Friday, September 04, 2009

Starting from Scratch

Bob Eckert, CEO of Mattel, offers some advice for leaders in Fortune magazine. In the article, Eckert recounts a conversation with his CFO, Kevin Farr, shortly after he took the helm as chief executive. Here's the excerpt from that article:

Kevin said to me, "Well, Bob, if we had a blank sheet of paper, we probably wouldn't pay a dividend." He was telling me to be open to starting over instead of building on previous decisions. We'd been paying a dividend of 36¢ a share every year, and we were borrowing money from banks to pay dividends to shareholders, which doesn't make a lot of sense. When Kevin said that to me I said, "Well, we do have a blank sheet of paper. Let's do the right thing." So we cut the dividend to 5¢ a share. The day we announced that dividend cut, the stock price didn't go down, it went up.

Academics describe how many organizational strategies, structures, and processes prove to be highly path dependent. In other words, past practices constrain future changes in many ways. Eckert reminds us that path dependence need not always be a fact of organizational life. As a leader, you can sometimes start from scratch. You do need to question whether a practice continues simply because "it's always been that way around here." Having said that, leaders need to balance a urge to start from scratch with the understanding that too many changes at once can throw an organization into turmoil. Thus, leaders need to be selective about the instances in which they choose to hit the "reset" button.

1 comment:

Keith B Murray said...

Mike, you picked up on a great article I had noticed and thought noteworthy! What a great-but-simple idea...that we are not [except for the blinder we choose to metaphorically wear.

Not that long ago I ran across a similiar article that said that if you're not happy with the ways things are going with your role in the organization...simply decide to "fire" yourself and show up the next day with the kind of person you think is called for--by changing what you do, focus on, etc.

I thought that refreshing and along the same vein as this article [what that in FORTUNE?].

In short, great idea that all too few take seriously--but which can work wonders sometimes. KM