Transferring leadership to managers is the biggest issue: James Allen
James Allen speaks about the founders’ mindset that enables companies to achieve their initial success
New Delhi: James Allen is a globally recognized expert in developing corporate strategies that help companies maximize their growth globally, script turnarounds and make plans to enter emerging markets. A partner in Bain and Co.’s London office with more than 25 years of consulting experience, Allen has worked extensively with multinational companies in consumer products, oil and gas, technology and telecommunications, healthcare, and other industries. Allen is also a widely published author and has co-authored (with Chris Zook) The Founder’s Mentality, one of the most critical works in the world of global business that was published in 2016.
On a recent visit to Delhi, Allen spoke to Mint about the founders’ mindset that enables companies to achieve their initial success. Edited excerpts:
Tell us about your background and journey over the years
I started working for Bain in 1988 in Boston. Prior to that, I was a political philosophy major who went into the US government working on US-Soviet affairs. I was fascinated by the Russian language so I did some Russian language courses and then a masters in Soviet studies and worked for the US government for three years at the end of which I was working directly with commerce secretary Malcolm Baldrige Jr. He was an ex-CEO himself and told me I was crazy to be in the government and that I should “get the hell out” as soon as possible. So I left, went to business school and then joined Bain.
My father was in the military and I had no idea about business at all. So it never occurred to me to go into business. And then, because of my interest in that country, Bain opened offices in the Soviet Union in 1989 and I went there in 1991 to head the offices. My wife and I moved over with six duffel bags and left the country with three children. She is a doctor, so she was part of the American Medical Center there. We moved to London in 1995 with the intent of living there for 3-4 years and moving again, but because we had lived such an expatriate life in Moscow we at least wanted to blend in with the English. So, we went to an English town, put our kids in English schools and never left. They are fully English now, went to English universities and are extremely upset about Brexit...it has been the most bizarre vote.
According to your book, companies with a founder’s mentality have three distinct traits—an insurgent mission, a frontline obsession, and an owner’s mindset. How does one cultivate them? Is one trait more important than the others?
You have different issues depending on who you are talking about. If you are talking about a large bureaucratic company, a large incumbent, then, very often, what they have lost is any sense of the founder’s mentality and, in that context, you have to start with what is the insurgent mission. If you don’t understand why you exist, then there is no point in going further. We tend to think of it as quite sequential, which is that if you have lost insurgent mission, you don’t believe in the frontline and you have lost any sense of owning the business. If you are founder-led, then you can have a problem in any one of the three dimensions. So, you can have very strong companies that are very insurgent-led but have lost sense of the frontline, or you can have a loss of ownership with a strong insurgent. If you still got the founder around, any number of things can go wrong. It is usually in the case of where the founder has been around that they have not been able to scale the insurgent mission. They know it, their direct reports know it but the rest of the 5,000 employees have lost sight of it. So we tend to approach it depending on where the company is.
The Founder’s Mentality is an interesting book, especially in the context of India where many promoters are now trying to bring in professional chief executive officers (CEOs) and step away from the day-to-day operations. Does the founder’s mentality get diffused in such a scenario?
When we are working with founders, the biggest issue, by far, is how they start transferring leadership to professional management. It doesn’t necessarily need to be the CEO. It could be their first human resource (HR) director or their first finance director, their first professional. Often this is driven, especially with start-ups, by a board that begins to ask for adult supervision or bring in professional management and that is a very perilous journey.
So, a lot of what we talk about is whether you are bringing in professionals who have administered very large bureaucratic institutions, or people who have built professional systems. The classic mistake that founders make is that they bring in people who have been administrators of large systems and don’t know how to build them. So we talk about the first professionals as the real tipping point for founders and they have to get that selection right and we point out how often they get it horribly wrong. They tend to be over-seduced by the CV, the brand name of the company they are recruiting from. But the CV alone does not tell you if you have a business builder or an administrator. Another problem is that the founder stays on for too long and does not bring in professionals. So the choice of who you bring in and why is absolutely critical.
Any favourite leaders who have the founder’s mentality and have got it right?
I go back to the ones we wrote about and know about. I absolutely worship Jaipur Rugs and I am bringing Jaipur carpets to my current house, which we are remodelling. Their tag line is “We don’t sell carpets, we sell a family’s blessing”, and, as a customer, I’d buy some of that, and, as an employee, I would want to sell a bit as well.
In America, the discussion is all about Facebook, Amazon, Apple, Google, Netflix... They are interesting models and worth looking at, but it’s still early days; it is easy to get enamoured with companies in their first decade. The pattern of those companies is the obsession by the founding team to gain the benefits of speed and scale, which was not the case in traditional western companies. One of the things that defines Amazon is that Jeff Bezos is a business builder and understands the critical importance of opening up new markets and building new markets and being highly disruptive. That feels very repeatable and real. I find that the Amazon model is closest to what we write about because at its heart is the obsession with the customer. I think one of the issues—and you can see this in Facebook—that is unclear is what happens to a company when the consumer isn’t the source of profit but the profit comes from somewhere else, and that creates profound conflict.
How do companies deal with evolving and rapidly changing technologies that lead to disruption and a change in business model?
There is a whole series of different issues around technology but I think companies need to define themselves by their insurgent mission, not by the current technology of the company. For instance, if you look at the history of Kodak, its insurgent mission was to help you capture, store and distribute your memories, which is a perfect mission for the digital age. But Kodak defined itself as a 35 mm company, meaning that it did not define itself by its mission but by the current technology.
Kodak’s problems started when it tried to stop the innovation of Polaroid, which said that you could do the insurgent mission of Kodak beyond 35mm. The same thing happened with Nokia. They became obsessed with their own technology and software as opposed to opening themselves to any technology. So, my first comment on technology is that the biggest danger that companies have is when they define their mission by the current technology.
The second point about technology is that 30 years ago everyone thought that intimacy versus scale were trade-offs. What technology, the Internet in particular, has done is to say that those aren’t trade-offs any more. So, Amazon can be both the scale leader and cost leader when it chooses to be but also, through algorithms, can play the role of intimacy and differentiation. So, companies that don’t recognise that they can win on both scale and intimacy through technology will also be the losers. I don’t believe that technology in itself is enough to change strategy. You need to change strategy to keep your insurgent mission alive and technology is an enabler. People get too obsessed with technology.
- iPhone ban in China may push Apple, Qualcomm toward settlement
- Skincare start-up Plum gets funding from Unilever Ventures
- Won’t be surprised by big M&A deals in India in 2019: BofAML’s Raj Balakrishnan
- Licious raises $25 million in funding round led by Nichirei Corp
- Verizon to give buyouts to 10,400 employees in restructuring
Editor's Picks »
- Markets, rupee and bond prices fall after RBI chief Urjit Patel resigns
- Sensex plunges over 1,200 points in two days: 10 updates
- Retaining Rajasthan, MP, Chhattisgarh is key for Modi
- Rupee plunges against US dollar after Urjit Patel’s shock exit: 5 things to know
- Assembly elections 2018: What is at stake for Rahul Gandhi?
- Steel stocks get winter chill as China demand issues resurface
- Why Uday Kotak’s defiance is scaring his bank’s investors
- Exit RBI governor Urjit Patel, enter wrath of the markets?
- The government has a troubling message for minority shareholders
- Opec-allies’ output cut may not amount to big shift in oil prices