Leadership Under Fire tay seem irresponsible to think abot the middle of war. Sut your leadership is really tested t business in only when you come under attack ‘Om ME, THE RECENT EVENTS inthe Middle fast have been a painful re minder of one of the most important Jesons for any leader: You doat really now what it's lke to run a business until youve had to doit ami the tu rmeil of wat Ins9¢1, [was the general manager of Ince’ operation in Israel, which a the time as (and stil today i) the con ppany’s largest unit outside the United States Duriagthe First Gulf War, faced what was the moe difficult test of my entire carer: whether to Keep intel 1 ‘el up and running during iraq’ Scud nisi strikes against frac or close the ‘operations until he criss passed. Of course. many businesseskeep fune- tioning during wartime, Sut inthe days before the Fist Gulf War, Iroc co fronted what appeared to be an un reat. The fae military by Dov Frohman assumed that Iraqi missles would be canyingchemical weapons The govern ‘ment distributed gasmasks andardered every household to prepare a special Sealed! room in cate of ehemical asc “Most serious from a business point of view, in anticipation of the missile strikes, the Isai civil defense authority lected all nonessential basineses £9 lose and ther employees to remain at home. The radial uncertainty ofthe st uation = not knowing how many mis- siles would fll where they would fl, vwhat kind of destruction they would in- fict-threatened o bringour business to ‘aha, even before a single missile had been launches. would have beeneasytofollow the cil defense directive and close down. Everyone was doingitand we were no part of the war effort Intel senior ex cecuthves In California would have ureparents were Polish jews who by igrated before the war to Holland, where Lwas born in 1939. But after the German invasion ofthe Low Counties, they were taken and eventually killed by the Nazi. I survived only because the Dutch underground placed me with a devout Christian family in the Dutch ‘countryside who hid me for the dare tion ofthe warn rettospect, Ian see how this experience inculcated in me a stubborn conviction that survival must never he taken for granted ~and ako thae the actions of determined indi- viduals can have a truly heroic impact on events ‘My vision foe intel fool had always ‘emphasized survival ina highiy volatile Jndustry and region. As used to putit, I wanted to create an organization that ‘would be the last to chose in 2 cts. To be honest, many Intel Israel employ- ees, including some of my direct re- ‘ports cdr’ much lik this vision. they ‘thought it wastoo negative."sthat the best we can do? they would 2st, just ULV 2007 AND HO boing closest dovin2" So event ally, we came up isith a simple slogan? Survival through success” Iwas convinced that a complete shut down of oureperstions threatened both the success and the survival of Intl Is tect. Managing a major unit ina global corporation isa continual fight for re sources When we frst proposed setting lupthe Jerusalem fab lathe eary 1980s, Wwe were put in competition with Ire land to see which country could de velop the better proposal. We won that round and by the early "90s were a: ready starting the process of negotiat ing and lobbying inside Intel to per- sade senior management to expand the Jerusalem fab, 1 kev Intel's leaders well and had ‘00d relations with them. [had worked. ‘with Andy Grove at Fairchild and been amongthe fist generation of employees afterhe, Gordon Moore, arxi Bob Noyce ‘founded Intel in 1968. I was confident that if we had to interrupe production due othe war,execurivesin Santa Clara Vsit: www.exed.nbs.ecu/pam/ciphbr/ mal: exactive seueationdNteedu Teleghone:-800-HB5-5577 (outside the US, dil +67 -495-6555), ext 4 ‘would uncerstanc | wast worried that there would be a negative impact mthe short term, But 2 te growlager decision mak Inghecame more decentralized The key stumbling block to further investment in Israel was the lingering impression ‘of geopolitical instability inthe region. Indeed, we had already had a numberof struggles inside the company over the tuansfer of strategic technologies and citcl producisto the Israel operation. Therefore, { was convinced that if we had to interrupt production, even for a ble periogof time, we woud pay ase- ous price over the long term. ‘had had aglimpse ofthe risks uring phone conversation with Inte’ then ‘executive vice president, Craig Barett, in September. Barett was on stopover fn Amsterdam on his way to Ira) for 2 routine annual operations review. But he called to tell me that he was considering canceling the wip.*Grove {s wortied about my coming to Israel” he told me, referring co the company’s (SAND HERE. BATeady resumed. At the sound of the "Scud Business as Usual” die of the wock, the civil defense au arm, the employees ha evacuated The second Scud attack came early thority was urging all Israelis to g0 te the scaled room, exept fora few on Saturday. No one was filled, but _ back to work, he fact that we nee who had agreed 1 stay behind man some people were injuced. ites em- open for business was no longer 50 Some etching machines that needed _ployees in Jerusalem Kept coming t0 unusual. Stil, because the school Continuous tending to keep the flow work. And when the dovign center in stayed closed absentee at mst ff materials going. After the report Halfgopened on Sunday @thefiot day of businesses remained high. The ses thatthe misiles had landed, employ- the normal lack workwees), cutout es enormous, an | ar my team did ‘cs nore given the opportunity t0 call wasup to 0%. all we could to boost employee mo- home before returning to the clean after the fis few days we entered s rae (See the sidebar “ntls Wart: roorn-Things were tenseybut relatively period that Itook to calling”seud busi Kindergarten”) normal. Pessasusual"Atackscontinued tohap AS our actions on the night ofthe Whenthetasktoreecomenedhatfan pen. On Tuesday night, for example, fist tack sugges, constant commun ourlate.ne eafirmedtne decsionto after two days with no Scud there vas cation was esental The as force Met Callpeopletowork.Managershadt@ be an atack oui Tel Aviv tht led to ily to ass the rapidly changing st contacted andinstructed what tsay9 thedeaths four people, wounded 96, uation and plan out cranunications their stats Empkyers had tobe called and left hundreds homeless But we forthe day We used every means we dnd told thatthe plant would indeed earsedanastfeverything were normal, soul phone emailonsite meeting be open- The transportation company and noone tried 1 stop ts. By the mid- face-to-face conversatons~to keep our needed ro devise alternate routesto ct around police roadblocks In the chaos ofa cts Stuation, clear communico- tions are especially importan..sowe | Lessons for Leaders spent the bulkof our time planning ex actly what to 52) to our workforce and coordinating ou communicons wth ‘oar counuerpars at intel in the United States, who would be wondering what impact the missile attack was having on oaroperations, some 75% of the employees on the 700 aw sie made i othe plat ‘though I hadhittol@anvone, had been expecting maybe Sox. The relatively high tumout was amaor endorsement a Cri Ss rere ees Teta ureter gece ora aneetmlace Geese svar pea car gee eo pt Se ena Wee mune sr asouracader fae re ee eee fea er estaee su ean eacteS Reece eere mesina teen a Pcie ne na aretaersier soe anes ere eee ie eaten ene Nihari ee tenon cntenrale etc tee oocte| (neces oe __immribic ater bang ah pt | Le Sart ce Sete mentee need foneivitowsigetededine! |) Sosy ata ratecone borg tenopecs tae save seabrecuesisinncitenea | 29 te sharpest pcay an een sthelntbense an nrtoall | 2 lc ans erggogne saree tenon atone thatooteaniat | 2. mmanaqeisen minors hredsoweicor the reaction wos gg tobe and | ern ants re ned tem oe tnt el el | sia encod in ai od in wecoperangstomalocate | ot aac gann re patente Norma a pole dr he cums | or naan bsyavent tapos eeu Sensei nadie | sayin Asc oe ou raeaertne bee tSrmancpentatweverntéache. | enclosure rune wee seyenpis cone © werk vio | furemniemig ure vacecigugunicouctcisunni- thats ar ron eae end. | snd rn acpi ae ee Rerpetamclmetins ae | Gecueanrteeetemste re erarmein aed ee sein atin ake | SS se me ex pps nl crusheerersramie nie | ry Ocarina anton ornament en i eee orcensen 2006 129Wr Morethen 200 nere wounded by bast, Aving sles anasivapnel. Property darn. age t0 4,000 buildings wa fn the nil Hons of cells. And 3,600 families fad to pe evacuated, “The war had indirect esonomic costs as well. According t the Israeli Min= istry of Finance, industrial output dur ing the war was at about 75% ofits harm lovel. The coss to the Israeli «economy in lost output totaled appeox lately 53 bln, ‘At nt! irae, se wore extremely for tunate, None of the Seudslandedin the Jerusalem area, here most of our peo- ple worked. No Intel employee ofa fly member was injured o° rendered homelessby the attacks Andin terms the economic impact, both the Jer ‘lem fb and the Haifa development center were able to meet al of their ‘manufacturing and product develop- Looking back, realize that the dec slonto keep Inte sel up and rune during the First Gulf War wes not a5 acc 38 seemed a the time. And yet, to this day, rematn comuinced that meeting our commitments to intel dur ‘he War was critical to the Fut evolution of into srael and, indeed, ‘ofthe entre sae high-tech econemy. [A few years later, in 1995, intel broke found for a second semiconductor plantin tee, at Oiyat Gat,on the ou shirts of the Nege Desert. n 1999, the Headquarters was 7,500 miles away. They simply had to trust us. Haifacenter won the asignmenttode- velopthe Centrino portable-computing technology, which was launched in 2003. And in subsequent years, when- ever we got any push-back about doing major projects in Israel, it was always helpfulto remind ou colleagues that, 26 thoexperience duringthe ware dem onstrated, “tel Israel delivers no mat ferwhat” ‘Today Intel sac isthe headquarters for the company’s global R&D and product development in witolss tech ology, a8 well as a major cemter for Chip fabrication. ‘The oxganization is [orae’s largest private employer (and second lanes employer overall, with a workforce of about 6,600, whieh is Set to reach nearly 10,000 by 2008. In 2005, intel Israe’s exports toraled $1.2 billion and represented 14 of the total exports of isael’s electronics and information industry. And in December 2005 fntl announced that it would in- vest an ational $35 lion in anew fab in Isroe, the largest single invest smentby a corporation inthe history of the country. Sees nena Reprine RO6I2H, Toorder, seepage 15, now ond then! ran a background chech om if jt to mohe sare Ym realy ‘that gooY- The Three Tensions Every Company Faces recut oben feaite foctsen ‘Symptoms of Being Wapped by theTension fshand a posuctty puch * > Giving preety toredicing costs inet srae an to boostn ‘own boom tino i > Lower flog shor oF pice ole tie cepts > Fling mort growth > Reduction nsesune gerne incessig conotoly > Hp eco reltie to Min contrast, achieved both positive economic prof. ‘bility and real revenue growth in ten years out of the ‘abatling average of Sox. Atthe other endof the scale, Panese automotive company Daihatsu managed to hieve both atthe same time in only five years: a batting ‘erage of 255, Why does your batting average matter? Performing, allon different objectives at the same time is necessary serve the competing interests of cliferent stakeholders. swinstance,a company that is growing will ind that its ‘ie to provide Fulfilling jobs; and acompany that isproe ble will be able to pay higher wages and henerits; only company that i growing and profitable will be able to ‘ve both interests simultanously. But are starehalders ally better off when companies reconcile such objec- ‘es atthe same time? Doesn't it make sense to grow, en consolidate and work on profitability then gofor the at phase of growth? lent accepting losses now patt Of 2ating profits lat > Swinging becneon Youson egy od foc on erecta > inseesing okance on pray ‘ater ta nth 2 acne ear. lags row eaves > bitcutyin nro erg trots winout elayraineserets | > Lower ting ister compare wih earpasto andrltvot | eameos oath Investing at sre en > Deboteosoetaccsuntiey > Fon lary interacts ng basse unt or between buses > Strong separate cul onitos ‘rss business unis cr furcions | > Acta of bare nd finger pati ‘Itturns out that there isa close positive relationship be- | tween batting average and total sharebolder returns (TSR). We found that for each tension foc which we could ‘measure performance at all of our 1,090-phs companies, batting average isa better proxy for TSR than any other ‘measure in common wse today, such at earnings, earnings er share, EBITDA, economic profits, price turing economics of scale Without high or increasing cs- tomer benefit the only way to aoguite an retain nen customers for the company o hee payingallsich ests {seit Gromth based on customer benef clearly mote likely to be compatible with profitability. What’s more,re- ducing the cos that are unnecessary for improving Gus tomer bencfit="bad costs” wil deliver higher prota iy without damaging grant. Diferent leaders have adopted different tactics 0 keep their companies’ focus squarely on customer bene ‘fer the 2003 actistion ofthe Adams Confeionery business, Cadbury Schweppes CEO Todd Steer asked the team to give him a strategy to grow the market rather ‘than just the company's market share. ing about share makes you Took to competitors asking about mar ket gromth moles yu lok tothe fundamental customer benettof the etegory. Cadbury wets aproachin te US. chewing gum market to develop a product derclop- ment and marketing strategy that would deliver new com $mer benefits beyond breath freshening, for example, nManaging the Right Tension The Three Common Bonds For eacvof te three tensions thee ts @ necessary inaredlent that must be nurtured in order forthe mo objectives to complements rater than 25 val force ifthis element is ignored, ood performance on ene objective wil in- ‘evtably ead to por perfocmance on the ether feates Common Bond Questions Manogors Should Ask to Martre Bonds Proftbiliy Canomerbonefc at ae the corer beefs or predicts nd ss? vers Thcrenerlaisones: | Howistis prjectorimennent inendato gow caso sew receive troup tet bene? jxpereneeochoning Wat eb wed row mare sizeraterthen jos mare sone? el eg t etetees p | aAmueem tat on gcatig re chive ped rsa serve ted ies? Fer nbich feu cus or Gure omer i lig tp? ‘ere ae ee bed os wd low cestrer benef ou bine? How does ale gerevate atom tenets? How do or actusions cent nw ormore cst bers? ‘Shortterm Sustainable earsi ‘what proportion of our current earnings are sustainabie? versus Eamings that are not ‘Whit is our longterm cutlookon the key variable in our inustry? tong tm inlucseed by bore Da wethinkof our busing bordel bereisor products? ing fom the future Casting longterm in. vestmert) o lending Does the corporat center have visibility nt sustainable versus | transitory earings across the business unit? ‘Aree giving a dear ine sight to investors en sustainatie Detweentime fames | eumings?’ (at are cur mediur-term pirties~and how do they ko our | stoner-and longer erm pistes? ‘What ealef earnings growth is just above median? itole Diagonal eects: wnat are our alageral assets ard what are we ding to versus Sree | stengthen ther? pats ‘soiices thee help Wher could we standaciz ratherthan centralize? companies improve standalone business unit performance and create corportesyn- ergy atthe samotime What behavorl norms define our identity as. company? Do we have a compelling story about how we ae going tow ssecompany? ‘Canwe better rar decentralization with centialiration? ‘What comparynide processes should becativsted? - ‘Canwe we phyzisl proximity 3:3 diagonal eee? ‘onother activities for improving customer benefits where the units can add more value. But if the corporate center charges back the costs of logistics through an opaque transferpricing mechanism, or if the businesses suspect that the head of logistics is slacking on his job, then any benefit ofa sharper business unit focus from centalization, be swallowed up in argument and mistrust Shared lo istics might well be a source of new synergy value. A, bectnsen 2006 sharper management focts, trained on the more impor. ‘ant points of leverage for the business unit, could be a souuce of new standalone value. However, it takes diago- nal assets in the form of trus and transparency to realize ‘both types of value atthe same time. The same is true fOr Other hinds of synergy. A shared belie in a higher-order purpose can be an important diagonal asset. According to ‘Andrew Cosslett, CEO of InterContinental Hotels" People B