Leaders Win the Transitions

If you are lucky as a leader, you get to manage momentum. But, the best CEOs win market transitions. They know that markets are volatile, that technology comes at you in waves. They are paranoid about competition. They keep their eyes open, looking to move while others panic. They patiently make realistic and tough calls when markets move away.

Leaders understand cycles

We have trained many business leaders to think short term and without nuance ... “things are great or things are terrible.” Smart leaders see business in cycles. They think about when to take action, not just what to do. They don’t punish their teams in a down cycle or stop investing. Rather, they have an opinion about the future and a vision for growth. Private equity has made billions buying good companies in bad cycles. Cycles determine winners and losers.

Natural gas is a great example of a cycle that rebounded in a big way. In 2018, everyone said that energy was on a permanent decline ... that demand for electricity will never grow ... every deal in energy was stupid. Only renewables would power the future. In cycles, the “herd” can take over ... their insights are based on reading analyst reports rather than practical experience. Teams get trapped in conference rooms during down cycles, where they make only short-term decisions led by “professional managers.”

Leaders who had domain expertise did not panic. They understood that only natural gas could power the energy transition. They kept investing in technology. They built out their product lines. They added infrastructure capability – like grid – that would prosper in a cyclical rebound.

Now, electricity growth is massive behind artificial intelligence, data center and electric vehicle generation. The world is “electrifying.” Germany is adding 10 gigawatts of gas capacity; China is adding 25 gigawatts each year. This is four times normal demand. Gas turbines are worth twice the value from 10 years ago. Moreover, the teams who “rode the cycle” have the financial and market strength to build for the future.

I remain a big supporter of GE Vernova. For years, many doubted the business ... even some key leaders. They were executing the right strategy through tough cycles. The products they invested in 5-10 years ago are paying off today. It took some time, but now they are winning.

Leaders pivot into trends

Business gurus say, “don’t chase the shiny object.” But sometime the shiny object is a freight train heading your way. For industrial companies, services are often 50%+ of their profit. If big data start-ups, like Palantir, can predict product performance better than the OEMs themselves, what are industrial companies worth? Digital transformation is a trend that legacy companies ignore at their own peril.

Artificial Intelligence is the next mega theme in the digital transition. I have been in Silicon Valley for the past seven years, and in that short time, have seen software licenses turn into usage models turn into outcome models. Software companies have no choice ... they either pivot to the next model or disappear. Unicorn start-ups from five years ago are worthless today. I have huge respect for Microsoft. It is willing to pivot into the mega trends investing to lead. Because they pivot, they can dominate their markets.

The legacy world seems to have lost its nerve when it comes to pivots. Should Boeing lead in space ... you bet. Instead, it is Space X. Meanwhile, big tech companies like Apple and Amazon always play to win. They are never bound by what they think outsiders will allow them to do. The best leaders embrace pivots in pursuit of growth.

Leaders decide

There are thousands of business books written about decision-making; mostly by people who have never made any decisions. Most times, leaders aren’t burdened by making the really tough decisions ... managing momentum is OK. But, other times, CEOs must bet big or fold.

This is happening in media. Streaming has gone mainstream, leaving the classic cable/linear models in the dust. Bob Iger is a great leader who is investing in streaming to play for the long term. He is doing the right thing ... but the stock has taken a hit. Jeff Bewkes of Time Warner was maybe the smartest media executive of the era. He looked at the future ... decided his company couldn’t lead ... so he sold Time Warner to ATT for $87B in 2017. These assets --- now called Warner Brothers Discovery, Inc. (WBD) – are worth $17B today. Disney and Time Warner made decisions, both difficult. Warner Brothers Discovery (WBD) has not, and it is paying the price. The time to bet on streaming was 10-15 years ago, before it was obvious. The “smartest” companies in the past are fighting to stay relevant today.

Great companies stick with the commitments over time, and weather the financial burden. If you are winning today, someone took the heat in the past. Lilly is the most successful drug company of this era because of GLP-1. But those seeds were planted 20 years ago.

Leading transitions is a cultural strength. This is what it takes:

• Great leaders deal with the present but can see the future. They work in two time spaces, without losing concentration.
• Great leaders understand markets and build scenarios ... they encourage a very strong external focus. They create space for vision, particularly around customers and competitors. They create room for ambiguity, open debate and risk. This is the polar opposite of managing momentum.
• Great leaders are patient to let change unfold. Know what you believe in and create the investment to make it happen. GE Aviation dominates its industry because it has great products that were protected in good times and bad.
• Great leaders elevate problem solvers. Frequently, in down cycles, “the haters” emerge. Good CEOs value the teams that find opportunity in chaos.
• Great leaders listen ... and then don’t listen. To win in a transition, you must act. Good cultures know when to debate and when to get in line. Then everyone executes.
• Great leaders nurture a passion to win, to lead in markets. Teams that value market leadership will win the transitions and grow. Those that value process will get left behind.

As I watch CEOs speak to my class at Stanford, the best have a sense of calm, a quiet confidence. They play for the long term and don’t mind being criticized. Buffet has this great saying that “you see who is naked when the tide goes out.”? A corollary would be ... “you only see leadership over time.” The most value creating decisions unfold over decades.

For more perspectives on leadership, check out PAJleadership.com.

?