Who Will Measure up to These Two Remarkable Leaders?
James L. Heskett is UPS Foundation Professor of Business Logistics, Emeritus at the Graduate School of Business Administration, Harvard University asks a simple question in a Harvard Business article; in a month when the world lost two great American company leaders: John Bogle of Vanguard Group and Herb Kelleher of Southwest Airlines. Most of us in Asia may know Southwest Airlines while a lesser number would know John Bogle. What other CEOs are in the same league? asks James Heskett. To me, who in Asia would match up to these standards.
He says the decade of the 1980s saw widespread subscription to the notion that there were two “generic competitive strategies” aimed at achieving industrywide success: those that provided either a differentiated or a low-cost product/service. (A third was to focus on a particular market segment.) He adds that Roger Hallowell, in a doctoral dissertation submitted some years later, took issue with that notion based on his observation of a small number of incredibly successful service organizations. He concluded that these firms were seizing large market shares by offering both differentiation and low cost, that in fact the two strategies might feed on each other under the right circumstances to produce superior results for customers, employees, and investors.
He asserts that two of the firms Roger Hallowell studied were Vanguard Group and Southwest Airlines, led by John Bogle and Herb Kelleher, respectively. While neither were the first to come up with the basic notion on which their businesses were founded, it is not too much of an overstatement to say that Bogle taught us a new way to invest while Kelleher taught us a new way to fly. In the process, both completely changed the structure of the industries in which their firms competed.
Bogle and Kelleher died earlier this month, more than 40 years after each made their mark on the competitive landscape by leading organizations that provided both low cost and differentiated service. They were remarkable as individuals as well. It is easy to exaggerate the contribution of one leader to the performance of an organization —we do it to excess. But in the case of these two, it is warranted.
Both were fanatics about customers. Vanguard was structured, with aligned incentives, to deliver the lowest cost to investors. Facilitators (not advisers) originally available by telephone, later supplemented with an easy-to-use website, differentiate Vanguard’s service to go along with its investment performance. Southwest was built and still operates on a strategy of low costs, low fares, full planes, and rapid turnarounds to keep those planes in the air, thus reducing the cost of an airline’s most costly asset. It fills (often secondary) airports so successfully that there is a constant, long list of cities inviting Southwest’s service. People are hired to deliver empathy, a sense of humour, and total devotion to Customers (always capitalized at Southwest), something that has produced intense loyalty from flyers. James Heskett says these are elements of several cases written by HBS faculty about the company over the years.
Vanguard and Southwest practice both/and (both low cost and differentiation) strategies while competitors still operate on either/or competitive strategies, or that are caught somewhere in the middle.
While they saw eye-to-eye on strategic direction, Bogle and Kelleher could not have been more different in personality. Jack Bogle was preppy, Princeton to the core, feisty in defending his beliefs. But he was always a gentleman, modest in his needs, and generous with his wealth so that his estate will not be found on any list of the wealthiest, and completely comfortable in the belief that he had “enough” and didn’t need to be chasing more income.
He built a business on the belief that the term “investment management” was an oxymoron, that an unmanaged portfolio of every stock weighted to reflect the performance of an entire market would outperform a managed fund over the long run, often because of greater diversification and lower costs. So-called index funds became so popular that just before his death Bogle warned that their ubiquity could have a problematic effect on stock markets. Nevertheless, they were a primary factor leading to Vanguard’s management of nearly $5 trillion in assets earlier this year.
Bogle, with several heart attacks and a transplant to think about, maintained moderate personal habits. Kelleher, on the other hand, lived life over the top. He too was generous, but more often with his time and supportive comments for Employees (again, always capitalized) at all levels. Employees truly loved him. He chain-smoked most of his life; a visitor to his office had to make their way through a cloud of smoke. (Upon retirement, Southwest named him CEO Emeritus and set aside a closed-door office at company headquarters where he could avoid the companywide policy of a smokeless office environment.)
He was the life of a party, particularly one celebrating Southwest’s employees. (At 4 p.m. Dallas time he would reach into his bottom right-hand desk drawer to pull out a bottle of his favorite beverage, Wild Turkey bourbon, and comment that “it must be five o’clock somewhere in the Southwest system; do you want to join me in a drink?”) His organization was often associated with fun and “luv.” The formula worked. Currently, Southwest Airlines carries more passengers in the US than any other airline. Airlines around the world have attempted to copy its business model, too often without the human element.
He says that his point is not that they don’t make ‘em like these two anymore. Their equals (not many) are in action among us now. But in reading the glowing obituaries for Bogle and Kelleher, both as leaders and as people, I asked myself: Who among us now will deserve comparable obituaries 40 years from now? Who will we credit with turning an entire global industry upside down in a way that delivered unbelievably low costs as well as differentiated product/service performance to Customers, a great place to work for Employees, and high returns for Investors?
Using these criteria, who will measure up to these two? What do you think? That is James Heskett’s question.
I wonder using similar criteria, who would that two be in Asia. Write to me at email@example.com
Roger Hallowell, Dual Competitive Advantage in Labor-Dependent Services, Thesis (D.B.A.), Harvard University, Graduate School of Business Administration, 1997.
Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: The Free Press, 1980), especially pp. 34-46.