David Nadler recalls the day, at the height of the dotcom boom, when the young executives of an Internet consultancy dropped in to buy his 20-year-old strategy firm, Delta Consulting Group. "They looked at us in disdain and said, 'You're an old-economy company.' "
No question, Nadler, 52, is an icon of the old-line American corporation. Since he left his teaching post at Columbia Business School to found Delta in 1980, he has served as guru to CEOs at 50 big companies -- most notably, AT&T, Corning, Xerox, the Limited, and Bristol-Myers Squibb.
As such, he has become intimately acquainted with those companies' successes over the years -- and with the recent, very public collapses of a few. He advises chairman Paul Allaire and president and COO Anne Mulcahy at Xerox, which fought rumors of bankruptcy earlier this year. He also works with Henry Schacht at Lucent Technologies, where strategic miscues led to a shocking $3.6 billion loss in the quarter that ended March 31.
Nadler is author of Champions of Change: How CEOs and Their Companies Are Mastering the Skills of Radical Change (Jossey-Bass, 1998). More recently, he's started preaching the notion of the "strategic enterprise" -- an emerging pattern of organizational architecture that combines strategically aligned businesses to maximize flexibility and focus. (Last year, he sold Delta, not to a dotcom upstart, but to Mercer Consulting Group. Its new name: Mercer Delta Consulting.)
The central problem for leaders of large companies, Nadler argues, is the dramatic acceleration of business over the past decade. In a recent interview, he spoke to Fast Company about leading in a maelstrom, assessing enterprise elasticity, and navigating failure.
The single greatest consequence of the past decade for corporations and their leaders is the dramatic change in clock speed. Today, every business is an information business. Thanks to widespread digitization and communication linkages, deals and innovations happen on a much shorter time cycle. At the same time, the speed at which strategy deteriorates and the speed at which decisions must be made is picking up a faster pace within every company we advise.
Transactions that used to take a week now take a day or a couple of hours. Decisions you used to put off for a week now can't be pushed back. And the consequences of those decisions are seen immediately, not months or years later. So the way companies work, and the way they run themselves, has changed in very profound ways.
In this high-speed environment, the capacity for a leader to destroy enormous amounts of economic value in a short time is awesome. Value evaporates overnight. That's why so many CEOs are being fired so quickly. The new transparency of information heightens the potential for wrong moves to create faster shifts of value, as perceived by investors. Value has become much more portable and transient.
At the same time, traditional financial measures are lagging measures -- they're the rearview mirrors, not the headlights. When I'm traveling at 70 MPH, lagging measures become less and less relevant; financial indicators from a month ago -- the results of decisions made six months ago -- are now ancient history.
But corporations' real financial risks don't come from operating problems. The biggest threat is the tyranny of the balance sheet. If you look at Lucent and Xerox, huge operational issues are overshadowed by serious damage done to the balance sheet. Corporate debt created such a burden that it became oppressive.
If you have a profits-and-losses problem, you can take a few quarters to work it out. Your stock may suffer while you fine-tune things, but your business will become more effective in the long run.
But when you have a balance-sheet difficulty, a problem with liquidity, it overwhelms everything else. You're worried about the next revolver loan coming due or the next agency rating. If you don't worry about that stuff, you're out of business. But fixing the balance sheet has nothing to do with the underlying business itself. As you try to sell assets or raise cash or get new investors, you're not addressing the customer, the product, the people, or the processes. Fixing the problem becomes a whirlpool that sucks your company down.
Transparency magnifies that phenomenon. Fifteen years ago, financial information wasn't so readily accessible and visible. Now investors can see that data and make judgments. So can competitors and suppliers.
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