Weekly Brave Update - Chip Kelly, Campbell's Soup Edition

This week I am focused on examples of brave leadership in two industries that nearly all of us have experiences with - food and football.

First lets start with Chip Kelly & the Philadelphia Eagles. There was a great story this past week in Sports Illustrated about Chip's overhaul of the Eagles. While the jury is still out on the effectiveness of his complete overhaul of the team - one thing that is confirmed is Chip's bravery. In fact the title of the article is "Chip Kelly's fearless coaching mind."

Despite presiding over arguably two successful seasons that culminated in 10-6 records, he went 'all in' on his vision for success this past offseason. He let walk or traded his top 3 offensive weapons, including his starting quarterback, and made some big name free agent signings. Listening to sports talk radio during the free agency period you would think that everyone was bi-polar based on the daily reactions to Chip's moves.

You might be thinking 'why are we talking about sports on a business blog?' but coaching an organization like the Eagles is as complicated as being the CEO of any Fortune 500 company and we can find some strong lessons in Chip's mindset toward fearless management.

"Either Kelly is a forward-thinking genius, in the mold of Bill Walsh, Jimmy Johnson and Bill Belichick—or he’s just another coach who never should have left the college ranks. Whichever it is, the word bold doesn’t begin to define the transformation that Kelly has put his team through this off-season, his second since jumping from Oregon to the NFL."

Part of what makes his moves so bold is the fact that he has a very clear vision for his team and is confident in knowing the types of personnel he needs in that system to be successful.

“Certainly he has his strategy and the way he wants to build his team,” says Stephen Jones, executive vice president of the Cowboys. “You’ve got to respect him for that. He seems very convicted in how he wants to do his roster.” At every position he knows exactly what type of player he wants, from physical description to mental makeup."

This vision and understanding of who the organization is and complementing that with the right personnel is the hallmark of a truly brave organization. Another key aspect of corporate cultures that operate in a brave way instead of out of fear is that they are not easily influenced by the media. Despite a preponderance of critics of these moves Chip has been undaunted. Not in a way that is stubborn but in a way the conveys confidence in his strategy and what he wants to accomplish. According to the article,

"It’s impossible to say whether Kelly’s method will thrive long-term in the NFL, but he’s made all the right moves at every level of his career while naysayers shook their heads and said, That’s not the way things are done. He sets his own course and, so far, it’s been one that everyone else ends up following."

Secondly, there was a great in-depth look at the rapidly evolving US food industry in Fortune Magazine. The article provides a great summary of the wrenching changes that are accelerating in the way Americans buy food that is having massive implications on how food is grown, processed, marketed and sold.

Amazon's Use of Fear

A recent issue of BusinessWeek had a cover story on Jeff Bezos of Amazon.  The article is actually an excerpt of a book on Bezos by BusinessWeek author, Brad Stone.  In addition to being a good historical account of the rise of the company that may actually give Walmart a run for its money it also had a feel good moment by finding Jeff's biological dad and starting the process of reuniting the two men.

While there were a lot of interesting tidbits in the article the thing I found most interesting was Amazon's use (it appears driven by Bezos) of fear as a competitive weapon.

As I read the article I see 4 ways that Amazon uses fear and each are outlined below:

1. Much was made early in the article about the general communications protocol within Amazon.  In addition to the discussion of the infamous position papers that each meeting is required to begin with, is how the CEO's '?' email.  While the intent of the emails are rooted in a relentless drive for customer satisfaction, it appears to have fear-based consequences.  I have been on the receiving end of these types of communications and I am sure if CEOs knew the type & extent of hand-wringing that go on around these types of communication they would think twice before sending.  From the article:

When Amazon employees get a Bezos question mark e-mail, they react as though they’ve discovered a ticking bomb. They’ve typically got a few hours to solve whatever issue the CEO has flagged and prepare a thorough explanation for how it occurred, a response that will be reviewed by a succession of managers before the answer is presented to Bezos himself.

2. Amazon's response to the competition is an area that isn't exactly driven by fear or hoping to capitalize on fear but it is worth noting their approach.  The article focuses on an internal team at Amazon known as the Competitive Intelligence Team.  It is a novel approach of focused, dedicated resources monitoring the activities of the competition.  It is smart to monitor what the competition is doing as long as you can maintain your corporate identity and not just react out of fear.  It appears Amazon understands this balance and the article describes the team as:

focused in part on buying large volumes of merchandise from other online retailers and measuring the quality and speed of their services—how easy it is to buy, how fast the shipping is, and so forth. The mandate is to investigate whether any rival is doing a better job than Amazon and then present the data to a committee of Bezos and other senior executives, who ensure that the company addresses any emerging threat and catches up quickly.

3. The response to the results of this team is where Amazon begins to use fear as a competitive weapon.  The example that BusinessWeek gives is of Diapers.com.  Amazon noticed that they were having a hard time competing with Diapers.com in this particular segment so they pressured and coerced the ownership of Diapers.com to sell to them at $60 million less than what Wal-mart was willing to offer.  The quote from the owners was the following

The [Diapers.com] board convened to discuss the possibility of letting the Amazon deal expire and then resuming negotiations with Wal-Mart. But by then, Bezos’s Khrushchev-like willingness to use the thermonuclear option had had its intended effect. The [Diapers.com] executives stuck with Amazon, largely out of fear. The deal was announced on Nov. 8, 2010.

4.  Amazon doesn't just go after the competition and use threats to get what it wants, it also goes after ex-employees with threats and fear to get what it wants.

Even leaving Amazon can be a combative process—the company is not above sending letters threatening legal action if an employee takes a similar job at a competitor. Masud, who left Amazon for EBay (EBAY) in 2010, received such a threat. (EBay resolved the matter privately.)

The Culture of Costco

I hate feeling like I am just on a bandwagon and I generally like to move in the opposite direction of the crowd but Costco is one company that isn't a fad, rather has consistently produced results year after year.  Yes, it may be a darling of wall street but there is a reason for its impressive performance and I would like to focus on the cultural aspects of this performance in this post.

Once again a BusinessWeek article is the focus of the content for this post and their recent article entitled "How Cheap is Craig Jelinek?" - focused on the CEO of Costco.  As you read through notice the following ways that the Costco culture is one of corporate bravery.

1. Employee culture - pay nearly 2 x industry average.  No massive downsizings during the recession has led to some of the most engaged employees in retail.  Result is employees have less employment anxiety.  Another example of this is the health benefits provided to their employees:

Costco workers with [health] coverage pay premiums that amount to less than 10 percent of the overall cost of their plans. It treats its employees well in the belief that a happier work environment will result in a more profitable company. “I just think people need to make a living wage with health benefits,” says Jelinek. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”  In February, Jelinek set Costco’s convictions in ink, writing a public letter at the behest of Nader, urging Congress to increase the federal minimum wage for the first time since 2009. “We know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty,” he wrote.

2. Costco doesn't have teams of public relations and corporate attorneys like many corporations do when they reflect their corporate fears of lawsuits, bad press, and the sometimes negative consequences of someone grinding an axe.

Costco has no public-relations staff. Jelinek conducts an interview with a journalist alone, an anomaly at major corporations, and afterward Costco Chief Financial Officer Richard Galanti calls to inquire whether the boss inadvertently said anything negative. Sinegal returns a reporter’s phone call on a Saturday morning, leaving his cell number.
In February, Tiffany (TIF) filed a multimillion-dollar trademark infringement suit against Costco alleging it improperly labeled merchandise as “Tiffany engagement rings.” Galanti calls it “an honest mistake” and says they should have been labeled “Tiffany-style.” The suit is pending.

labeling something an honest mistake would be a major no-no in a company driven by legal fear as it implies some level of culpability.

3. They are not overly driven by fear of their competition..... although the BW article include wariness towards Wal-Mart's overall size and Amazon's web capabilities but the focus of those comments were more around concerns about consumers' shifting habits.

“They are buying and selling more olive oil, more cranberry juice, more throw rugs than just about anybody,” says David Schick, an analyst at Stifel Nicolaus. And that allows Costco to get bulk discounts from its suppliers, often setting the industry’s lowest price. Even Amazon can’t beat Costco’s prices, which means that “showrooming,” or browsing in stores but buying online for the better price, isn’t much of a concern for Jelinek.

It is because they know who they are and how they best compete in the marketplace.  This extends to their vendor relationships as well.  Even though a product would be great for their customers - if the vendor places restrictions on the sale that do not match how they go to market they have a stern response:

Costco is sensitive to any perceived slights from its vendors. It canceled a relationship with Apple (AAPL) in 2010 because the company wouldn’t sell it anything other than the iPod, and wouldn’t allow it to sell any Apple products online. It has also at times curtailed its sale of products from Sony (SNE) andPanasonic (6752:JP) over such issues.

4. They are not driven by investor fears as demonstrated by this excerpt from the BW article regarding wage increases during the Great Recession and investor pressure to do otherwise.  They have a long-term perspective and are focused on doing the right thing for the employees even at a detriment in the short-term.

Costco went public in 1985, and over the years, Wall Street repeatedly asked it to reduce wages and health benefits. Sinegal instead boosted them every three years.
As the economic downturn worsened in the fall of 2009, Costco, like every other retailer, started seeing declines in same-store sales. Macy’s (M), Best Buy (BBY),Home Depot (HD), and Office Depot (ODP) were resorting to layoffs and wage cuts, but Sinegal approved a $1.50-an-hour wage increase for hourly employees, spread out over three years. “The first thing out of Jim’s mouth was, ‘This economy is bad. We should be figuring out how to give them more, not less,’ ” says CFO Galanti, who adds that Sinegal’s decision to parcel out the raise in three annual 50-cent increments, instead of more gradually, cost an extra $20 million. The founder’s stubborn resolve remains a point of pride. “Could Costco make more money if the average wage was two or three dollars lower?” asks Galanti. “The answer is yes. But we’re not going to do it.”

Why is culture so important?  Because all of these examples where decision making wasn't being done out of fear - rather out of conviction and knowing who they were as a corporation occurred during and after a CEO change from the original founder.  Organizations who do not have a full appreciation for who they are quickly change their behaviour once the previous leader has moved on and that has not occurred with Craig Jelinek (pictured below - right).

Tesla's Elon Musk

This week's profile in corporate bravery is Elon Musk of Tesla motors.  If you haven't heard of him by now you must be living under a rock.  He is an eccentric innovator - most recently making headlines for his hyperloop idea and also known for his space company and his intergalactic aspirations.  I know, it sounds a bit like Sheldon from the Big Bang Theory but instead he is a billionaire with a really good business strategy in the automotive space.

Tesla has been on a roll recently and the stock price and media coverage have followed.  Including the basis for this post - the recent BusinessWeek article on Tesla entitled "Why Everybody Loves Tesla".
I am not going to focus on why everybody loves them though and instead focus on all the 'brave' things they are doing as a business - led by Elon who dares to do things differently.  To underscore this philosophy the article includes this quote from Consumer Reports after giving their Model S a 99 out of 100 rating:

"It’s what Marty McFly might have brought back in place of his DeLorean in Back to the Future”

Tesla's business strategy has focused on all the things that prevent people from buying not only a new car but also an electric car including:

• Range of an electric charge and re-charging - by pushing the envelope on innovation of batteries and creating an entire network of refueling stations.

"Higher-end versions of the Model S can go up to 300 miles on a charge, which has helped separate Tesla from rival vehicles such as the Nissan Leaf, which run about 75 miles before needing more juice. Musk has hinted that Tesla has a 500-mile battery pack in the works. At the company’s solar-powered Supercharger stations, Tesla owners can replenish about 200 miles of range in 20 minutes for free. (Most electric cars take hours to recharge.) Or customers can opt for the battery swap, which will cost about what they’d pay for a tank of gas, and be back on the road in 90 seconds." 

• Integrating software and hardware for a seamless driver experience.

"Even the flaws of the Model S seem to resonate with geeks. Early versions of the outside handles malfunctioned—they sometimes wouldn’t extend out of the door—and the windshield wipers seemed to have a mind of their own. Tesla fixed those and other problems with a software upgrade delivered via the car’s high-speed wireless connection. An engineering leader at Ford says he’s envious of what Tesla has achieved by starting from scratch and interweaving software on the touchscreen with the vehicle’s internal systems. “The level of integration that the software has into the rest of the Model S is really impressive,” he says."

• Creating a direct to consumer strategy for car sales

"Unlike every other major car company, Tesla has also kept its retail business in-house. It’s trying the Apple model of placing its own stores in high-end malls and shopping centers instead of relying on dealer franchises. Salespeople, who don’t receive commissions, help buyers configure their cars on giant touch screens." 

• An innovative insurance program that guarantees the value of the vehicle over the long-term
• Maintenance program that includes pickup service and only minimal necessary maintenance

These are all ways that Tesla didn't listen to conventional wisdom; they weren't afraid of perceived advantages that the large, legacy car makers had and they weren't afraid of challenges they would encounter from various stakeholders that would have their very business models disrupted.  As the BusinessWeek article points out they will continue to see challenges but it isn't likely to stop them from continuing to push a business model that they believe is likely to be successful in the long-term.

There’s also the possibility that Tesla is overdoing it with the high-tech whiz-bang. The 17-inch touchscreen, for example, is equipped with a Web browser. Distracted driving laws vary by state, but obviously no one behind the wheel should type out Internet searches in a moving vehicle. There’s no stopping determined drivers from trying. Tesla’s in-car technology “is almost too good,” says Munley. “Detroit is leery about it, and would never go that way for fear of safety and lawsuits. We’re all waiting to see if there are accidents.” Meanwhile, car dealers around the country see Tesla’s direct-to-consumer sales as a violation of laws that separate car manufacturing from selling, and are engaged in a statehouse-by-statehouse lobbying effort to block the company from opening its own stores.