Does a new strategy demand new leaders?
September 27, 2006
Does a new strategy demand new leaders?. Check it out:(Business Day (South Africa) Via Thomson Dialog NewsEdge) Does a new strategy demand new leaders? BILL MacLeod felt relieved when the board meeting finally ended. It was one of the toughest sessions he could remember in his six years as Fusilier Technology's CEO. But that was hardly surprising, given the main item on the agenda: a review of why the company had lost the Chase Dynamics account. The oil services company had been one of Fusilier's largest and most loyal customers. The deal was a whopper: a $40m contract to make Chase's 23-country information technology (IT) network state-of-the-art in security and enhanced cross-enterprise communication. Elena Gonzalez, the veteran sales director responsible for the account, didn't exactly cover herself in glory during the meeting. When a few board members, led by Ed Zorthian, cross-examined her, she grew increasingly flustered. Being grilled by a Silicon Valley legend like Zorthian, who had founded two of the Valley's giants, Silicon Devices and Deximation, was understandably intimidating. And Gonzalez wasn't used to being in the hot seat. Over the years, her sales teams were consistently outstanding performers; they had never before lost a major account. The loss of Chase was a blow to Fusilier, based in Mountain View, California. Its sales had been flat for five years. One reason was the general slowdown in IT spending. But there was another reason that worried MacLeod more: the performance edge that Fusilier had long enjoyed in its core product categories was eroding, forcing it to compete increasingly on price. The timing wasn't great for Gonzalez either, MacLeod mused. She was the leading internal candidate to succeed Mark Hartley as vice-president of sales. Gonzalez, an imposing woman with a warm, round face, defended the sales team responsible for the Chase account, but Zorthian wasn't buying it. Elena, I don't understand how this could have happened given that we must have had a stronger relationship with Chase than Network Protect, he said, referring to their successful competitor. We did, said Gonzalez. I know that Paul Holmes, Chase's chief information officer, thinks highly of us. But Chase didn't leave this one to Paul and his IT crew. It's my understanding that the marketing and finance folks pushed to go with Network Protect. She explained that marketing asked to weigh in because it was overhauling its customer relations management system. And finance was in the process of upgrading its reporting systems to comply with Sarbanes-Oxley requirements and to integrate financial reporting from Chase's foreign operations. Didn't you see that coming and get to Chase's marketing and finance people? asked Morgan Kingley, a venture capitalist who had helped launch Fusilier in the mid-1980s. Of course, Gonzalez said defensively. We even brought in consultants from our new professional services unit and two external software companies with expertise in CRM and SOX applications to address Chase's issues. Our proposal to Chase was one of the most ambitious we've made to sell solutions instead of product performance. Then what went wrong? asked Joan Creeley, a Caltech engineering professor who had been a board member for many years. Two things, I guess, Gonzalez responded. From what Paul Holmes told me, Network Protect did a better job of pulling together its capabilities and those of its business partners in its proposed solutions. They also pushed to be much more involved in the CRM and finance projects. Frankly, I now realise we should have courted the marketing and finance vice-presidents much more than we did. Then why the heck didn't you? Zorthian pushed. As I'm sure you can understand, we didn't feel comfortable doing an end run around Paul. He's been very good to us over the years. Zorthian massaged the bridge of his signature pug nose but didn't say anything more during the rest of the inquisition, which continued for 30 minutes. MacLeod could tell there was plenty more on his mind. So the CEO wasn't surprised when Zorthian called two days later and invited him to go for a run in Shoreline Park that evening. They agreed to meet at the Boat House parking lot at 6pm. Accelerating Change They ran about 6km and took a break at a spot overlooking the salt marshes. For a few minutes, while they caught their breath, they watched egrets and ibis skimming the water. They felt comfortable with each other even though they were hardly alike. Zorthian, a creative genius whose product designs and marketing savvy had transformed the consumer electronics industry, had a flamboyant personality. At age 62 he was on his fourth marriage and had six children. A former marine, MacLeod was 52 and, with his lanky build, looked even younger. He was still married to his college sweetheart; they had a daughter and a son and were content. Fusilier's founders, Mike Balestra and Bill Hermann, had recruited him to be vice-president of finance and de facto chief operating officer (COO) in the early 1990s, when the company's sales were starting to take off. Balestra and Hermann knew that they needed someone to inject financial and process rigour into their young organisation of innovative engineers. At the time MacLeod had been the president of a division of Venerable Technologies, a Silicon Valley pioneer. MacLeod organised Fusilier into profit and loss (P& L) centres, each focused on a major product category. The culture of accountability and discipline he had instilled had positioned the company to exploit the technology boom and rack up a decade of robust, profitable growth. The firm had become an industry leader and now had nearly $6bn in sales and 10000 employees. While MacLeod knew that many in the Valley thought Zorthian was an obnoxious egotist, he appreciated Ed's stellar mind and his unvarnished advice. They had solidified their relationship six years ago, when MacLeod steered Fusilier through its initial public offering (IPO). Balestra and Hermann had cashed out and left, and MacLeod had become CEO. He and Zorthian had begun their occasional runs together during the IPO. So where do things stand in replacing Mark Hartley? Zorthian asked. MacLeod had not been totally surprised when, three months ago, Hartley informed him of his decision to retire as soon as the company could replace him. Hartley was only 56. His battle with prostate cancer two years ago was the main reason, he explained. It had made his wife and him rethink things. Although Hartley hadn't said so, MacLeod suspected that the new strategy to compete on the basis of selling solutions rather than superior product was also a factor. Hartley had been politely sceptical of the solutions approach. Perhaps the real reason for the company's flat sales, Hartley had suggested, was that the product divisions had lost their edge and needed to be shaken up. Zorthian reminded MacLeod that both of them had seen Hartley's departure as an opportunity to accelerate implementation of the new strategy.
Bill, I've learned over the years that the longer you take to bite the bullet, the greater your organisation's resistance will be. Maybe we underestimated the magnitude of the necessary changes, MacLeod responded. And the fact is, most of our customers are still IT managers who buy individual products for infrastructure needs. You're always reminding me that the smart monkey in the competitive jungle never lets go of one branch until he's grasped the next one. Yes, acknowledged Zorthian, standing up to resume the run. But if the monkey doesn't move fast enough, the first branch might break off while he's still clinging to it. New Strategy For the first few years of the tech bust, Fusilier had preserved its profit margins by cutting costs through re-engineering its supply chain, focusing its research and development budgets and winnowing its product line. When it became apparent about two years ago that the company had exhausted these opportunities the board encouraged the executive team to rethink fundamentally how the company could achieve profitable growth.
The result had been the integrated solutions strategy, announced throughout Fusilier with great fanfare 18 months ago.
It was a radical departure from the traditional product-performance approach. It called for Fusilier to bundle its own consulting, hardware and customised software, as well as other vendors' products, to serve the particular needs of users in areas such as marketing, sales, finance and human resources. Fusilier's market research department had found that a substantial number of the company's biggest customers were willing to pay a premium to a supplier that could provide such customised offerings to their operations around the globe. A consulting firm confirmed that finding, but cautioned that Fusilier faced two major challenges: building relationships with executives beyond the IT department and getting Fusilier's disparate product and service units to work seamlessly with one another and the sales force. With one exception, Fusilier was still largely organised into the P& L centres MacLeod had created in his early days at the company. There were three main divisions: datacentre products, which supplied components for servers and corporate websites; network products, whose offerings were essential for data security and enhanced communications across a customer's geographical sites; and services, which traditionally had consisted of maintenance and repair services. The exception was professional services, a new consulting unit whose mission was to jump-start the solutions-centric sales approach with a handful of key global clients. To staff it, Fusilier had transferred 60 people from the divisions and had hired 40 more from outside the company. These consultants were expected to have a deep understanding of how Fusilier's product applications linked to business issues and to work closely with the sales force and product units both before and after a sale. However, sales would continue to own the customer relationship. It would have overall responsibility for designing and selling these new, tailored solutions and for pulling together the best Fusilier products and people from wherever they resided. The consulting firm had spelled out the substantial changes that would be necessary for sales to play this role. Traditionally, a salesman's compensation had been based largely on his or her individual results. In the new world, the compensation system would have to reward the solutions teams. Account managers' compensation would have to be redesigned to reward them for orchestrating this team effort and for building relationships beyond customers' IT departments. A longer sales cycle would also have to be factored into the equation. Fusilier would also have to re- examine training and the processes for deploying the sales force. Historically, sales training had focused on product features and cost-performance advantages, not on the business issues. The internal market had determined how the sales force was deployed: product managers had competed fiercely for the attention of sales, and salesmen tended to specialise over the years. In the new world, salesmen had to understand, promote and select from the entire portfolio of products and services offered by Fusilier and its business partners. MacLeod had hoped that professional services and a transformed sales division would serve as the vanguard for the new strategy. In the past 12 months, though, there had been troubling signs. Working with human resources, Hartley appointed a task force to design a blueprint for overhauling incentives and training but had made little progress in acting on its proposed plan. Professional services was still not meeting expectations. Its leader, Liz McGowan, had begun to complain regularly about a lack of support from the product and service units and much of the sales division. They don't really know what we do, she told MacLeod. They resist changing prices or features for a specific deal. Too many in the sales force see us as their competitors. Indeed, a survey by human resources found that many in sales resented the consultants and did not understand their role. The notable exception was Gonzalez's staff, who seemed to be genuinely trying to change its ways of doing business and had scored some successes in selling solutions.
It's because of Elena's leadership, said McGowan. She's persuaded them that the new strategy is the only way we can get back on a growth track and that they will all come out ahead in the end. Assessing the Risks Back in the parking lot after the run, MacLeod relayed this information to Zorthian. Where do you stand with candidates the executive recruiters produced? Zorthian asked.
We've narrowed them down to one guy: Jon Shapiro from MegaLeap Technologies, MacLeod said. What I like best about him is his experience working across organisational boundaries. He also seems to have a superb analytical mind. He's got a Stanford MBA and, for someone in his late 30s, has held a variety of interesting positions at a number of technology companies. He spent some years in marketing and then did strategic mergers and acquisitions, including postmerger integration for BD Technologies. He's been running international sales at MegaLeap for four years and has built them into a power in Europe. Sounds like a winner. So you're leaning towards him? I'm worried about how he'd fit in. He's brash. He's never worked in our business, so he doesn't know our products. He's jumped around quite a bit. And Fusilier isn't an easy place for outsiders. Hiring Shapiro may be just too big a risk. The biggest risk is inertia, Zorthian countered. Do you really think Elena's got what it takes to lead the change? A Mover and Shaker Ten days earlier, MacLeod and Peter Spokes, Fusilier's executive vice-president and COO, had interviewed Shapiro in the CEO's office when they decided he was the best of the three outside finalists. They were struck by how passionately Shapiro advocated the solutions approach. Frankly, without it, you're dead, he told them. Your business is commoditising. Companies don't care about terabytes and gigaflops anymore. They want to know how you're going to help them outperform the competition, satisfy Wall Street and meet the Securities and Exchange Commission's requirements. They want you to know their business needs and help them shrink their IT departments. Shapiro had then cross-examined them about their business model, organisation, customer relationships and people. He was blunt in telling them that he was unimpressed by their progress. Sounds like you need someone who can shake things up. I suppose that's why you're looking outside, he said. MacLeod felt his face reddening, but Shapiro didn't pick up on his body language.
I inherited a similar situation at MegaLeap, Shapiro said. Our big multinational customers were demanding solutions to business issues and more co-ordination from our sales and product units. But the units just couldn't respond. So I cleaned house. I replaced all but one of our sales directors and overhauled the rules of the game for the sales force. In my first two years running international sales, turnover among salesmen ran at nearly 30% annually. Yeah, it wasn't a happy place, but the results speak for themselves. Machiavelli was right, he added. When a prince needs to make a big change he must do it quickly, before the forces of resistance can coalesce to stop it. There was an awkward silence. MegaLeap is much smaller than we are, and we've got some damn good people here, MacLeod said calmly. Don't you think you'd need some time to familiarise yourself with the place before applying Machiavelli? And you wouldn't be the prince here. The product units wouldn't report to you. That just means internal selling is part of the job, Shapiro said.
A Homegrown Superstar MacLeod and Spokes discussed Gonzalez and Shapiro over lunch at the Cantankerous Fish on Castro Street. MacLeod had recruited Spokes from his old company, Venerable Technologies, shortly after Fusilier's IPO, and valued his views. As a waiter ground fresh pepper over his fish stew, Spokes said: Shapiro would certainly shake things up. He explained the rationale and requirements of the integrated solutions strategy better than any of us. But how can we not give Elena the chance? She's earned it. Gonzalez, who was 40, had joined Fusilier in the early 1990s in technical services. She moved from Phoenix, where she had worked for a computer services firm after graduating from Arizona State University. A down-to-earth people person, she had moved into sales and quickly had been promoted to manager. Her teams' victories had become legend. More often than not she had personally made the difference in closing crucial deals. Modest and self-effacing, she never grabbed the glory for herself. Her people loved her but they knew she didn't accept excuses when it came to meeting the quarterly numbers. We can help her do the stuff that Mark's avoided like revamping compensation and training, Spokes said. And let's not forget that some of our most important customers are her relationships. But virtually all of those relationships are with IT managers, MacLeod pointed out. In addition, there's the question of whether Elena can make the tough choices that need to be made. Not everyone on the sales force can make it to the promised land. The same goes for customers: unless we're smart about segmenting and targeting the right customers for this solutions approach, the selling, general and administrative expenses will kill us. Elena's a good administrator, but is she a strategist? I just don't know, Spokes said. Neither do I, MacLeod sighed. What should Bill MacLeod do to put Fusilier back on a growth track? Four commentators offer advice. is a senior lecturer in the narketing area and managing partner at The Centre for Executive Development in Boston, Massachusetts.
Copyright 2006 Times Media Ltd.. Source: Financial Times Information Limited - Europe Intelligence Wire.
Related Tags: sales force, professional services, product units, business issues, marketing finance, sales
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