00:13:25] Guest (Andreas Krebs): Yeah. That's, that's very Slack. we call it disruptive change in today's world. at the end of the day they had a pizza or punished conqueror. He came with 180 soldiers and 20 horses. So when the English at about 12,000 army of about 12,000 people, so why do you, how did he defeat them and how he basically infiltrated them?

[00:13:45] There were two half brothers. Basically fighting each other succession planning was not organized. the father of the two half brothers died without having clear, clearly stated who should be the next inker. So they were fighting each other. They were vulnerable [00:14:00] and weak. So pizza was allied with one of the half brothers.

[00:14:04] It's defeated the other one and then captured that one. And they were very, had a very vertical organization. So were basically looked at the Inca was not anymore. This is the way basically the empire fall apart in the Spanish took over. So if you look at that as some maybe analogy today's organizations and BB cover that in one of our chapters that, really the enemy sort of competition yeah.

[00:14:26] Outside and fighting each other internally only takes away resources and make weaker as an organization, but they had. And oppositely also the Spanish, they had never seen horses, inc has never seen horse and the weapons, the Spanish border along. So they admired them for quite some time without understanding the reasons why a really the Spanish, what they were looking for.

[00:14:48] And at the end, it was all about gold and silver, resources.

[00:14:53] Host (David C. Luna): Fascinating. You touched on the inkers, but also moved over to today's companies. What are [00:15:00] some, the reasons of why companies fail despite them being market leaders in their respective industries? Can you maybe give us some examples, maybe even some lesser known ones.

[00:15:10] Guest (Andreas Krebs): Yeah. Let me start with a better known one, which is very obvious because. All of us had, at most of us are sort of 99%. Probably got to listen to us at one time and Nokia for now. If you look at Forbes magazine in November, 2007, that's only sort of 12, 13 years ago on the front page, there was a picture of the CEO of Nokia and the headline was Nokia, 1 billion customers who could beat the cell phone King.

[00:15:35] So our 6 billion customers, actually 6 billion people on the, on this planet. Unlock your phone. Somewhere, active, active contract, et cetera. So if you look at, what happened is basically lack of innovation. They were top of the world and they were not really accepting game-changing strategies.

[00:15:56] Like when, applicated along directly 1 billion customers, not [00:16:00] 1 billion customers, at that time. And, and then also you have, if things like the Lehman brothers that did high 50 billion in loans, which they distinguished their sales and, it is difficult to see because, why didn't you, yeah.

[00:16:14] Before the outbreak of the financial crisis Lehman brothers was ranked the number one most admired securities firm by the fortune magazine. So it's not necessarily internal staff is also from the outside view. things sometimes different than they get up here. And let's take maybe also another one, maybe not so well known, which is the whole.

[00:16:37] Bernie Madoff, a disaster. And people described him as incredibly charismatic, what a wonderful and so many people detained, family gave him his money, your friends, big trust churches, the opera organism, the opera society of New York. And, at the end of the day, he tricked investors by.

[00:17:00] [00:17:00] 64 billion United, one of the largest once he schemes ever. often it's innovative lack of innovation, lack of succession planning. Most family companies fail between the third and fourth generation and failing not necessarily means that they or bankrupt they've might not have succession planning, and then they sell the company.

[00:17:18]so to have a midterm planning and two, you need sometimes, and also to see disruption. success. People are very optimistic people. So sometimes you have to have somebody in your organization to be unthinkable for you, and actually to see the world outside, what is actually happening and, and have you antennas out of sensing, changing and, and of environmental issues around your company.

[00:17:47] Guest (Paul Williams): The reason, the call, one of the bookers, he said at the beginning is called the illusion of invincibility. And that was one of our major observations. Is that essentially when things are going really well, this is probably the moment of maximum [00:18:00] vulnerability. It's a bit like when you score a golden in football or whatever.

[00:18:04] Often you, you get a goal against you two or three minutes later, cause you still, you're still distracted. You're euphoric because you're doing very well. And that was one of, major observations at the time that Andrea's just said the time to be asking the difficult questions is when things are going really well in a company.

[00:18:19] And it's very difficult for human psychology. That's not an easy thing to do. I

[00:18:22] Host (David C. Luna): think it's always easier to look back and say, Oh, I would have done it differently. hindsight's 2020, as they say. And I always try to explain it in a way where the company is doing really well. And then say, the CEO says, Oh, by the way, we need to look at this new technology.

[00:18:38] It's just starting off. It's actually produces worse results at the moment, but we need to pull resources that we desperately need for our cash cow here. And we need to pull resources and money and put it into something that's risky. And we don't quite know how it's gonna turnout. Then obviously everybody's going to say, are you crazy?

[00:18:56] So that's the. Especially if you have shareholders and they [00:19:00] want a good return and they're like, are you insane? What are you proposing here? And that's one of the dilemmas of what they face. And I think that's so hard. So going from this point, it's how do companies get out of this dilemma?

[00:19:11] So to speak,

[00:19:12] Guest (Andreas Krebs): you have to adapt proactively. I think one of the dilemmas is that very often, very senior people and the CEO and top management. I was overwhelmed by the, by the success. And if you don't and if you're too much involved in the operational business, I'm a big fan of being involved in the operational business on one side.

[00:19:30] But on the other side, if you don't spend sort of 30, 40% of your time in mid and long term strategies, leading a realization, being at a family company, midsize company or large organization, if you're just too deep into the 24 seven into the operational business, You lose sight of the outside world.

[00:19:49]and suddenly somebody comes along, which place maybe with a completely different ball game. and, but he's touching your toes and at this uterus and, and then it's too late. Like we see [00:20:00] with a number of things. It's companies like you don't look at the whole Busta world where we had used to have video stores everywhere.

[00:20:06] And, yeah. And then later on we had CDs and every now is everything is streaming and it goes beyond three minutes and this whole large industries, printing CDs and, , renting out, videos. It's just managed. You have to stay, but while streaming, In China was already a technology, existing technology, and it was an experimental stage in a number of other places.

[00:20:28] So you could have seen it, but, looking back where you can be as smart with a, easily looking backwards, but, to sense the sense of the future, you need to have time to go out and go to market and talk to customers. And even just talking to customers is not good enough because they don't really know what they don't know.

[00:20:44] So liking having a new, nobody of us would have said, I need an iPad, but once we experience it and liked it and we love, or many of us love it. my iPad is my laptop. So I don't really use my laptop anymore, but I didn't know it until I actually saw it. I wouldn't have [00:21:00] phrased it out to market research.

[00:21:02] People say, what would I really looking for? Something which looks like an iPad looks today. You net to have that. Antennas and space in your time and people who scout for you to feel the market and trends.

[00:21:14] Host (David C. Luna): It's funny that you mentioned blockbuster. I remember where the Netflix CEO wanted to sell his company and blockbuster was doing extremely well at the time.

[00:21:23] And the, I believe the blockbuster CEO said, I'm not really interested your business's niche. and there was a similar example of, from Bertelsmann where they were debating, I think in the early two thousands, if they're going to buy Amazon. Essentially, they concluded their analysis and said, they're too small.

[00:21:38] So we'll just wait until they get bigger so we can buy them. They did get bigger. But yeah, that's talk about regret. We look at you, you mentioned a couple of times, top management in your view, what makes it's a successful CEO? So he doesn't get into the position. We always have this view of a successful corporate leader that is charismatic.

[00:21:56] He knows. Everything. He's all he has foresight. He's very [00:22:00] sociable. He commands respect. So what in your view makes the successful

[00:22:04] Guest (Andreas Krebs): CEO? Maybe I mentioned a couple of characteristics of a successful CEO and oneness. One is the one that just mentioned, attack productivity. So for us successful executives spend more than the time when, on longterm goals.

[00:22:18] Challenges and risks. And so they couldn't go to consider crisis management as part of their job. Yeah. Preparing the organization for these kinds of reversals setbacks. The other one is, which you might not think of in the first place, but top of our list is deciding to return conviction. It is better to make decisions.

[00:22:36] They're not decided. So in this world, we are in now with more the Walker world volatility, uncertainty, complexity, ambiguity, there's only limited time for analysis and consideration. So freaking effective actions are becoming more and more important. And one of our, in our research, it came out that very often.

[00:22:55] There's a saying, I say no, and it's also a decision, but actually [00:23:00] very contract predictive, it's decision to take, to spend three months, three more months on analysis. It might be a decision, but you need to communicate it. But the paralysis of the organization, because top management is not deciding counterproductive as I, one is engaged what we call engaged impact.

[00:23:16] So what that means sounds management and network. It's one of the most important business, characters and, to be really connected to an information advantage and also greater. So then when it becomes, comes to decision making, so for us, this is an important key to success and, maybe one more to deliver reliably.

[00:23:36]this is not was surprising. Long-lasting and demonstrated success is very important. So maybe one of the quotes we had, we saw a sort of board and investors lovers. So if you really look at when you're hired or okay. Histories, do you see really this reliability in delivering mid term and long term?

[00:23:57] Guest (Paul Williams): While we were searching for the book and he picked [00:24:00] up one, a major chapter is about leadership. we came across a very interesting study in the Harvard business review from May, 2017. So relatively new, and it's called the CEO genome, basically. What makes CEOs successful? And one or two of the aspects Andres mentioned.

[00:24:13]w were observed in that study. And one very interesting aspect of it was, so they also made the observation, having interviewed literally thousands of successful and less successful CEOs, that they found that actually slightly more introverted CEOs were more successful in the longterm, which goes against a lot of what we would call our sort of common wisdom.

[00:24:32]the typical CEO is to this day is a tall white male charismatic, expressive. Talkative extrovert. And in fact, they found out that those people were actually to some extent, slightly less successful. It's quite a paradigm shift, I think. And, coming from my HR background is very interesting to observe that the selection systems, we used to use a buyer and that are still in place in most companies like in like assessment center.

[00:24:56] Tend to favor people who are extroverted. So often a lot of talent, a lot of [00:25:00] potential gets missed and gets lost in that type of selection process. Is that something also to think about going forward? But that was a very interesting part. And in fact, there's a website CEO genome www gene I'm dot com where readers can actually take the tests themselves.

[00:25:14] Let's see where they would rank. In these, some of these criteria that

[00:25:18] Host (David C. Luna): Andrea's just mentioned. Yeah. Be sure to link those in the show notes as well. I thought that was a particularly interesting part of the book. And I think the first time I've actually heard that and that's been confirmed actually through another study, through the university of San Diego, where they did the CEO extroversion versus the cost of equity capital.

[00:25:37] Where they analyze, I think almost 80,000 quarterly earning reports and conference calls over like a nine year period. And they basically concluded that the most extrovert CEOs had valuable that were 20% lower than the group led by the least extrovert executive. So it seems confirm that study as well.

[00:25:55] And I think, I believe Susan came was one of the first, she had a very well researched [00:26:00] book to the. Topic of introverts. And she has a lot of studies in there as well. And that confirms not only what you said, but also the CEO genome project, where I think she has this famous quote where she said, there's zero correlation between being the best talker and having the best ideas.

[00:26:15] Guest (Paul Williams): Absolutely.

[00:26:16] Host (David C. Luna): So I think that was very interesting that you highlighted that in your book, because I think that gets a very bad rap in terms of, Oh, extroverts are always the better leaders, including that in your book. So Paul, you mentioned that kind of gets missed in the selection process. What can we do to not make that mistake or at least reduce it?

[00:26:36]Guest (Paul Williams): typical coaches answer to that, is first of all, awareness that's for me, half the battle to be just aware. Of this bias as human things. We think we're objective. How many of us do, but in fact, we're a very subjective species and just understanding that there is intrinsic bias about being, and I've had, I fallen into the trap myself.

[00:26:53] I know Andrea says where we've been in an assessment center or the selection process. We've seen somebody do a fantastic. Talk. And [00:27:00] then they carry on with what's called the halo effect. Then they basically, we spend the rest of the day proving that we were right. We got this good impression of the person at the beginning and we thought this could be a really good new manager or trainee or whatever.

[00:27:10] And we then spend the rest of the day confirming it, and we become blind to the less strong sides of this person. So for me, the half, the battle is the awareness. So then examining your selection, tools and processes that they don't, that they're not biased towards extroverts. I used to be not a fan of paper based tests, so psychographic tests or whatever you want to call them for as part of the selection.

[00:27:32]I would change that. These days, because that's where the introverts often shine much better when they sit down with a piece of paper and they're given an hour to work out a case study or whatever, and they come back with much more depth and detail than the very charismatic extrovert. Who's just impressed us all with a super speech or a super presentation, but it's actually not.

[00:27:51] Not as well, qualified perhaps as, as the introvert going forward,

[00:27:55] Host (David C. Luna): what would you propose to reduce the risk? Is it paper based or is it much more [00:28:00] than that to increase the chances of getting a good leader versus just one that looks good on paper.

[00:28:07] Guest (Paul Williams): I think first of all, whether we want to call it paper based, but what I would call intellectual tests in a selection process.

[00:28:13] So going into depth is one area to look at. Again, make sure that the general methodology is not favoring extroverts by its very nature. And also I'm a big fan of multi what you would call in German. A few album seep. So multi eyes, so multi observers, but ensure that these observers are also diverse. It's no good having six white males in their fifties who three of them playing in the same golf club or three of whom were Bundeswehr officers, whatever, you need diversity, you need old and young.

[00:28:39] You need male, female ethnic variation. to really ensure that you are getting all the perspectives you need. And of course the younger people in there, the more junior people need to be empowered to say what they think, it's no good if they're sitting there, but they know that if they, if they contradict, the CEO or whatever selection process, that could be a career limiting moment.

[00:28:58]so there's a lot of cultural [00:29:00] work and training that needs to be done. to make this more efficient, but we're seeing, I think in the literature, the study use, you quoted just now sounds very interesting. Just this awareness that the selection methodologies we've been relying on for the last 30 odd years are not necessarily as fit for purpose as they thought that as we had previously thought,

[00:29:19] Guest (Andreas Krebs): and maybe one add on, what, we had one of our interview partners.

[00:29:24] The CEO of interest board. he gave us a very good example of, great leadership in the interview process. So when he invites senior, the CEO's normally interviews, bracing your people, and he takes on very young people, like even interns. To talk about the digital world to ask questions about the digital world and, new technologies and others.

[00:29:46] So he has a one or two co-partners in the interview from different age groups and genders and diversity. Normally as a CEO of a very senior person who would say, I can run an interview. I'm able to do a structured interview. I [00:30:00] understand the word I run the company, but one of the. Big challenges today is, are we asking the right questions?

[00:30:06]are we still in our own patterns asking questions and to have somebody on your side from which has maybe 23 years old and, just came from, might have totally different questions to the new head of marketing, which obviously States that he understands the digital world, can challenge this with an interview partner, different age group, if that's really the case.

[00:30:24]and we were stunned by, let's say it's so simple. Such a simple idea and I have incorporated or incorporated this in, into my life. I had, I had in my, chairman of a large organization, I had to, I brought in this Indian lady was there as head. And, she asked, fantastic.

[00:30:42] Let's do the candidates really made them Smith. I would have never thought of these questions. the way I ask them that gave me also just listening to her and listening to the candidate, gave me an additional yeah. Perspective from a totally different angle. Then it's just a very good insight off of one of our interview partners.

[00:30:59] Guest (Paul Williams): Interestingly enough, the [00:31:00] same top manager that. Andrea is just referring to also talked about antenna. He talked about this sense of what's right and wrong and what will work and won't work. Some people call it that gut feeling. Others talk about it as being their antenna. But he said, you need to understand that this has a half life.

[00:31:14] And he said something like 10 years, you come out of university, you're in touch with what's happening out there in the, with the younger generation that this slowly degrades. And is added it's augmented by other types of experience, but you have to be understand, and you have to be humble enough to admit to yourself that maybe you're not quite as in touch with what's going out there as you used to be.

[00:31:31] And this is a skill that we don't always see in top managers humble and reflective and, and the way to get around it is exactly as Andreas has mentioned to then make sure that diverse people, in your interview process or your selection process,

[00:31:43] Host (David C. Luna): having more eyes, having more perspectives on that applies to, I think, a lot of things and.

[00:31:48] That's definitely something to keep in mind, which I find very amusing in this selection process. So when I went out of a university or applied for jobs, I found it so easy to game the system [00:32:00] because I knew exactly what they were going to ask. I knew how to answer and I found it so comical that it was so easy to do and that's quite shocking.

[00:32:07] And then that kind of maybe explains why some candidates get preferred and go into leadership positions.

[00:32:14] Guest (Paul Williams): Yeah, absolutely. one of my favorite quotes from the book was from a, another CEO that we've spent an a senior board member. We've spent many years working together with colleagues and also in consulting roles, who said, as far as he's concerned, the most important decision you make as a company is who you employ.

[00:32:30]but at the same time, often it's scenario.

[00:32:31] Host (David C. Luna): It is

[00:32:32] Guest (Paul Williams): that it is not properly focused upon and is not given enough time and patient management time and dedication. if that's, in terms of messages to take from the book, that would be from my perspective, one of the most important messages, this is such an important decision, get it right.

[00:32:45] And invest resources into getting it right. It's

[00:32:48] Host (David C. Luna): pretty shocking. How much a resource cost over a year or a five year period. And then we only take maybe in total four or five, six hours. We talked to that candidate. Yeah. I don't know what the [00:33:00] length is for CEO's, but that's quite shocking. Yeah. That's eye opening,

[00:33:03] Guest (Paul Williams): absolutely bad hires, really cost money.

[00:33:06] Host (David C. Luna): You mentioned top managers and CEOs a couple of times in year two views. What makes a successful CEO? Do you have some examples where you say. That's very, that's how a CEO should act and behave and run a company.

[00:33:19] Guest (Andreas Krebs): Yeah, I would, let's take one, which is really well known and I've used this now a number of times in our speeches and presentations and workshops, which is Jeff Bezos from Amazon.

[00:33:31] He has one of the reasons why Amazon is so revolutionary is an I recommend. To look at the Amazon leadership principles. And we know a number of people inside Amazon. Obviously, if you're going to have M as in like it love it or not liking it and taking the margins of book writers and, you've got to as positive negative stuff, but they're incredibly successful and they're very strict and very successful leadership.

[00:33:57] Principles, which, I've seen now a number of [00:34:00] companies, like being them, but these coping pieces of it. And let us give me a few examples. number one, leadership principle, and Amazon is they call it obsession. Yeah. Leaders start with the customers and work backwards and, an Emerson leaders pay attention, new competitors, they obsess over it customers.

[00:34:17] And you don't see that, if you look at leadership, Principals of other companies, the customer comes up in values and customer comes up in division and we want to be, serving our customers best, et cetera. It doesn't come up very often in leadership principles, but that's an Amazon case is number one, number two.

[00:34:33] And they're about 15, 20 leadership principle. I just give you three or four. So number two is ownership. So what they're called is leaders are owners. They think longterm and don't sacrifice longterm value is that's very, yeah. Strong message, for full leaders and they act on behalf of the entire company beyond just their own team.

[00:34:52] They never say that's not my job. That's the number two principle. And the Amazon leadership principles and they pushed this very, they, [00:35:00] they know that at Amazon, there's no PowerPoint. You need to, if you have a project, you have to put it down on half a page. People look at this at meetings.

[00:35:08] So meetings are very fast, very efficient. You have to preread. there are no sort of 30, 40, 5,200 PowerPoint slides. That's PowerPoint doesn't exist at Amazon. And this is why there are number three principles called. Invent and simplify. So what they mean is that sort of new to us expect or require innovation.

[00:35:26] And from that teams find ways to simplify. And if you look at the complexity of organization, et cetera, that's something also very strong message to, to the, to the team. So as we do new things, we accept that we may be misunderstood for long periods of time. That's a sentence in the leader of Amazon.

[00:35:45]just to actually to give that message to their own team, that you might be pushed back and they call it it's not an experiment if going to work, and that sort of backs up. Innovation and people who do things and, maybe number four [00:36:00] is number four. Squad leaders are right.

[00:36:02] A lot leaders are right. A lot. They have strong business judgment and good instincts. And then number five is hire and develop the best. We talked about that a little bit tendon goes on with insisting on high standards, but, everybody can just access the net and in their own language, access to that, they exist in basically.

[00:36:20] Which is, and you can look at it and that's fascinating how they approach the word. but to also have the rigidity to follow that through, as part of the success and connectivity, obviously, that it's also in there, but, from my personal report to stay connected.

[00:36:36] And we talked about that. That earlier stay connected to the world to actually go out and very few CEOs who actually spend a day with a rep when they, when been, it's not necessary or you could spend 30, 40, 50% of the time also visiting countries, et cetera. And I know very few CEOs actually, they're in Italy, they take half a day to visit customers.

[00:36:57] With the normal rep, such as the stock customer, they [00:37:00] visit people don't buy for their product. So this connectivity is actually touch the market for me, makes a good CEO.

[00:37:07] Host (David C. Luna): I think Amazon has a track record to back it up. And Jeff basles seems to be a very reflective guy. I think it was in your book. Some quote about even Amazon or Jeff Bezos doesn't believe me.

[00:37:19] He might not be around in 20 years. So his job is to delay that future decline, as long as possible.

[00:37:26] Guest (Paul Williams): Yeah. And this is coming back to something we said earlier on that, just the mindset to actually admit that we may fail, is helpful in being about pessimism being pessimistic. It's about being realistic that our business model may not be as relevant in 20 years time.

[00:37:41] And if the largest, one of the largest companies in the world has that. The CEO pushing out this message all the time. what a strong message to be permanently aware of what's going on around you permanently ready to change and in a constant change process. And that's the sort of reflectivity and humbleness, which would, I would add to what Andres , which I would expect to [00:38:00] see.

[00:38:00] Modern and successful CEOs going forward. and perhaps the second aspect picks up on what Andres this too. if you're going to do it, find values as a CEO and as a company, that's a good start, but you've got to then make sure that you stick to these values. we've both had experience in income, both from outside and from inside where a lot has been written down about how we should behave.

[00:38:22] But a lot of people, particularly at senior management level, don't always stick to these rules. It's the rules are for the other ones and not for us. And one of the more old fashioned statements we had in our book is in our opinion, leadership, good leadership at whatever ever level, be it CEO or senior management, middle management is all about setting an example, do it as well.

[00:38:41] Don't just talk about it.

[00:38:42] Guest (Andreas Krebs): And then just to give you, Paul just triggered this, it just came across my mind in one of our last speeches that I tried this out. Now, a number of times, one of the, one of the comments from the ordinance. So how do I get my people better aligned and, senior management, better aligned, et cetera.

[00:38:57] So we, we had a, we had an activity. You always [00:39:00] speak inside the company. And they said, yeah, how do we get better aligned? I said, why don't you take a minute? And you write down the top three of your six values and, or as much as you can get on paper, just now take a minute. And you could see, you could look at the papers, with them, then every period we're reading it out and you have the top 20 people of a large group.

[00:39:18] Yeah. That mixed up leadership principle of it. I use with mission and, I said, you want to put a line, but you guys need to get a line. So this, if you haven't made a pitch, you have one minute each of you, if you do, I can't tell you number one to six of the values, all of your leadership principles, the way you do it here, you will not work for the rest of the company.

[00:39:39]Leading by example is easily set. It's an it's on the wall. it was, if you walk outside the meeting room, it was everywhere on the wall, but, to have it present and yeah, and I saved this Murray self-critical, because I had that, I also fight in that size during my time at, at one of the vision process.

[00:39:56] That was it right down to number five. What type of our vision? [00:40:00] And also a couple of leaders in the division, in my vision statement, I'm mixing it up, that's that leading by example and have it very clear to the organization from the top is, is it not, and, and hard work at the same time,

[00:40:14] Host (David C. Luna): it's outside of the comfort zone of most CEOs.

[00:40:17] That's my, I say, okay, I want the CEO to participate in the workshop. Yep. You really want to see you as a yes, he should lead by example. So why should I follow the CEO of, he's not a willing to walk the walk? Absolutely. In your book, you had a quote, the higher you climb, the more windows turn into mirrors found that fascinating.

[00:40:35] And that kind of seems to not contradict, but play against that force of being reflective, being aware of your visibility. How do you, can you explain the quote and what that actually means?

[00:40:47] Guest (Paul Williams): Yeah. basically one observation of particularly large organizations is that they have an enormous inertia, enormously.

[00:40:54] They spent a lot of energy in maintaining the status quo. things are moving well, things are going well. So they [00:41:00] have a sort of.

[00:41:00]

[00:41:00] the very stable organizations, which can be a positive thing, but can also be negative. And, that means a lot of people like what they're doing, they've got good jobs and it often happens around a CEO that the higher up this person comes in the organization.

[00:41:13] The more the people. And him begin to manage this person. And they're essentially saying that the further up you go, you get into the scene speculative office and suddenly you're not looking out windows and seeing what's happening in the organization like Andres was referring to just now. you're not getting out there talking to the shop floor.

[00:41:30] You're being surrounded by your staff, people and the lackeys. If you like, who all are doing a holding mirrors up to you and telling you what a great. Or you are, and it, depending on your personality, this can be actually a very sorry, a very seductive situation to come into because it's, it's supporting and reaffirming the things you think about yourself, why you got up to the job, that your strength, but it can be very dangerous because it begins to isolate you basically from the rest of the organization.

[00:41:56] And you become managed by a group of people around you. And this is. We've seen this [00:42:00] happen in our own experience. It's in the literature and this is what we mean by the hall of mirrors basically.

[00:42:04] Host (David C. Luna): Does that also explain why some politicians seem to be detached from reality or completely disconnected from us ordinary citizens?

[00:42:13] Guest (Andreas Krebs): Yeah. It's the same principle. As Paul mentioned, to go out to the, to your constituency and actually, face the voters with concerns. And, and then this is an end equivalent to one. Is this just one opinion or is this, do I feel like basic the audience, and that's tough work and it needs discipline and, very often you get detached, I know a number of.

[00:42:37] Politician really well. And it's a really tough job to be a politician, especially in today's world. but you need to find the space to actually do the true work out there. otherwise you get surrounded by, by the structure organizational processes, which is part of the, the political.

[00:42:55] Host (David C. Luna): Okay. And why is it so hard to get outside of the bubble? Is it just an issue with outside of my [00:43:00] comfort zone? Because it seems, for an outsider, maybe that hasn't been a top manager, so trivial to go out and ask somebody for free.

[00:43:08] Guest (Andreas Krebs): Yeah. I would say it's not hard. You need to orchestrate it.

[00:43:11] Because the system doesn't actually, let me give you an example. when I was in the living in the U S I was responsible for the XUS business, I had 96 countries, of course, the 20 really important countries to manage a 6 billion business, 8,000 people. So you need to, when you go to a country, if I don't get it, even, pre agenda, Yeah, I come in the morning.

[00:43:34] I have a meeting with the management team. I have lunch with the management team and they probably organize a dinner with the management team. So I spend a day in the meeting room. You may drive to a restaurant I've applied to the next country. So that would be what the organization thinks is the most appropriate and the most easiest to handle.

[00:43:51] Oh, so if I don't tell them upfront, I want to have maximum two hours of presentation. Then you have sort of a sandwich lunch with young [00:44:00] trainees and people sort of people who a potential in the organization in the afternoon. I want to see customers and at least one or two customers, which don't buy from us.

[00:44:10] And during dinner, I want to meet people from the game industry and, state important stakeholders. And I want to go to a restaurant where. I dunno what the secretary takes a family to and not to, I don't want to go to a French restaurant in Seoul. I wouldn't go to a normal restaurant and it came to you and, I see other Lomas of course, and families, just to feel the country and stay in touch.

[00:44:31] Yeah. It's all possible. And then after a while the organization understood that's what I want. Otherwise I would have assessed, I wouldn't have said that and orchestrated then and explain to them why this is important. And Jimmy, I would have just, spend time in meeting rooms and look at slides and, and then have spent the whole day with the same people.

[00:44:50] And it's, so I wouldn't say it's not hard, but, obviously, organization don't laugh. Necessarily a few jump hierarchies and I've never been given [00:45:00] let's call it instructions or orders across. I need to feel, I need to have, I take the Liberty to talk to her shop foreclosure guy.

[00:45:08] When I'm walking through the factory, I don't need permission of another country manager. The factory manager, the supervisor is I cannot talk to the shop floor person. Oh, just, ask questions and talk to them and, and you see, let me give you another example. I tried to have a once a month.

[00:45:25]in my operation at the time I was head of a big country and a thousand with a shop floor renovation, and I had breakfast with them and they could bring two questions to that breakfast. And there were no people, with all my respect. Yeah. Good senior HR people that no other it's just them and me.

[00:45:45] And after a while, after the fact. Fourth of his breakfast. People understood that I'm really interested in their consultants. And they asked me very direct and very personal questions about the company and about rumors. And I said, yes, no, it's not true. And this is true. [00:46:00] And I could feel the organization.

[00:46:02] A different way and also made me accessible to them. middle management, not necessarily love that. when I came back from these breakfasts, I had a lot of ideas. they were not necessarily a fan of that activity, but, for me it was important and it's not hard. You just need to.

[00:46:17] Host (David C. Luna): Yeah, I think that's the good news.

[00:46:18] It's a it's possible. And you have to really want it. I think that just reminds me of how. How much corporates are large organizations, hate uncertainty. That's advice that you give to, okay. You don't have a predetermined agenda on, we just wing it for the rest of the day is I think really helpful to get out of that

[00:46:36] Guest (Paul Williams): bubble, but not popular with the local organization

[00:46:40] Host (David C. Luna): in the book.

[00:46:40] You also mentioned or refer to management by walking around. Can you explain that?

[00:46:45] Guest (Andreas Krebs): Yeah. So one of the, try to, with the, I had been on, was running countries are reaching to, at least we had in my former company, we had about 4,000 people in the plant. And so to walk through the plant is important.

[00:46:58]when I was running a country, I [00:47:00] once a month, I walk, I just feel the structure organization is not just, before Christmas, wishing everybody happy Christmas to do this regularly. And the organization at least sees and feel you. But let me give you an example from me. Yeah, area in.

[00:47:13] Good total. You learn this when you a hotel room school, when you want to become a hotel manager, it's part of basically your job description that you should spend 20, 30% of your time wondering. Come to your hotel and look in top, even five star hotels is really good. in the lobby, in the real go to hotels, you see the general manager in the lobby, you see him, you feel him, top management of the hotel and they are basically in touch actually in the book we describe, one of them is a, he was a longtime standing manager in the Intercontinental chain is he's a good friend of mine.

[00:47:50] And I learned a lot from him. the past, decision-making empowering people and the processes and, the immediate action. And in the morning they [00:48:00] have this morning briefing, what they called the morning briefing, which has been forgotten in many companies, because many companies for a long time had the morning briefing to look at the mail together.

[00:48:08]this MCAT meant you do this. You do that in due to the today's modern world. This has been couldn't, but in hotel management the morning briefing every day. So for 20 minutes, half an hour, every department has that, I have no issues. Okay. Like I said, I have this issue. I need a decision. I need support.

[00:48:23]I have this issue, but I can handle it myself and, quick decision making or solving issues. And you can feel, this is just an operational issue that needs to be fixed immediately. Or this is that pattern. Wherever we need to change processes, or is there a bigger pattern where we need to change our strategy towards customers and clients.

[00:48:41] And you only feel that if you're in touch and I don't think you do this goes far beyond hotel management, you can do this in other companies, too, field structure, people at your organization. It makes it different. If you're suddenly visible and all companies were. w when they tell me I've never ever met the CEO, I've not even [00:49:00] seen him.

[00:49:00] I know he exists. I see more pictures or, once a year in a town, normal Christmas message. But for me, it's a kind of a anonymous. And Paul myself, we were last week, we were in Switzerland in an event and we were sitting in a dinner table with the chief evangelist of Google.

[00:49:17] And,

[00:49:18] Host (David C. Luna): I

[00:49:18] Guest (Andreas Krebs): know the guy's, he's very, I know somebody else in Google. you. Which already is, but I know now that this person is very connected to the Google world, to normal people, to somebody who works in Ireland and, just started to, is out of university. But he says, yeah, Frederick, I know him.

[00:49:36] He's well known in the Google organization and, we can approach him anytime. And he's the chief. innovation, head of Google. So that makes you feel that is connected to, they know they can approach it. And he's the lead down barriers to, are you, are you approachable?

[00:49:51] Are you actually picking up the phone? I also had maybe one more example, instruction to the, reception that if there's a call. In some places I want [00:50:00] to speak to the CEO. I'm a customer, whoever has a complaint. If I have time, I take the call, try to call from. So time off posted in my office, I do something as a core come in as a customer on the line has a complaint.

[00:50:14] And and you cannot imagine the surprise of these people calling. they're taking the efforts. I want to speak to the highest person who ended up to the CEO of potluck. And I pick up the phone and I can tell you the best well handled complaint is the best of the customer forever. If you hadn't led well, I can listen to them.

[00:50:31] I see what happened. I can understand processes, and, if you can solve it, we solve it. And I call it back. This person has have we solved it and I connect you to this person over it, actually. Fix your issue, but has that has tremendous effect, not only to the customer also within your own organization, that the Sood CEO is actually ready to pick up the phone for customer wants to talk

[00:50:52] Host (David C. Luna): actually extremely commendable that somebody is willing to do that.

[00:50:55] I remember when I was a new university and doing investor relations for [00:51:00] a company that was not on the stock exchange. my responsibility was every time the bank called and wanted to speak to the CFO, I was at least not here. So always the block, the calls, cause they wanted to know, Oh, why did the stock go up?

[00:51:12] Why did it go down? And they do that every single day. And obviously my job was to block all that. So it's quite the opposite from how companies are normally run. And I think one bad example, how not to do it is I've did some consulting a couple years back for a company. Billionaire took over a struggling production company.

[00:51:30] And the first thing he did, he had all the production and factory workers come together and he said, I don't want you to approach me. I don't want you to talk to me. And he reiterated that raises a big red flag and that's where I said, okay, I don't want to consult this company is if a CEO is running a company like that.

[00:51:45] Guest (Paul Williams): Yup. So he's creating his own hall of mirrors without even needing the people around him to do it for him

[00:51:50] Host (David C. Luna): in the book. You also speak a lot about the ego of CEO's. can you explain why that creates a problem and what ego. You're actually [00:52:00] referring to.

[00:52:00] Guest (Paul Williams): Yeah. let's be clear just to start off with, every, we don't want to put ego in some kind of a problem corner.

[00:52:05] Every human being a healthy human being needs, an ego, they need a degree of self appreciation and self love. If you like. the thing is that having a strong ego is often associated with being assertive. With having strong belief in yourself and a desire to win. And these are good things fundamentally.

[00:52:21] And they're also the type of competence that often help you move up an organization up to more senior levels. And that's also, and there's nothing wrong with that. The problem is when these characteristics start to become, it's like it's, Andres and I both worked in a pharmaceutical industry many years.

[00:52:36] It's all about dosage. Every medicine, every substance out there is toxic if it's given in the wrong dosage and too high. And so if you start. Of a dose on a server assertiveness or the dose on a desire to win, then it can be problematical. You become self absorbed drunk on your own. also on the trappings of power.

[00:52:54] And this is what we decided to discuss in the chapter about ego. And we took the example of Indiana Jones, who was [00:53:00] something of a hero, the archeologists, the Steven Spielberg's, fictitious archeologists, who was something of a hero for me. In the early eighties, I still love films, but at the end of the day, what does any Jones do?

[00:53:11] He goes around this,

[00:53:13]

[00:53:13] beautiful, full piece of treasure, but he leaves behind him, dozens of destroyed temples and piles of rubbish and rubble. And so you have to ask you, so that was their analogy, negative analogy saying, what was it all about for Indiana Jones? Was it about him and finding the treasure or was it about.

[00:53:28] The greater good of archeology. What I think the answer to every listener will know what the answer to that is. So we basically discuss the, the

[00:53:35] Guest (Andreas Krebs): first of all, what the

[00:53:36] Guest (Paul Williams): importance of ego, but also the problems of when an ego gets out of control and how dangerous it can be to the person themselves. But more importantly, how dangerous it can be to an organization.

[00:53:45]Host (David C. Luna): in times of crisis turmoil like financial crisis, there often seems to be a lot of justified or unjustified, a lot of Manasseh duties against, CEOs and they're huge bonuses. but what makes the CEOs think they still [00:54:00] deserve these huge bonuses, thinking of Lehman brothers Volkswagen, et cetera, despite their company being under dire threat, or even going bankrupt?

[00:54:08]what drives the behavior? Is that right? Really just the ego and over exaggeration of the ego. Is that lack of empathy or, what drives this behavior?

[00:54:16] Guest (Andreas Krebs): I would start somewhere else for me. The issue is. Maybe sometimes with the CEO, but for me, it's lack of courage of the board. if you have a weak board who actually let the ego grow and that, then, you need a strong chairman or chairwoman.

[00:54:33] Yeah. And, and board members basically for governance, and on strategic issues, but also leading the company, on working with, with the CEO. And, the bonus is not defined by the CEO or the board. It's defined by the board. if you have issues like with the companies, you mentioned this also very often of what is the clawback clauses that CEOs and board members have to pay back damage, which have, which they have been creating short term and long term.

[00:54:58] And in [00:55:00] every board member contract I signed today, I insist of having a clawback clause because, that didn't exist until recently. And many companies don't have it yet, but I think it's, for me, it's mandatory to have it. In that. So

[00:55:13] Host (David C. Luna): can you explain to the listeners quickly what a clawback clauses,

[00:55:17] Guest (Andreas Krebs): or if you're not afterwards that, strategic or operational decisions have been done by, were wrong?

[00:55:24] Yeah, very often. Do you know if you'd pay short, if you have a great performance short term, let's take folks, Martin, they have still a great performance with the diesel, but, it was all based on fraud or misconduct, from the compliance point of view. no. They have 20 something billion on damages.

[00:55:41] But at that time, two or three years or four years back now, there were short term bonuses paid out and they need to pay back. If you have a clawback clause, you can read, gain these bonuses as well. This bonus was paid on wrong assumptions, and you have to pay back that bonus and you same short term, same longterm.

[00:55:59] This is what a Clover [00:56:00] clauses that. People need to pay back bonus. They may or may have received some time ago. This was posted based on wrong assumptions and wrong and misconduct too. For me, it's an issue of the board, not necessarily of CEO's. We have to refer what happened earlier that ego's gone too big and, he was got out of hand and they were surrounded by people who were still telling them they were doing everything right then.

[00:56:22] But that's chairman leadership, which you need to look at and board leadership, very often the way, especially when things go well, boards tend to get also to less it fair to say, everything is going well, which have our board meeting. That's fine. CEO's doing good job. And so why should we dig deeper?

[00:56:41] Or why should we really exercise governance? the way it should be exercised in today's world. And from my perspective, it's no longer four board meetings a year and everything is fine, So that's heavily rooted in the sort of board world actually for the more traditional board members believe that you cannot [00:57:00] interfere with a company's strategy needs approval by the board.

[00:57:03]I can ask questions. You can not just sign off and say, it's a suggestion by that. By the CEO and the management and yeah, should be fine. It should be fine. Can be a terrible mistake, if you don't. So I have the right as a chairman or board member to ask questions, dig deeper. And if I approve it, I'm actually legally also.

[00:57:22] Binder that my signatures there, I can ask questions for the CEO and even question him if I have a feeling that you know, you're not doing the right thing

[00:57:31] Host (David C. Luna): in your view, because you've been a manager in Germany and in the U S I believe are German companies or American companies better or worse at the board level.

[00:57:40] And in controlling these decisions,

[00:57:42] Guest (Andreas Krebs): I wouldn't say better or worse. I don't see much of a difference in that one, we have to deal. to your boards in more than Europe. So that means that as a senior manager, you cannot be in the board and us used to one board. So some of the management members are in the board.

[00:57:55] When you have external board members, legal governance in the U S is very [00:58:00] strict and fines are very high, but it doesn't mean, things go wrong. They can go wrong on both sides. And very often. Ridley the Nokia example they had don't get ahead of strategy. It was just the wrong strategy. Yeah. The big difference between, I would say Germany and U S is in the U S is much more performance orientated.

[00:58:21] So you can have a bad year, but not two. And in Western Europe, you have, you might live much longer on something you did five years ago where everything Congratulated you, and it takes me longer to take people off a position, but in the U S this is like in soccer, you can have, if you don't perform, you go down to second league or you out,

[00:58:42] Host (David C. Luna): we've talked a lot about CEO's values to hiring processes.

[00:58:46] Do you think in general, But the functional hierarchies that we have today in large corporations are still effective at meeting the challenges we face today in a VUCA world.

[00:58:57] Guest (Andreas Krebs): I would say you have to distinguish [00:59:00] between what is new work and what is right work and vice versa. If you look at our debate earlier on having an organization, making sure that information gets to you, they do get an.

[00:59:12] That's it look at structures. You don't necessarily need hierarchy. It's good to see all's work hierarchy because everybody knows that, you know your title. when you don't need your hierarchy, when you basically operate the organization and you have no information gets through within seconds, you can do, with very good intentions, you can make a back bedroom.

[00:59:33] Bet. In a big country and that can bring down the whole corporate, the reaction time, way information flowing that needs to be completely differently organized so that it doesn't flow. If you have a major crisis somewhere in this country, which might affect the reputation of the whole corporation, if you take a big organization as an example, contact, take days and weeks to make its way through the organism.

[00:59:58] It needs to be communicate and that [01:00:00] needs to that's more mindset and leadership thing. That hierarchy is you need to organize work, but it might differ from industry to industry. how different you organize your work?

[01:00:11] Host (David C. Luna): Yeah, I think it's always funny to me is where the tendency today is to go to cross functional teams and teamwork.

[01:00:17] But at the same time, a lot of corporates are compensating their employees based on their functional silos. So departments and that to me is very contradictory to, from the perspective of an employee. Okay. I'm supposed to work together across departments, but I'm getting paid based on my department. And my loyalty is to my people, to my department, that kind of, I don't know what your view is on that, but that seems to contradict kind of what their companies

[01:00:42] Guest (Andreas Krebs): yeah.

[01:00:42] You have. absolutely. it's What you measure is what you get. So if you measure in silos and compensate in silos in boluses, in silos, they here, they have the other guys, we hear you, but, we have a beyond a different scheme, it's technical operations, is by reducing, the number of [01:01:00] items.

[01:01:00] And, and you suddenly have a customer once. It's five different packages. it, this country predict. So you need to bring down a lot of resistance to actually get this through the organization, unless it's a very big customer, but you need to, that kind of alignment is very important, as you said, no ski, and sometimes it's not very visible.

[01:01:21] Because it's far down and in the midst of the organization and that's something that needs to be carefully looked at

[01:01:29] Host (David C. Luna): another example that highlights this point really well is a gentleman called David Marquette. He was a former nuclear Marine captain that took over one of the worst performing nuclear submarine divisions in the early two thousands and transformed them into one of the best performing divisions.

[01:01:44] And one of his principles that he led was don't push information up to authority, push authority down to information. Now, when we think to hear Archies, now they tend to operate in a different manner where people at the bottom of the info button have the authority to make [01:02:00] decisions. So they create systems to channel that information authority.

[01:02:03] Guest (Paul Williams): Yeah. it's tremendous. It's basically a but empowerment perhaps works well in the military because empowerment without rules and processes is chaos. Whereas in the military you have a certain set of processes. So it's perhaps quite a good place to make empowerment actually work. Cause it's a term that a lot of other organizations struggle with.

[01:02:18]so interesting example that you mentioned.

[01:02:20] Guest (Andreas Krebs): Yeah, I would use another phrase, which I like too much. It's called achieving results. Through others. And that's a bit beyond empowerment means you actually give up not only the power and empower, but you want to receive, achieve results through others, even through hierarchy.

[01:02:34] And that's a, that makes realization, be strong and people get the people. I forget the award who actually should receive the reward. Yeah. And, that is also a tremendous factor on motivation.

[01:02:45] Host (David C. Luna): So to sum up this whole thing, maybe you can give the listeners your top three recommendations for CEOs that want to potentially avoid a future decline of their company.

[01:02:55] I know it's a very generalized question, but maybe listeners could still profit from [01:03:00] three key takeaways.

[01:03:01] Guest (Andreas Krebs): Just three,

[01:03:02] Host (David C. Luna): maybe even five. I'll give you five.

[01:03:04]Guest (Andreas Krebs): no, let's go for three. I would say my number one would be those who can't imagine failing simply have too little. Imagination.

[01:03:12]Guest (Paul Williams): yeah. And I'll perhaps pick up on the ego topic.

[01:03:14] As we talked about a few minutes ago, essentially for me, real leaders are not egomaniacs, but they're fighters for the cause.

[01:03:20] Guest (Andreas Krebs): And maybe one more from my side, those who can combine ambition with critical self awareness can achieve truly great things.

[01:03:28] Host (David C. Luna): Those are really three excellent recommendations. So if the listeners want more of you, two fellows, they liked what you said, where do you want them to go?

[01:03:36] Or how can they contact you?

[01:03:38] Guest (Paul Williams): Maybe you could just refer to that to our website. We have a joint website, Andres and I, which is focused around the book and some of our other joint activities. So www dot incur hyphen inc com and incur with a C always. So I NCA hyphen inc, as an incorporated inc

[01:03:55] Host (David C. Luna): com. Okay.

[01:03:56]I'll be sure to include that in the show notes. [01:04:00] So now it's that time again, to reflect upon the interview? Obviously there are many reasons of why companies face a decline downfall, or get disrupted in an almost seemingly predictable fashion Andrea's and Paul's book adds a additional layers and reasons.

[01:04:15] Of why companies fail, hopefully from the interview, you could tell that they not only have extensive top management experience, but they're also very reflective and aware of their own shortcomings and mistakes. They don't come across as no dolls, but instead share some of their mistakes along the way, their journey.

[01:04:33] Unfortunately, we didn't have time to cover all the reasons since of why organizations fall. There are just too many to cover even more that are. You mentioned in the book itself, the book can possibly cover all of them. Check out the book to see what other, the reasons there are, why companies fail or decline.

[01:04:49] I've highlighted some other reasons for why successful companies fail in my comprehensive guide, why companies need to eat their children. I'll link that in the show notes below as well, just to add to [01:05:00] the discussion and add some more reasons briefly without being intended to be exhaustive. The first aspect I wanna mention and.

[01:05:07] This one is actually pretty obvious, but it gets overlooked. Is lagging indicators. What are lagging indicators? revenue along with profits and to be what economists call lagging indicators, right? These indicators can confirm longterm trends, but they do not predict them. We remember Blackberry, right?

[01:05:25] Blackberry also fell prey to what I call the illusion of the infinite. S-curve essentially believing that the growth would continue indefinitely. So when a product life cycle or technology adoption curve is nearing, its end revenue calmly is at its peak. So it lags significantly behind. And guess which one wall street wants to see?

[01:05:46] Wow, that's obviously the revenue curve, but even though the cyclical nature of a product life cycle are extremely well understood and have been studied extensively, it's still pretty shocking. How many companies and CEO's seemingly [01:06:00] willingly ignore the act and make themselves prime targets for a decline.

[01:06:05] Bankruptcy or even disruption. So CEO shouldn't rely on lagging indicators such as to help them predict what's coming next because we all know that's impossible, but that's often easier said than done. we often hear, Oh, companies need to innovate while they're so profitable. What makes it so hard?

[01:06:21] Because companies need to divert. And this is something I mentioned in the podcast briefly is they need to divert resources and money to ins to uncertain prospects, or in other words, innovate while their business is still booming. But in reality, their product life cycle is nearing its end. Something a lot of companies tend to forget.

[01:06:42] And the other aspect I also want to mention is what's the authors of the book star points, call threat rigidity. Now they analyze 600 companies. Over the past 50 years to find out what, why the revenue growth stalled for most companies. And they found approximately [01:07:00] 87%. So almost 90% of the business will.

[01:07:02] It's what they call it points. Once a company stars, it rarely reaches its it's all growth and often leading them to lose two thirds of its market share. And we'll have almost near zero or even negative growth rates afterwards. So when companies reach these star points, they become inpatient. To show growth, which creates a very hostile environment for innovation to succeed.

[01:07:26] And as a consequence, whereas we all can imagine this environment actually prevents innovators from taking the time to find and grow their ideas. And it's these kinds of situation where companies have the tendency to respond within an organizational behavior known as. Threat rigidity. So when under threat or in crisis, narrow their focus to what has worked for them in the past.

[01:07:50] And they do extremely well. So for instance, focusing on their core business or their current cash cow, and also freezing innovation and becoming more hierarchical or [01:08:00] top time down in terms of management control, the problem with this threat rigidity is that ignores changes in their environment and limits their ability.

[01:08:08] To grow and innovate, making the manners even worse. The last point, and we talked about this quite a bit in, on the interview, especially with Paul, the topic of charisma and leadership. So I want to highlight some of the studies. I'm not going to mention all of them, but there was a working paper by researchers from Harvard, Stanford, and the Chicago university that examined 70,000 conference calls involving over 4,500 CEOs found that financial performance tended to be poorer in companies led by extroverts to be fair.

[01:08:42] The Harvard study also says it's a little premature to say that poor financial performance is caused by. Extroverts yellows. Nonetheless, the negative assault creation between extroversion and performance is consistent with the argument that extroverts like to dominate. Yeah. The ad that [01:09:00] requires a obedience and submissiveness that may not be conducive to.

[01:09:04] Effective corporate decision-making. Peter Druker has also written about this and I'll read his quote. He said among the most effective leaders I've encountered and worked with in half a century, some locked themselves into the office and others were ultra gregarious. Some are quick and impulsive. What other studied the situation?

[01:09:21] It took forever to come to good decision. The only the one and only personality trait. That effective ones I encountered did have in common was something they did not have. They had little or no charisma and legal use either for the term or what it signifies. So that's quite interesting. And then there was also a famous study from the infamous management theorist, Jim Collins, where he said many of the best performing companies of the late 20th century were run by what he calls level five leaders.

[01:09:51] That's essentially a fancy word for exceptional CEOs that weren't really known for their flash or charisma, but for their extreme [01:10:00] humility, coupled with intense professional will. Now, what we have to keep in mind is it doesn't necessarily mean that extroverts are per se where CEOs than introverts or that introverts are automatically better than extroverts.

[01:10:11] And if you liked this topic, and I also highly recommend you read Susan Kane's hugely successful, New York times bestseller from 2013, I believe which emphasized. How there is zero correlation between being the best talker and having the best ideas. If you haven't read the book, I can really highly, I commend you do.

[01:10:30] So it's an extremely well-researched book. I believe she took seven years to write it and you can really tell. And according to the press, it's one of the most important. Books published for a decade. The last point I want to mention in this one is important is the topic of survivor bias. How much of these cited examples of company declines are chance or have some luck involved or more specifically, do we think that survivor bias could be a thing here?

[01:10:57] Let me explain what survivor bias is. It's [01:11:00] viral bias is essentially a logical error or a form of selection bias of focusing on aspects or criteria that made it past a certain selection process and overlooking those that did not typically because their lack of visibility and this can lead to false conclusions.

[01:11:15] This can also lead to overly optimistic police because failures are ignored such as when. Companies that no longer exist are excluded from the analysis of a financial performance can also lead us to falsely believe that the success in a certain group have some special, properly, rather than just coincidence.

[01:11:35] Correlation does not prove commonality, as we all know, be it in the hiring process or when forming a theory about why companies failed. It also causes the results of studies rate higher because only companies which were successful enough to survive until the end of the period. Are included. So an example of this would be mutual funds where a company selection of funds today will include only those that are successful.

[01:11:57] Now, many losing funds are closed and [01:12:00] merged into other funds to hide performance. That's also our dirty little secret of the industry. The tricky part here is it's almost impossible to avoid, but generally pretty easy to anticipate, but just being aware of the survivor bias can lead to better decisions.

[01:12:13] So what does that mean? It means that we should develop a habit of always questioning the underlying narrative of Gary's books, articles, and even my podcast. So always questioning what could we be leaving out, not on purpose, but what are the known unknowns and the unknown unknowns? What are the aspects we didn't consider?

[01:12:35] Or we don't know that we don't know. So that's just a good habit to have. Again, it's impossible to get right. And it's impossible to consider all possibilities and knowing the unknown unknowns, but just something to keep in mind.

 


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This podcast looks at innovators and companies that are changing the game and how they took their initial idea and created a game-changing product or service, while giving you unique perspectives and insights you’ve probably haven’t heard elsewhere.

David and his guests discuss real-world practical advice on how to best harness the creativity of your employees and go from idea to product or service that has the potential to radically transform your business.

They also share lessons they’ve learned along the way to effectively accelerate, incubate and scale innovations within small, medium and large enterprises, all while separating hype from reality and replacing bullshit bingo with common sense.

The show is hosted by David C. Luna, author, keynote speaker and founder of GAMMA Digital & Beyond.

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