Leadership Is All About Looking in the Future - Time Span How It Applies to the Decline & Rise of Corporations
Recently Ford, GM and Chrysler suffered their worst financial losses. These auto companies have been scrambling to refit their production facilities in North America to produce smaller more gas efficient cars. But this takes time. For example Ford hopes to bring six new small vehicles to North America from Europe by the end of 2012. What do you do in the meantime if your sales for large gas guzzling vehicles have plummeted? GM, in an effort to induce hourly workers to retire early, is offering to pay its production and trades people with more than 26 years of service lump sum payments of $50,000 to $60,000 respectively plus 65% of their wages until retirement. These inducements are required because many of the large GM vehicles are no longer in demand. In the meantime companies with an array of smaller vehicles such as Toyota and Honda have been growing and taking market share away from the three large North American based auto companies.
Why didn’t the auto executive see this coming ten to twenty years ago?
Perhaps they were mesmerized with the high margins that the large vehicles provided on a quarterly basis. These western auto companies are at least 20 years too late in developing efficient vehicles and to survive these companies will likely have to merge or declare bankruptcy to jettison excessive legacy cost that have accumulated when they were much bigger companies.
In another industry the Western based oil companies such as Exxon and Mobile are making record profits but they are facing some of the steepest declines in their history in their supply of oil. Along with mature oil fields these companies have contracts with producing countries whose governments allocate fewer barrels to oil companies as prices rise. As late as the 1970’s the western oil corporations controlled over half of the world’s oil production. Now the western oil companies produce only 13%. Today’s 10 largest holders of petroleum reserves are state-owned companies, like Russia’s Gazprom and Iran’s and Venezuela’s national oil companies.
The Western based oil companies are now hemmed in with few options. These companies have tried to diversify. They are tackling hydrocarbon resources, like deep water reserves, heavy oil or tar sands. And some companies, like Shell and BP, are investing in renewable resources.
Unquestionably, these oil companies could have done more. They failed to invest heavily in exploration and alternative resources after the oil-price collapse in the mid-1980’s, which lasted through the 1990’s. Even in 1997 the top oil companies were spending 34% of their cash to buy back their shares to in effect prop up their share price and they were spending a mere 6% of their free cash on exploration. Oil companies are now allocating more of their cash in exploration but it is not going to be enough to offset their upcoming decline in oil supplies. These oil companies are 20 years too late in reacting to this supply crunch.
The answer to the serious problems faced by western auto and oil companies may revolve around time span. CEO’s of large complex organizations are working to shape their corporation’s role in society for decade to come. The following table shows the organization strata defined in terms of time span:
50 years plus
Large, Complex Global Corporation CEO. Examples GE, GM, Toyota & Exxon
International Corporation CEO Examples Bombardier, Magna & Nortel
Group Vice President International Corporation EVP Responsible for Multiple Business Units
Business Unit President or CEO of a mid-sized company
VP GM, Large Plant Manager or Vice President
Line Manager. Department Director or Senior Professional
Frontline Manager or Professional
Up to 3 months
Frontline Employees or Lead Hands
Whether you are the CEO of a large global corporation or the VP GM of a level IV organization you need to be able to reach out in the future to predict threats and opportunities. The more complex the organization, the longer the time span will be for the CEO’s longest task. If you cannot predict or anticipate major shifts such as the doubling of the price of oil or the dramatic decrease in the availability of your major raw material your organizations will soon start to decline and may even be bought, merged or suffer the capital punishment of ceasing to exist.
Many CEOs, Presidents and VP GMs spend too much time looking inwardly at short term issues within their organization and not enough time looking outwardly scanning for opportunities and threats in the longer term.
The only real competitive advantage is to be able to predict the future and have your products and services available to take advantage of major market shifts or dramatic technological advances.
It is important that western trained executives change their pre-occupation from monthly and quarterly results to spending a greater part of their time working on how their organization and employees will compete in the future. By doing this they will be able to create the future. For example it appears that Toyota and Honda who work off much longer strategic planning time schedule going out 50 years are better at anticipating and providing the cars that prospective customers want.
In conclusion, it is important that you determine your longest tasks on a time span basis and concentrate on spending more and more of your available time on preparing your organization for the future. It is easy and sometimes enjoyable to work in the weeds and fire fight all day long. If you do too much fire fighting it will be at the peril of your organization and your employees. Executives believe that they should always be busy. On the contrary executive should not be busy all the time and should spend creative time brainstorming about the future to ensure that their companies are not left behind.
During the next several months it may be advantageous to allocate some days to scan the environment and determine the threats and opportunities that your company and your industry face. Once you have determined these threats and opportunities you can then develop a longer term strategic plan of action that will become the President’s longest task.
If you believe that you might require outside facilitation to achieve a longer term strategic plan please consider calling on Mastermind Solutions. Mastermind has developed processes and has the expertise to ensure that your strategic planning retreat is a success. Also for more information on time span and on organizing your management layers based on the longer time span please download the Global Organization Design Report.
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