The One Thing You Need To Know To Lead/Manage

…About Great Managing, Great Leading, and Sustained Individual Success
by Marcus Buckingham

The chief responsibility of a great manager is not to enforce quality, or to ensure customer service, or to set standards, or to build high performance teams.
Great managers excel at turning one person’s talent into performance.
Great managers are catalysts–they speed up the reaction between each employee’s talents and the eompany’s goals.

The Definition of Leadership
Great leaders rally people to a better future
Leaders have a vivid vision of what the future could be, and rally others to strive for it.
“You are a leader if, and only if, you are restless for change, impatient for progress, and deeply dissatisfied with the status quo.”
The core talents underpinning all great leadership are optimism and ego
Leaders may be pessimists or even depressive (see Lincoln), but nothing, not their mood, not the reasoned arguments of others, not the bleak conditions of the present, can undermine their faith that things will get better.
“Properly defined, the opposite of a leader isn’t a follower. The opposite of a leader is a pessimist.”
“Despite their realistic assessment of the present challenges, they nonetheless believe that they have what it takes to overcome these challenges and forge ahead.”
Ego: “The key thing about leading is not only that you envision a better future, but also that you believe, in every fiber of your being, that you are the one to make this future come true….You arethe one to assume the responsibility for transforming the present into something better.”
“The difference between a leader with a powerful ego and an egomania is how the ego is channeled. The effective leader takes his self-belief, his self-assurance, his self-confidence, and presses them into the service of an enterprise bigger than himself. For the egomania, the self is the enterprise.”
To help develop a budding leader, don’t tell him to be humble; challenge him to be more inquisitive, more curious, and thereby more vivid in describing hs image of a better future, and then encourage him to channel his cravings and his claims towards making this image come true.

Great Managing
The 4 Skills of Management
1) Select good people
2) Set clear expectations
3) Recognize excellence immediately and praise it
4) Show care for your people

1) Select good people. Management is about casting–finding people whose patterns of typical behavior match up with the role you need filled.
2) Define clear expectations. Less than 50% of employees claim they know what is expected of them at work. The key is to work on defining expectations constantly, in virtually every meeting and conversation.
3) Recognize excellence immediately and praise it so that the consequences are certain, immediate, and positive. You should never worry about overpraising someone so long as the performance warrants it.
4) Show care for your people. Research shows that workers who feel cared about are less likely to miss workdays, less likely to have accidents on the job, less likely to quit, and more likely o advocate the company to friends and family. Be deliberate and explicit about forging bonds. Tell your people that you care about them. Tell them that you want them to succeed. Kep their confidences. Learn about their personal lives, and as far as you are able, be willing to accomodate the challenges of their personal lives into their work schedules. This doesn’t mean being soft; the caring manager confronts poor performance early.

Mediocre managers play checkers with their people. Great managers play chess, using each person’s unique talents.
The one thing all great manager know about great managing is this: “Discover what is unique about each person and capitalize on it.”

The Three Levers:
What are the three things you need to know about a person in order to manage him or her effectively?

1) Strengths and weaknesses.
The mediocre manager believes that most things are learnable and therefore that the essence of management is to identify each person’s weaker areas and eradicate them.
A great manager believes the opposite. He believes that the most influential qualities of a person are innate and therefore that the essence of management is to deploy these innate qualities as effectively as possible and so drive performance.
Self-awareness doesn’t drive performance; self-assurance does. The overly optimistic tend to perform better than the accurately realistic.
To combat arrogance and carelessness, don’t tear down the person. Instead, build up the size of the ehallenge. Emphasize their scope, their complexity, their “no one has ever pulled this off before” quality. THE STATE OF MIND YOU SHOULD TRY TO CREATE IS A FULLY REALISTIC ASSESSMENT OF THE DIFFICULTY OF THE CHALLENGE AND AN UNREALISTICALLY OPTIMISTIIC BELIEF IN HIS ABILITY TO OVERCOME IT.
If this person succeeds praise him for his unique strengths, not his hard work. This will reinforce the self-assurance he needs to be resolute and persistent when taking on the next challenge.
If the person fails, and it is not attributable to factors beyond his control, always explain failure as a lack of effort.
The person fails repeatedly, this may actually indicate a weakness. Start by trying to enhance his skills and knowledge. Next, try to find him a complementary partner. Third, try techniques or tricks that accomplish through discipline what the employee is unable to accomplish through instinct (e.g. imagining what an authoritative third party would do). If all else fails, rearrange the employee’s workin world so that his weakness is no longer in play. And if the employee won’t even try the new role? Then it is probably time to allow him to pursue career opportunities elsewhere.

2) Triggers
Each person’s strengths require precise triggering to switch them on.

The most powerful trigger is generally recognition. But the type of recognition will differ for each person. For some, it may be public praise. For another, a private conversation. For a third, a professional qualification. And for a fourth, a letter from a customer.
HSBC presents dream award each year–each year, each employee reports what non-cash prize (capped at a cost of $10,000) they would like to receive if they won. When the awards are given, HSBC shows a video explaining the award and the chosen prize.

3) Learning Style
The Three Dominant Learning Styles

1) Analyzing. Give an analyzer ample time in the classroom. Role-play. Post-mortem. Break down performance. Don’t throw her into the middle of a new situation and tell her to wing it.
2) Doing. The best way to teach a Doer is to throw her into the middle of a new situation and tell her to wing it. The most powerful learning occurs during the performance. Pick a task within her role that is simple but real, give her a brief overview of the outcomes you want, and then get out of her way. Gradually increase the level of task complexity until she has has mastered every aspect of her role.
3) Watching (imitation). Watchers learn when they get a chance to see the total performance. Get her out of the classroom, take away her manuals, and make her ride shotgun with one of your most experienced performers.

5 Questions For Asessment

For Strengths
1) What was the best day at work you’ve had in the last three months?
What were you doing?
Why did you enjoy it so much?
For weaknesses
2) What was your worst day at work in the last three months?
What were you doing?
Why did it grate on you so much?
For triggers
3) What was the best relationship with a manager you’ve ever had?
What made it work so well?
4) What was the best praise or recognition you’ve ever received?
What made it so good?
And for unique style of learning:
5) When in your career do you think you were learning the most?
Why did you learn so much?
What’s the best way for you to learn?

Great Leading
The ability to cut through individual differences and fasten upon those few emotions or needs that all of us share is at the core of great leadership. When a leader lacks extended empathy, when he loses sight of those things we all share, he loses the ability to lead.

The One Thing every great leader knows he must do is:
Discover What Is Universal and Capitalize on It.

Universals
Anthropologist Donald Brown found 327 human universals:
Joking
Tickling
Baby-talking
Sucking on cuts
Overestimating our own objectivity
Preferring sweets
Creating pithy but contradictory sayings
Every society has a word for string
Fear of snakes, but not flowers
Formal speech for special occasions
Toilet training
On average, husbands are older than wives
Every society has a word for pain
Weapons
Rape
Murder
Trade
Toys
Taking turns

For the full list of universals, see Brown’s book, “Human Universals”.

The five great universal fears and needs that are relevant to leadership

1) Fear of death (our own and our family’s) / The need for security
2) Fear of the outsider / The need for community. We are herd animals, and we organize ourselves to keep the herd strong.
3) Fear of the future / The need for clarity. In every society, we give prestige to those who claim to be able to predict the future.
4) Fear of chaos / The need for authority. Every society has devised its own creation myth in which the world was created out of chaos. The need to classify things is universal. The reason creating democracy from autocracy is hard is that we dislike chaos and thus like strong leaders.
5) Fear of insignificance / The need for respect. Every society has a word for self-image and an accompanying concept that a positive self-image is better than a negative one. Throughout history, by far the most effective way to earn the respect of others was to show yourself ready to sacrifice virtually everthing for the sake of pure prestige. He who was prepared to die in the pursuit of his ideas became the master and the easygoing became the serfs. This generated a shortage of respect, which religions filled. The popular religions are successful because they offer a way (membership in the chosen people, an afterlife, reincarnation) for even people with the least earthly prestige to get respect.

Respect is the province of the manager. Authority explains the desire for leaders, but not what they should do.

Many leaders play to security, by providing an effective police presence, justifying foreign wars by citing national secrity, and by kissing babies.

Others play to community by seeking out enemies, be they the Axis of Evil, Coca Cola, or the War on Drugs.

Both security and community will win loyalty, but loyalty should only be a means to the end of rallying people to a better future. Only by tapping into the fear of the future and the need for clarity can a leader move beyond simply preserving the status quo.

Great leaders transform our fear of the unknown into confidence in the future. Being passionate is insufficient; passions are volatile and temporary. Consistency is also insufficient; we are aware that things change, and we expect our leaders to open-minded enough to change with them.

The most effective way to turn fear into confidence is to be clear; to define the future in such vivid terms, through your actions, words, images, pictures, heroes, and scores that we can all see where you, and thus we, are headed.

Adjustments along the way must be communicated with great vividness; clarity is the antidote to anxiety and therefore clarity is the preoccupation of the effective leader.

The Points of Clarity
Who do we serve?
What is our core strength?
What is our core score?
What actions can we take today?

1) Who do we serve?
There is no right answer to this question, but great leaders have a clear answer.
Tesco: “We focus on serving the working man and woman, the ordinary Joe.”
Wal-Mart: “Everything we do, everything we buy is designed to serve those of us who live paycheck to paycheck.”
It may be that every organization serves many masters, but to be brilliantly clear, you must choose one.
Best Buy: “We will serve the customer who is smart but confused by the products we sell.”
Imlications? Reduce SKUs, take salespeople off commissions and tell them to focus on educating customers to make their own choices.
Best Buy then took it a step further by focusing on 5 customer types (e.g. moms, independent contractors) and then having each store focus on just one segment.

Note that a leader must not be clear on all points; he must be brilliantly clear on outcomes and focus, but give followers the lattitude to select the strategies and tactics.

2) What Is Our Core Strength?
To convert followers anxiety into confidence, you must tell us why we will win. Why will we beat our competiors? Why will we overcome the many obstacles? What advantags do we have? What is our edge? The more clearly the leader can answer these questons, the more confident we will be, and therefore the more resilient, persistent, and creative.
You don’t have to be right, you just have to be clear. Make it clear what everyone needs to do, and give them the confidence that if they can just do this one thing, you will win.
Rio Tinto Borax: Deciding to focus on safety despite a mediocre historical record.
Beginning every meeting with a 5-minute discussion on safety.
In 1999, there were 26 serious injuries; in 2003, there were 4.

3) What is Our Core Score?
It is your responsibility as a leader to sort through all the many things that can be measured and identify the one score that we, your followers, should focus on. Followers don’t care for balanced scorecards–they are too complex, which confuses us and makes us anxious. If you need a balanced scorecard, keep it to yourself and fellow executives. Give us a score that we can do something about, or that measures how well we are serving the people you have told us we should be serving, or that quantifies the strength you have assured us we possess. If you can identify the core scoree that can do some or all of these things, we will reward you with our confidence.
“A balanced scorecard is a device to help you manage, not lead. It will set expectations for one person, but won’t bring clarity to many people.”
Best Buy: Number of engaged employees.

4) What Actions Can We Take Today?
Actions are unambiguous and clear. Highlight a few carefully selected actions and your followers will happily latch on to them and use them to calm their fear of the unknown. Followers will no longer have to infer the future from theoretical pronouncements about “core values” or “mission statements.”

Types of Action: Symbolic and Systematic
Identify the few actions that can either a) grab our attention or b) alter our routines.

Symbolic action
Rudy Giuliani
Getting rid of squeegee men (by prosecuting them for jaywalking)
Getting rid of graffiti on buses and subway cars
Requiring every cabbie to wear a collared shirt

Systematic action
Force people to change their comfortable routines and engage in unambiguously new behaviors.
Giuliani
7 AM CompStat meetings Thursdays and Fridays

The Disciplines of Leadership
1. Take time to reflect
2. Select your heroes with great care
3. Practice

1) Take Time to Reflect
Take time to think and draw conclusions. It is this ability to draw conclusions that allows great leaders to project such clarity.
Think about success, which is not the opposite of failure. Understand why something succeeded, so you can repeat it.
Best Buy: After focusing stores, Brad Anderson noticed that 8 stores were doin much better than the rest. He visited them, the other stores, them again, and thought. Finally, he concluded that the difference was that the employees were not more talented, but rather better engaged. Or in other words, better managed.

2) Select Your Heroes with Great Care
Heroes are employees whose performance you choose to celebrate. To predict future behavior, look at the people and events the organization chooses to revere.
Britain
Charge of the Light Brigade, Dunkirk, the Battle of Britain
The Brits celebrate perseverance and effort, not winning
USA
The most competitive of nations, where winning isn’t everything, it’s the only thing
For example, British sports broadcasts do a horrible job of picking players of the game

3) Practice
Great leaders practice the words, images, and stories they will use to help us perceive the future more clearly.
MLK: The “I have a dream” speech wasn’t the planned speech. He had written a new one, but when it started to bomb, reverted to the speech he had practicee so many times before.
Do not worry about being repetitive–just when you are bored by the sound of our own voice may be when you finally reach your audience.

“Efective leaders don’t have to passionate. They don’t have to charming. They don’t have to be brilliant. They don’t have to be great speakers. What they must be is clear. Above all else, they must never forget the tryth that of all the human universals–our need for security, for community, for clarity, for authority, and for respect–our need for clarity, when met, is the most likely to engender in us confidence, persistence, resilience, and creativity.

Show us clearly whom we should seek to serve, show us where our core strength lies, show us which score we should focus on and which actions must be taken today, and we will reward you by working our hearts out to make our better future come true.”

Sustained Individual Success

The Twenty Percenters
Only 20% of people report that they are in a role where they have a chance to do what they do best every day.
Buckingham reports that he has three 20 percenters in his life.

Dave Koepp, screenwriter
Despite the many travails of being a screenwriter in Hollywood, he has still found a way to sustain passion, spirit, and superior performance despite life’s imperfections.

Myrtle Potter, President of Genentech
Turned Prilosec, a Merck/Astra JV that was floundering, into the top selling drug in the world ($4B/yr). Talked to the doctors and discovered that they were only prescribing Prilosec when Pepcid, Zantac, and Tagamet failed. She made sure doctors were informed of two facts: 1) Prilosec was the only drug that went beyond alleviating symptoms to curing the underlying condition. 2) Certain patients would never respond to the other drugs, and thus would always end up on Prilosec.

Tim Tassopoulos, Chick-fil-A
Wondered if he would be happier in politics, which he was passionate about. Did his MBA at Georgetown, where he was George Stephanopoulos’ roommate, and discovered that he found actual politics boring–it didn’t have immediate feedback and direct impact on people.
“How could I possibly find a better situation than the one I am in now? In Chick-fil-A I have a company that believes in me, that challenges me to give of my best every single day, and that puts me in direct contact with wonderful people who expect me to help them and guide them and coach them every day. In so many ways, I am blessed.”

The difference between the twenty percenters and the rest of us can be found less in what they choose to do and more in what they choose not to do. Twenty percenters are rigorously discriminating about how they choose to invest their time. No matter how tempting the ofer, they refuse to get sueked into activities that, on some visceral level, they know they will not enjoy
David rejected the offer to write buddy movies. Myrtle rejected promotions. Tim turned away from politics.

The One thing we all need to know to sustain our success:
Discover What You Don’t Like Doing and Stop Doing It.

Know what opportunities engage your strengths and which do not and have the self-discipline to reject the latter.

“Sustained success is caused not by what you add on, but by what you have the discipline to cut away.”

Virtually all personality traits can be boiled down to the Big Five:
1) Openness to experience
2) Extroversion
3) Neuroticism
4) Agreeableness
5) Conscientiousness

Personality traits do not explain sustained success.

To have a great impact over a long period of time requires 2 things.
1) First, you must take your natural talents and enthusiasm and apply yourself to learning enough role-specific skills and knowledge to be deemed good at something where you possess some kind of comparative advantage over everyone else.
2) You must stay good and more likely, get better. You must be resilient, flexible, open to learning, innovative, confident, optimistic, and pace yourself for the long term.

The 3 Main Contenders (runners up)
1) Find the right tactics and employ them.
2) Find your flaws and fix them.
3) Discover your strengths and cultivate them.

1. Find the right tactics and employ them.
“The Power of Full Engagement (Tony Schwartz, Jim Loehr)
The best tennis players were more effective between points–they could slow their breathing and heart rate to recover energy and focus for the subsequent point.
The best way to succeed is through a disciplined process of stress and recovery.
Impose on your life a series of routines that allow you to stress yourself, then recover, stress, then recover, and you will find that, over time, your capacity, your resilience, and your energy will all expand.
Since the human body is designed to work in 90-minute increments, you should discipline yourself to get up after an hour and a half’s work and take a break.
“The 5 Patterns of Extraordinary Careers” (James Citrin, Richard Smith)
Build your personal brand
Go blue-chip early
Avoid the “permission paradox”
Seek out special projects and one-off assignments because they will allow you to claim that you have skills and experiences not supplied by your current job
“Career Warfare” (David D’Alesandro)
Proactively manage you boss by providing the three things she really wants:
1) Loyalty
2) God advice
3) A subordinate who will never make himself look good at her expense
Make friends in high places; you may need them it you have to circumvent a self-serving boss
“It is always showtime.” However trivial or boring a transaction might be, you are still making an impression.

The reason this contender isn’t the One Thing is because it doesn’t tell you how to avoid becoming a commodity.

2. Find your flaws and fix them.
Despite its seemingly logical appeal, few successful individuals subject themselves to it. Few successful managers subject their people to it. And few successful teachers subject their students to it.
You learn less when focusing on areas of weakness (biologically)
You will feel less energized and challenged when fixing your flaws (emotionally)
Self-efficacy is not the same as self-esteem; self-esteem relates to your general feeling of worthiness, while self-efficacy is tied to a specific activity.
An APS study shows that high self-esteem does not predict anything, no resilience, not persistence, not goal-setting, and not achievement.
In contrast, the level of self-efficacy for an activity does an excellent job of predictint subsequent performance.
Bandura’s research shows that how well you face new challenges is determined by your ability to transfer your self-efficacy from one activity to another.
The best way to transfer self-efficacy is to look deliberately for similarities between the new challenge and previous challenges where you have succeeded in the past.

3) Discover your strengths and cultivate them.
This is important, but it is rare that a person can find a single career track that plays to her strengths. What usually happens is career-creep, where success results in promotions and responsibilities until one day you realize that the majority of your job bores you, leaves you unfulfilled, frustrates you, drains you, or all of the above.
In Buckingham’s own career, a major engagement with a large entertainment company resulted in the majority of his job consisting of activities that weren’t a fit with his strengths (though he was still calling upon his strengths daily). “My problem wass’t that I was so far off my strengths’ path that I couldn’t find any success. My problem was that, having found success, I didn’t have the discipline to stay focused when faced with the increased complexity and opportunity that success brings.

To keep track of your success at following the One Thing, every three months, write down your answer to this question: What percentage of your day do you experience a feeling of self-efficacy, that optimistic, positive, challenged-yet-confident, authentic feeling? What percentage of your day do you spend doing those things you really like to do?
At Best Buy, their 10 most successful managers answered 70-95% of the time.

Discover what you don’t like doing
Most dislikes are caused by one of four distinct emotions

1) You’re bored
When the content of your job becomes deeply uninteresting to you, you must change your job

2) You’re unfulfilled
If your values are disengaged from or actively compromised by your work, you must do the same. To stay in it for the money or security is, in the long run, a bad bargain. It will rob you of the best of you

3) You’re frustrated
Find a tiny stream in which your strengths can flow, and carve it into the Mississippi

4) You’re drained
Find someone else to do what you hate to do (e.g. Jefferson and Madison)
Jobs and Wozniak; Case and Kimsey; Clark and Andreessen; Elison and Miner; Gates and Ballmer
Gates is a serial partner-finder. It began with his friend Kent Evans, who was tragically killed in rock-climbing accident in 1972. Only then did he partner with Paul Allen. And of course, he brought in Steve Ballmer.
Find an aspect of the activity that brings you strength and always keep this aspect at the top of your mind.

The four tactics are: Quit the role; tweak the role, seek out the right partners, or find an aspect of the role that brings you strength.

Conclusion
To excel as a manager, you must never forget that each of your direct reports is unique and that your chief responsibility is not to eradicate this uniqueness, but rather to arrange roles, responsibilities, and expectations so that you can capitalize upon it. The more you perfect this skill, the more effectively you will turn talents into performance.

To excel as a leader requires the opposite skill. You must become adept at calling upon those needs we all share. Our common needs include the need for security, for community, for authority, and for respect, but for you, the leader, the most powerful universal need is our need for clarity. To transform our fear of the unknown into confidence in the future, you must discipline yourself to describe our joint future vividly and precisely. As your skill in this grows, so will our confidence in you.

And last, you must remember that your sustained success depends on your ability to cut out of your working life those activities or people that pull you off your strengths’ path. Your leader can show you clearly your better future. Your manager can draft you onto the team and cast you into the right role on the team. However, it will always be your responsibility to make the small but significant course corrections that allow you to sustain your highest and best contribution to this team, and to the better future it is charged with creating. The more skilled you are at this, the more valued, and fulfilled, and successful you will become.

As we’ve seen in each of these roles, the critical skill is not balance, but its inverse, intentional imbalance. The great manager bets that he will prevail by magnifying, emphasizing, and then capitalizing on each employee’s uniqueness. The great leader comes to a conclusion about his core customer, his organization’s strength, its core score, and the actions he will commit to right now, and then, in the service of clarity, banishes from his thought and conversation almost everything else. The sustainably effective individual, by rigorously removing the irritants from his working life, engages with the world in an equally imbalanced fashion.

An Interview with P&G’s CEO

From HBR, awesome read, truly inspirational.

Quote: “Failure is, in my view, all about learning. It’s about learning what you can do better. The learning has to be institutionalized to endure. You create institutional learning. You create institutional memory.” -A.G. Lafley (CEO, P&G)

 

You’re widely regarded as one of the most successful CEOs in recent history. But you had your share of mistakes, didn’t you?

Lafley: Absolutely. A lot of mistakes and my fair share of failure. But you have to get past the disappointment and the blame and really understand what happened and why it happened. And then, more important, decide what you have learned and what you are going to do differently next time.

How did your failures over the years affect you as a leader?

They were all part of my growth and development. What’s the single biggest reason that leaders stop developing and growing? They stop becoming adaptable; they stop becoming agile. It’s Darwin’s theory. When you stop learning, you stop developing and you stop growing. That’s the end of a leader.

Can leaders learn as much from success?

No. My experience is that we learn much more from failure than we do from success. Look at great politicians and successful sports teams. Their biggest lessons come from their toughest losses. The same is true for any kind of leader. And it was certainly true for me.

Can you give me an example of learning from failure at P&G?

We learned much more from failed new brands and products like Dryel at-home dry cleaning and Fit Fruit & Vegetable Wash than we did from huge successes like Febreze and Swiffer.

This is one of my favorites: In the 1980s P&G tried to get into the bleach business. We had a differentiated and superior product—a color-safe low-temperature bleach. We created a brand called Vibrant. We went to test-market in Portland, Maine.

Why Maine?

We thought the test market was so far from Oakland, California, where Clorox was headquartered, that maybe we could fly under the radar there. So we went in with what we thought was a winning launch plan: full retail distribution, heavy sampling and couponing, and major TV advertising. All designed to drive high consumer awareness and trial of a new bleach brand and a better bleach product.

And then?

Do you know what Clorox did? They gave every household in Portland, Maine, a free gallon of Clorox bleach—delivered to the front door. Game, set, match to Clorox. We’d already bought all the advertising. We’d spent most of the launch money on sampling and couponing. And nobody in Portland, Maine, was going to need bleach for several months. I think they even gave consumers a $1 off coupon for the next gallon. They basically sent us a message that said, “Don’t ever think about entering the bleach category.”

How did you rebound from that setback?

We certainly learned how to defend leading brand franchises. When Clorox tried to enter the laundry detergent business a few years later, we sent them a similarly clear and direct message—and they ultimately withdrew their entry. More important, I learned what worked and was salvageable from that bleach failure: P&G’s low-temperature, color-safe technology. We modified the technology and put it into a laundry detergent, which we introduced as Tide with Bleach. At its peak, Tide with Bleach was a more than half-billion-dollar business.

Consumers still use both bleach additives and detergents with bleach. So it ended up being a win-win for consumers, retailers, and manufacturers. It created more category consumption, a better at-home cleaning experience, and a better value proposition for all concerned. But we learned that head-on, World War I–like assaults on walled cities generally end with a lot of casualties.

How did you use failure as a tool?

Many CEOs—including me—use innovation and acquisition to grow organically and inorganically in a balanced and sustained way. Both innovation and acquisition are risky and have high failure rates: 80% plus for new product innovation in our industry; 70% plus for acquisition. So I had a team at P&G do a detailed analysis of all our acquisitions from 1970 to 2000. And the sobering story was that only 25% to 30% succeeded in that period. “Successful” meant “met or exceeded the investment case and going-in investment objectives.” Partial success meant “exceeded the cost of capital.” We studied the failures in detail. We pinpointed the problems and discovered patterns in our mistakes.

Did you discover why P&G failed at acquisitions so often?

Yes—not surprisingly, it’s not rocket science. We found five fundamental root causes of failure:

(1) The absence of a winning strategy for the combination. (2) Not integrating quickly or well. (3) Expecting synergies that don’t materialize. (4) Cultures that aren’t compatible. (5) Leadership that wouldn’t play together in the same sandbox.

How did that analysis alter things?

Once we had identified the problems, we focused on what we had to change. How should we organize for each phase of the acquisition? What processes should we put in place? What interim measures would tell us whether we were on track or off track? It’s just a disciplined process, and you put somebody in charge of each phase of the process.

Can you give me an example of using that process successfully?

When we acquired Gillette, in 2005, which was one of the 10 biggest acquisitions ever, we put a team and a process in place to avoid our past failures. We put Jim Kilts, Gillette’s CEO, on P&G’s board, and we put him and Clayt Daley, P&G’s CFO, jointly in charge of the acquisition integration and value creation. We identified all the value creation elements. We identified the integration sequence and elements. We put a pretty senior manager in charge of every value creation initiative. Bob McDonald, the current CEO, was in charge of integrating global operations. Filippo Passerini was in charge of integrating the back room and IT; Rick Hughes was in charge of integrating all purchasing; and so on. We tracked progress for every value-creating initiative using a simple red, yellow, green process: “We’re on track,” “We’re not on track.” And we just drove every phase of the integration, every building block of value creation, to completion.

How do you measure success on that acquisition?

We ended up delivering more than 150% of the originally estimated cost synergies. So the cost synergies alone created enough value to make the Gillette acquisition a success. The revenue synergies, which continue to come in—for example, in oral care we combined the Crest and Oral-B brands and all of our oral care product innovation—all come on top of the cost synergies.

After you started using the new process, how did P&G’s track record change?

Knowing what went wrong from 1970 to 2000, we were able to shift our acquisition success rate from below 30% to above 60% over the past 10 years. The whole idea of really studying, really going to school on failures, is so important. Because failures aren’t the opposite of success. A lot of people think there’s success or there’s failure.

Failure is, in my view, all about learning. It’s about learning what you can do better.

As a result of your new knowledge, was Gillette a perfect case study of incorporating an acquisition?

No, Gillette was not perfect. We conducted ongoing evaluations of every element of the Gillette acquisition. There were a lot of things we could have done differently and better. Especially on the people development and growth front. I personally spent a lot of time trying to ensure that the people on the leadership development list at Gillette got the right kinds of assignments, but we lost a few people we didn’t want to lose—and we didn’t get every Gillette player in the absolute right position to start out. We will capture those lessons—and apply them to the next one.

Did you ever make a mistake in what you didn’t do—rather than in what you did do?

I had some big misses in my 10 years as CEO. I missed two potentially transformational acquisitions: one of a leading global beauty and personal care brand and one of a health care Rx to OTC switch [from a prescription to an over-the-counter brand]. In the first, I had the majority partner on board but couldn’t close with the minority partners and lost the deal. In the second, I had a promising discussion with the CEO of the health care division, who was very open to swapping his Rx to OTC product rights for a P&G prescription drug in late-stage development. The CEOs were aligned; the CFOs were working together to get the valuations right for each company and to pin down the terms of the deal. It would have been a terrific deal for P&G.

Why?

When I came into the job, in 2000, we were de facto in the health care business. We were in the prescription drug business, the over-the-counter brand business, and the branded nonregulated health care business. I liked consumer health care, but I was skeptical of the prescription drug business. It isn’t a consumer-driven business—doctors write prescriptions, health insurers pay most of the cost. It isn’t really a branded business. On top of that, prescription drugs typically took 10 to 15 years to develop—at huge expense—and the lifetime of a prescription drug was limited to, at most, the length of the patent or 14 years. Prescription drugs weren’t really in P&G’s competitive sweet spot. They didn’t match up well with P&G’s core strengths.

So I thought we needed to migrate or sell out of the prescription drug business and invest more in over-the-counter nonregulated consumer brands. A conversation about this was going on with management and with the board when this opportunity came up and we learned that a major drug was going to be switched. Our idea was to trade one of our prescription drugs in the final phase of clinical trials for the drug they were going to switch to OTC. In proposing that switch, I was trying to get some level of commitment from the board and the management team for the strategy I wanted to pursue, which was ultimately to exit the pharmaceutical business. [P&G eventually sold its pharmaceutical business to Warner Chilcott in 2009.]

What went wrong?

At the last minute, the heads of our health care business, the head of R&D, and a prominent board member from the health care industry all surfaced opposition to the deal. And as I thought about it, it was perfectly rational behavior on their part. The leaders of the P&G health care business wanted to keep the assets and businesses that they had—they didn’t want to give up one of their promising prescription drugs. The head of R&D had put a lot of time, money, and personal effort into developing the drug we were going to swap. And the prominent board member believed that we had promising prescription drugs in development and that we should see that development through to the end.

So you abandoned the deal?

Yes. And it ended up being a huge mistake. The switch was eventually done by the parent health care company and it turned out to be the third biggest switch from prescription to over-the-counter ever, after Tylenol and Prilosec. So that was just a huge disappointment.

What lesson did you take from that failure?

That the deal really wasn’t about the rational business case, it wasn’t about strategy, and it wasn’t about the economics and financials. Those were all buttoned up and, frankly, pretty attractive. It was about managing the human motivators and human behaviors and the different personalities. I just didn’t see this alliance forming between the leaders of the business, the leader of R&D, and one of my more influential directors. This is a case where politics was stronger than economics. A case where the long-term strategic merits really didn’t matter; the shorter-term interests of individuals carried the day. We got trapped in a debate about whether P&G’s prescription drug or the OTC switch was going to be a bigger and more profitable business—and not whether the prescription drug business was a good strategic fit for P&G. Or even a better strategic fit than other health care and personal care businesses we could have put our cash and talent against. We were playing small ball instead of looking at the big picture. Color me naive on that one.

What did you do differently after that?

After that, I tried with any major decision to think not only about the strategy, economics, and financials and the business case, but also about who was going to be influential in the decision and how I could manage that individual and not ever be caught off guard again.

What advice would you offer other CEOs about learning from failure?

First, some of the most important and insightful learning is far more likely to come from failures than from successes. Second, the learning has to be institutionalized to endure. Otherwise you keep making the same mistakes over and over, and you don’t learn from them. That’s why we did in-depth analysis of innovation failures and in-depth analysis of acquisition failures. We were forcing ourselves to come to grips with reality and to report to both management and the board annually on the failure rates of these two critical growth drivers. It doesn’t do any good for me to learn something personally if the institution doesn’t learn the same lessons. You create institutional learning. You create institutional memory.

It’s not enough to take responsibility for your failures. It’s important to create a culture that turns failures into learning and leads to continual improvement. If the leader of the company doesn’t do that, it’s very difficult to get the culture right. It’s crucial to creating a culture of courage and openness to change and continued improvement.

The topic of failure is very important, and it gets more lip service than good practice. I think I learned more from my failures than from my successes in all my years as a CEO. I think of my failures as a gift. Unless you view them that way, you won’t learn from failure, you won’t get better—and the company won’t get better.

Do’s and Don’ts for Entrepreneurs

Don’t Try to Please Everybody For everything you do in business, there will be some people who like it and some people who don’t. You have to live with it; don’t try to please everybody. Consider the iPod for example. Some people complain that its digital camera doesn’t come with a flash or a powerful zoom. If Apple were to comply with every request they get, they would end up with a big, ugly product that nobody would like.

Learn to say no to some people so you can better serve your real market.

Appearance Matters
People will judge you by your appearance. Is it fair? Probably not, but who cares? The truth is that if you show up for a meeting wearing a dirty suit and driving a crappy car, you won’t make a great first impression. Look great and people will pay a lot more attention to what you have to say.

Don’t Surround Yourself with People Who Don’t Let You Grow
You know who I’m talking about: those folks who, when you tell them about your dreams and goals, either laugh at you, tell you it’ll be impossible or that you’re not ready for it. Unfortunately, there are a lot more of these people than those who will support you, and the worst part is that the short-sighted people around you are usually your spouse, your best friend or a close relative.

Don’t be mad at them. They’re trying to help you to avoid doing what, in their opinion, is too risky. But, don’t listen to them either. When someone tells you what you want to do can’t be done, what they’re actually saying is that they don’t have the balls to do it, but you’re a different person. You can’t be too young, too old or too inexperienced. Always be hungry and work for what you want. Life is way shorter than we think it is. Let’s not waste it.

Thoughts Aren’t Real
Every time a thought comes to our minds, we feel that we need to do something with it. We don’t. A thought is not reality; it’s just a thought. For example, let’s say you have a presentation tomorrow morning and a thought enters your mind: you will screw up and people will laugh at you. You will then get sad at the fact that you might screw up and you’ll be anxious all night and won’t be able to sleep well. The next day, you give an outstanding presentation and you don’t screw up at all.

As it turns out, you spent 10 hours worrying about something that never happened. Thoughts are just thoughts; nothing else.

Have a Vision Board
A vision board is a whiteboard with pictures of things you want to accomplish. You can put a beautiful man or woman, your favorite sports car, a gorgeous house, a beach vacation, family time or whatever you want to accomplish in life. I have my vision board as the background image on my computer desktop, so I see it every day. Put your vision board in a location you constantly see.

I know this sounds a little spooky, but it really works. It has worked for me and a lot of my friends. As it turns out, having a constant reminder of what you want in life keeps you on the right path to getting it. I usually put ten things or so on my vision boards and at the end of each year I usually accomplish about 80% of the goals I set for myself. When this happens, I create a new vision board.Try it. I promise you it works.

You Need to Invest 10,000 Hours
In the book Outliers, Malcolm Gladwell explains that it takes 10,000 hours of rigorous practice to really master a skill. Running a business is a very complex skill or set of skills, so don’t expect to start your business and be a great entrepreneur and leader in 10 days. Work hard on perfecting your skills. And never ever give up. If something doesn’t work, try it from a different angle or try something else, but don’t give up.

There’s this great guy we’re working with. He told me a great story. His son told him he wanted to be an NBA player. Most parents would tell their kids, “you better have a plan B, because it’s almost impossible”. Instead, this is what this guy told his son: “I believe you can be an NBA player but you need to change a couple of things. LeBron and Kobe Bryant used to spend eight hours a day shooting hoops. You spend eight hours a day playing videogames. If you change your habits and work hard, I think you can make the NBA.” Brilliant.

Don’t Over-Obsess About Your Competitors
Some business owners waste too much time looking at what they’re competitors are doing. Don’t do that. Innovate; compete with yourself. Spend some time every once in a while analyzing your competition but don’t over-obsess about them. See their websites and their specials. Where do they advertise? Have they been advertising in the same medium for a while? Well, it must be paying off for them, right? Did they launch a product and took it off the market right away? It probably failed, right? Ask them for a proposal, see what they offer and how they present their solution.

Get ideas from them. But, at the end of the day, it’s your company that you have to run, so focus on making it better.

Read Business Books and Magazines
I read two business books a week and some magazines too (my favorites are Inc, Fast Company and Entrepreneur). I love learning from other people’s experiences. They’ve made a lot of mistakes and I, by learning from them, can avoid making the same mistakes. Also, reading opens up your mind to new ideas and gives you the tools to solve the challenges you’re facing.

Read a lot. Most successful entrepreneurs said that one of their keys to their successes is reading a lot.

It’s All About Having the Right People on Your Team
I always knew that having a great team was important, but now I understand that is more important than anything else (by far). Having a skilled, excited and hard-working team allows you to delegate effectively so you can focus on your business strategy.

Take Care of Yourself
Working hard and making a lot of money is important, but being healthy is more important. The best part is, being healthy makes you a lot more productive and effective at work! Work out often, spend time with your family and friends, sleep enough and eat healthy foods. When you’re burnt out, don’t keep working. Get out for a while, play a sport or do something fun. You’ll be re-charging your battery and when you get back to the office, you’ll be unstoppable!

Why Isn’t My Company Making Money?

Don’t wish for success–plan for it.

Some people are in business to save the planet or share their unique gifts with the world. Some people are in business just to make money. Either way, whatever a business does, it succeeds by making money.

So let’s forget about social value, put aside purpose and look at a simple question: How do I make money in my business?

For most business owners, the answer is simple: We only get what we want if we manage it consciously. Do you manage your company’s money every day, every week and every month? Whether you’re hard-driving with huge goals or you just want to see results improve a bit, a simple plan and a bit of attention will go a long way.

If we don’t make a money plan and track it daily or weekly, then our subconscious attitudes and assumptions will manage our work, time and money. That will keep us locked in at the same level of profit–and net revenue–month after month.

When things are going well, you put on the brakes and go easy on yourself. You do that each week. You push when it’s slow; you ease up when you are doing well. That’s exactly the mentality that limits your business’s potential.

And results never improve.

That’s the problem. What’s the solution? Make a plan, track work, income and expenses daily or weekly, define the work, and track progress monthly.

1. Make a plan.
Your money plan can be a simple Excel spreadsheet. The key is to link work activities to income. What does each employee do that makes money? What do you sell?

If you sell products, then you need to make individual sales projections. If you sell flat-rate services, then you need to track contracts closed and the dollar value of each contract.

If you sell hourly services, then you need to track contracts closed and billable hours. The basics are:

• Set up goals and consequences. Let each team member know what they contribute to the team, and make sure they get incentives. Whatever is good for the business has to be good for the employee. Incentives include recognition, thanks, appreciation and, of course, more money.
• Give each team member a choice. Set a range, with a low goal and a high goal, and provide tangible incentives for achieving the high goal. This gives the employee a sense of control. During a good month, they make the high goal. During a month when their kids get sick a lot, they still know what they need to do to satisfy you and be secure in their jobs. When people feel safe but also have an opportunity to contribute to get more, they are highly motivated.
• Avoid de-motivators. Keep distractions away from your team. If team members are worried they aren’t doing well enough, or that the company isn’t doing well enough, they won’t work well. If they feel threatened, they won’t do well. If there are unclear expectations about some part of their job, it will cut into their work time. So give everyone a clear job description and let them go for it!

2. Track work and income daily or weekly.
Check in weekly. Each week, track employees’ time and numbers with them. Ask how things are going and how they can do better. Don’t pile on pressure. Do be clear, encouraging and specific. Look at the work in relation to the plan. This is key. Don’t look at work in relation to interruptions or excuses, or anything else.

Begin with a clear commitment and, in a no-blame environment, take an honest look at the gap between the plan and actual achievement. If the team member isn’t meeting the goals, find out why.

When you find the cause, determine if it’s a one-time thing or if it will happen again. If a blizzard buried your town or the guy was off on his honeymoon, then let it go and get back to work. But what if the cause of the problem is ongoing?

This is when you need to decide whether the cause of the problem is in your control, under your influence or outside your influence entirely? Then begin working to fix things that are either in your control or under your influence. If it’s out of your control, accept what you cannot change and figure out what you can do to reach your goals.

Sometimes the solution will be obvious and practical. Other times, you’ll have to get creative. Do whatever it takes!

4. Define all the work.
Employees who aren’t in sales may not be adding to revenue, but they’re affecting the bottom line. Every team member contributes to delivering value to customers, reducing cost or reducing risk.

Find the critical success factor that each employee contributes to the company. For example:

• A marketing assistant may send out notices, announcements and ads that increase business.
• Your tax accountant reduces your taxes.
• A security guard prevents break-ins, thefts and attacks on employees.

When critical activities are defined, it makes the employee’s job worthwhile. This is not a job description to file with HR. This is a tool that the team member uses daily to stay focused and that you review with them to help them improve and add more value.

5. Track expenses daily or weekly.
Too many businesses let their financial information pile up in a shoebox until the end of the year and then hand it to an accountant. Money is the lifeblood of a business, and you should be taking your financial blood pressure on at least a weekly basis. How much money are you spending? How does that compare to your plan? Are you spending the way you planned to spend? If you know the answer to those questions weekly, you can correct course and speed, and reach your destination.

6. Track progress monthly.
The final step of this plan is checking progress–or income–monthly. Ask yourself what you can do to earn more and spend less, and how you can deliver results sooner and get paid faster. As you keep finding ways to improve in these areas, you’ll build momentum and reach greater net revenue sooner.

Businesses succeed by linking each job to earning money, reducing cost, delivering better results sooner or reducing risk. Motivate your team members by letting them know that what they do matters. Then show them how to make more of a difference, week by week and month by month.

Do this and you won’t just meet your goals–you’ll exceed them.