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The Leader’s Guide to Sustainable Presentation Title Competitive Advantage It’s Not What You Think! Subhead Can Be Placed Here ATD Webinar Presented by John R Childress Dec 8, 2016

A little about John R. Childress • Co-founded an international management consulting firm • CEO and President for 23 years, offices in Los Angeles, New York and London • Focused on Advising CEOs and Senior Teams on Leadership, Culture and Execution LEVERAGE: The CEO’s Guide to Corporate Culture published in 2013 • FASTBREAK: The CEO’s Guide to Strategy Execution published in 2014 • Major transformation engagements in Nuclear Power, Pipelines, • Retail, Financial Services, Transportation, Energy, Manufacturing, Defence and Aerospace Currently, CEO Advisory and Keynote Speeches •

John’s Blog: Rethinking . . . http://blog.johnrchildress.com

The Search for Competitive Advantage § “Comparative” Advantage: § a firm’s ability to produce a good or service at a lower cost than its competitors § “Differential” Advantage: § when a firm's products or services differ from its competitors and are seen as superior than a competitive offering

Competitive Advantage Can Be Short Lived British Airways Air France KLM SAS Lufthansa Swiss Air Alitalia Iberia

Is There Such a Thing as Sustainable Competitive Advantage?

“Sustainable” Competitive Advantage A capability or set of conditions that confers a long-term advantage that is not easily duplicable or overcome by competitors and that provides resilience and/adaptability to external forces of change.

Foundations for a Sustainable Competitive Advantage • Healthy Corporate Culture (aligned with Strategy) • Robust Execution Process (with Governance and Discipline) • Leadership Courage

Corporate Culture as a Competitive Advantage

A Healthy Corporate Culture (aligned with the business strategy) Culture is how employees act when the boss isn’t watching! ~ Herb Kelleher, Southwest Airlines Corporate Culture is not an initiative, but the enabler of all initiatives. Culture impacts performance, either positively or negatively, by setting our the informal rules on how employees go about their work, how they interact with each other, what they believe about the company and management, and how they treat customers.

Corporate Culture is like the water in an aquarium. If it’s clean, everything works; if it’s foul, the whole aquarium is impacted.

• Pockets of resistance New • Malicious Obedience • Global Forces Strategy Strategy • Increase in Meetings • Competition • Cynicism • Regulation • Work Around the New • New Structure New Technology Structure Structure • Poor policy implementation Previous Culture Culture

Impact of Corporate Culture on Business Three Mile Island Nuclear Plant, Bank of America fraud and fines • • accident BP Deepwater Horizon: 11 deaths, • Enron: collapse $61B costs • RBS: aggressive risk, expansion, Olympus: hid loses and fabricated • • bailout financial statements Parmalat: corporate fraud, UBS: trader fraud and money • • bankruptcy laundering Lehman Bros: aggressive risk and Chrysler-Daimler merger: destroyed • • bankruptcy value AIG: risk losses Korean Airlines: decades of fatal • • HSBC: money laundering accidents • JP Morgan: London Whale trading Blackberry: 50% to 2% • • losses Volkswagen: Diesel falsifications • CitiGroup: rate rigging Wells Fargo: 2 million fake bank • • Barclays: Libor accounts •

Questions You Should Be Asking About Your Corporate Culture • Do we have a corporate culture statement the fully describes the behaviours we expect from all employees? (Netflix Culture Deck) • Are these behaviours fully described as examples of “real work behaviours” and not just buzzworks like “teamwork” or “trust”? • Is corporate culture a part of our company strategy, with specific initiatives, accountabilities and milestones? • Do we measure or asses our culture on a periodic basis? Do we act on what we learn? Do we have a Culture Committee? • Do we have hiring profiles that are aligned with the behaviours we want in all employees? • Do we have a strong Employee On-Boarding process that stresses culture, has good examples, and that every employee must attend?

Culture as a Sustainable Competitive Advantage While other companies may copy your strategy, your products and your market reach, no one can copy your corporate culture!

A Robust Execution Process as a Competitive Advantage

“The key isn’t having a strategy, it’s getting it implemented!” - Jack Welch

“The ability to effectively execute business initiatives may be the best competitive advantage.” -Larry Bossidy and Ram Charan Execution: The Discipline of Getting Things Done

Disconnected Initiatives In the average company, approx. 35% of projects and initiatives not connected to current strategic objectives. Projects and Initiatives Not connected to 35% Current strategy 65%

Disconnected Initiatives • Disconnected initiatives • Lack of resource alignment • Slower forward momentum

CEO Enterprise Strategy VP VP VP VP VP Dir Dir Dir Dir Dir Dir Dir Dir Dir Functional Objectives & Goals

Danaher Business System The DBS process system is the soul of Danaher; the system guides planning and execution. ~former CEO Larry Culp

Danaher Execution Process based on Hoshin Kanri Policy Deployment Matrix

Continental Airlines 1994 • Amalgamation of 7 airlines (and very different cultures) with 40,000 employees • 10 years of straight losses • Company facing it’s third bankruptcy in a decade • Worst record among the 10 US airlines: – Baggage complaints – On-time departures and arrivals – Involuntary denied boardings • 10 CEOs in 10 years

Continental Results Continental Airlines returned to • profitability in 1995, the first year after the new strategy was implemented 1996: Voted airline of the year, • against 300 global competitors Ranked in the top 5 of all global • airlines ever since 1996 Among the top 4 in all DOT airline • service statistics since 1996 • 16 straight quarters of record profits • Share price from $3.30 to $50 in 4 years • Employee turnover reduced 45%

Continental Airlines Strategic Breakthroughs Product: Make Reliability a Reality People: Working Together • Perform in top 50% of the • Restore employee confidence in industry on key service metrics management • Improve image of fleet: • Establish a results-oriented culture. R UN AN A IRLINE W E C AN A LL B E P ROUD O F B E P ROFITABLE IN 1995 Marketplace: Fly to Win Financial: Fund the Future • Make efficient use of core assets • Expand customer mix from • Secure liquidity backpacks and flip-flops to suits and briefcases. • Restructure the fleet: • Enhance relationships with travel agents, corporations, and frequent fliers.

Continental Airlines 1994: Strategy-on-a-Page™ Example Strategic Breakthrough Key Initiatives Objectives Performance And Accountability Indicators Offer On-Time Incentives Working Together Consistent & Reliable Flight Schedules PEOPLE Improve Communications Improve Employee Survey PEOPLE Restore employee Scores to X% confidence in management Let People Do Their Jobs Without Interference Productivity to $XX/person Establish a Results-Oriented Treat Each Other With Dignity and Culture Respect Paint Interiors & Exteriors Add Phones to all Planes Offer First Class Seating Make Reliability a Reality Improve Aircraft Cleanliness PRODUCT PRODUCT Top 50% DOT Rankings Improve Food Service Improve the Image of the Run an Airline We Can Fleet Reduce Involuntary Denied Upgrade 100% of Fleet by All Be Proud Of. Boarding Top 50% of Key DOT measures Improve On-Time Performance 1996 Enterprise Reduce Customer Complaints Metrics Become Profitable in Reduce Baggage Mishandlings 1995 $$ Sales $$ Profit Take Out Cost as We Take Out Capacity Fly To Win MARKETPLACE MARKETPLACE Customer Eliminate CAL lite Reduce Operating Costs to Satisfaction Rebuild Relationships Build up Houston, Cleveland & $XXM with Travel Agencies Newark Hubs Improve Relationships with Travel Business Flyers X% of Total Win Back the Business Agents and Corporate Accounts Flyer Rank Top 3 Frequent Flyer Stop Scheduling Flights That Lose Make Efficient Use of Core Money Programs Assets Win Back the Business Traveller Eliminate Above Market Leases Match Airplance Size to Market Size FINANCIAL FINANCIAL Fund Our Future Reduce Fleet Types from 13 to 4 $$$ Cash Flow Sell Non-Strategic Assets Restructure the Fleet Average Flight Capacity to X% Renegotiate our Deals with Boeing Secure Liquidity Track Cash Daily Restructure The Balance Sheet