February, 2000 - Volume 4, Number 5

NEW WEBSITE: Leadership and eCommerce

The Center for Leadership and Change is creating a new website on "Leadership and eCommerce." The site is intended to include interviews and videos of leaders of both Internet startup companies and e-commerce ventures at incumbent firms, and links to articles, papers, and teaching cases related to leadership in the new economy.

The website is being developed by John Joseph and Kelly Jo Larson, first-year MBA students at the Wharton School, and Mike Useem, director of the center, and they would value receiving suggestions of e-commerce leaders for interviewing; articles, papers and teaching cases that examine leadership in eCommerce; and topics and links that should be added to the site. They can be reached at , and the new website can be viewed at .
http://leadership.wharton.upenn.edu/ecommerce/index.htm

Stay tuned for an article by John, Kelly Jo, and Mike in the next issue of the leadership digest on the distinctive qualities of leadership required for the Internet era. They would value receiving suggestions for the article via messages to lead@wharton.upenn.edu.

SPEAKERS: Leadership in the Internet Era from Jeff Bezos of Amazon.com and David Dyer of Lands’ End

Jeff Bezos is confident that Amazon.com is going to show a profit. He’s just not sure when.

During a recent taping of the PBS series CEO Exchange at the Annenberg Center at the University of Pennsylvania, a Wharton student asked Bezos, founder and CEO of Amazon, how long he could keep going without making money. He responded, "It’s not an accident. It’s a critical category formation time. What’s unusual is the scale. There’s no new math here."

But Bezos also admitted that critics refer to his Internet goliath as Amazon.con, Amazon.bomb, and his favorite, Amazon.org because, as he joked, "clearly we’re not-for-profit."

The 90-minute taping of the program took place on February 8 as part of a leadership speaker series at the Wharton School. Bezos was joined on stage by Lands’ End CEO David Dyer. The Socratic dialogue gave way to jokes and barbs between the two e-tailing pioneers, yet both agreed that providing customer value was the lynchpin of success in any Internet business-to-consumer model.

Bezos is truly obsessed with customer satisfaction and urges Amazon employees to run scared every day in hopes that they’ll keep their eye squarely on the market’s trends and opportunities. He believes that long-term success on the Web will ultimately depend on forged customer relationships. It’s the premise of Amazon's build out-before-profits growth model. Bezos believes his ultimate profitability is rooted in offering a better customer experience than his
competitors. "When you take care of customers today, you’re taking care of stockholders tomorrow."

So far, Amazon has a good track record of taking care of customers. Beginning with books, then CDs and videos, he has lately branched into toys, consumer electronics, and online auctions. Unlike some Internet retailers, Amazon had a successful holiday season and delivered orders as promised. He says of those competitors that did not fare as well, "They’ve forgotten about the good old-fashioned part of the business – shipping the product to the customer."

Bezos holds a bachelor's degree in electrical engineering and computer science from Princeton University and worked on Wall Street as a hedge-fund manager prior to founding Amazon in 1994. His wake up call came when he came across a report projecting the annual growth of Internet usage at 2,300 percent. Three months later, after talking it over with family, he decided to resign from his lucrative job at D.E. Shaw, a Wall Street hedge-fund firm, and make the move into the then truly uncharted territory of the Internet. "I made a list of 20 products," Bezos recalled. That list came initially from looking at mail order sales. Books were underserved for mail-order. You could have an online bookseller with truly universal selection. First look for customer value, and once you find that make sure it can only be done on the Web."

Bezos credits his success to simply being at the right place at the right time, and that even his mistakes turned into opportunities. "People suggested we don’t launch with a million titles, that it was hard to source and supply beyond 300,000 tittles. We disregarded and it was hard to fulfill. But that long tail of odd product drove word-of-mouth."

David Dyer, CEO of Lands’ End, a conservative mid-western businessman, is not someone who is likely mistaken for a captain of the new economy. Dyer returned to Lands’ End in 1998, after having bounced around jobs since leaving the company in August 1994 to become president and CEO of cable TV's Home Shopping Network.

He expressed his philosophy of leadership in the new economy through metaphors about his second love – flying. "Always aviate – fly the plane. Second, navigate – where do you want to go. And third communicate. You cannot over-communicate to an organization. I spend a lot of time speaking to people in our company. I think it’s one of the most important things a CEO can do."

Leading an organization into a digital business requires rethinking business models and cannibalizing existing business. Dyer says, "You can’t just put the catalogue online. We integrated the businesses. You can’t manage two different organizations. We’re one company and however you want to do business with us is fine."

If Amazon has created a new marketspace, Lands’ End has maximized e-commerce as a new channel for reaching the customer. "We’ve tried to create an experience that is good or better than that in a store," said Dyer. It’s a website that’s high-tech and high-touch. The site boasts such features as Lands’ End Live, a option that allows customer service agents to follow customers through the site, and a feature that allows women to ‘try things on’ utilizing their own measurements and a 3-D cybermodel."

At Lands’ End, dedication to the customer is paramount. And like Amazon, the real money doesn’t come from the first sale, but from the customer relationship that is established that leads to the second, third and fourth purchase. Out of Lands’ End’s 29 million customers in its database, 10 million bought something within the last three years.

Dyer, who enjoyed kidding Bezos about actually showing a net income, was quick to point out that maximizing return to shareholders is important. Dyer has successfully executed his Internet strategy by building on a trusted brand name, leveraging a strong infrastructure, and selling a proprietary product with a margin. Lands’ End sold $160 on merchandise in 1995, their first year online. Today $137 million of their sales are conducted over the Web.

For bricks and mortar businesses that think it’s too late – they should think again. Bezos believes today is the moment after the big bang and that there will be many winners. "There’s so much green space." Dyer agreed: "Find out where the customer is and go there. Take risk. Go out and find opportunity and try it. It’s OK to fail as long as you learn from it."

Both are keeping their eyes ahead and on the customer even as competition increases. Bezos and Dyer feel that in the warp speed Internet battleground – looking behind to see what the competitor is doing is simply a waste of time. In this space, no leader has won with a second mover strategy.

John Joseph can be reached at John.Joseph.wg01@wharton.upenn.edu.

Leading with Speed:
Developing Leaders for Fast-Moving Organizations

The Wharton Leadership Conference on May 18 in Philadelphia is focusing on leading with speed. Among its speakers are:

• JoMei Chang, co-founder, President and Chief Executive, Vitria Technology, Inc.
• Patrick Harker, newly appointed dean, the Wharton School.
• John Ross, President and CEO, Deutsche Bank Americas.
• Mark Walsh, President and CEO, VerticalNet.

The conference also features ImprovEdge demonstrating how improvisational theater can be used to develop creativity, build teamwork, and foster fast thinking.

A drawing will be held at the conference for multiple copes of the latest books by conference speakers, and the grade prize is free enrollment in a multi-day learning program offered by Wharton Executive Education, including Strategies for E-Commerce, Critical Thinking and Decision-Making, and the Human Resources Business School.

Continually updated information on conference speakers and agenda can be found at:
http://leadership.wharton.upenn.edu/l_change/conferences/conf_051800.shtml

The deadline for conference registration is May 15, 2000 ("early bird" registration by March 31 comes with a discount). You can register online at:
http://www-management.wharton.upenn.edu/chr/registration.htm

Learning about Leadership through Others

Albert Einstein once said, "we can't solve problems by using the same kind of thinking we used when we created them." Many leaders have come to recognize this, but for some managers a capacity to think differently does not come naturally. Seeing the world from a fresh perspective requires transcending one’s own situation, and the U.S.-based International Forum has created unusual opportunities to do so.

The forum brings executives of global corporations together in varied locations around the world for short seminars. The executives share critical issues confronting their businesses and then seek fresh perspectives from other participants who come from different countries and industries. The forum also arranges for the executives to step into the shoes of very different kinds of leaders, ranging from orchestra conductors, opera singers, and calligraphy masters to mayors of troubled cities and principals of social and religious institutions.

Participants in the forum’s "Leadership Through Music" program, for example, take the baton of Peter Leonard – the music director of the Augsburg Symphony and Opera in Germany – to experience how difficult it is to conduct a group of expert performers. Each instrumentalist plays a different score, but with little more than a lifting of the baton, the taking of a breath, and eye contact with specific players, the conductor must ensure that they play together as an ensemble.

One participating executive who took the baton learned the power of the small gesture. "I feel as if I am driving a race car," he recalled. "There is so much energy you must control and direct. The flick of a wrist or the tilt of my head causes noises to come from parts of the orchestra I never knew existed."

The opening bars of Beethoven’s Fifth Symphony presents the conductor with a dilemma. It is unclear how long to hold certain notes since the key signature indicates one way, the actual score another. The decision is the conductor’s to make, and once made the conductor has set the opening tone for the symphony. The conductor can relax briefly and let the orchestra take on a momentum of its own, but only until the next point of interpretive ambiguity, when he or she again must decisively resolve the uncertainty, and these acts successive build the players’ confidence in their leader and the quality of their performance.

Learning from the leadership challenges of others by momentarily stepping into their roles can be an invaluable stretching. Albert Einstein also said, "common sense is the collection of prejudices acquired by age eighteen," and facing leadership challenges from others’ perspectives is one way for transcending the limitations of common sense.

Nan Doyal, managing director of the International Forum, can be reached at doyal@internationalforum.com, general questions can be directed to learn@internationalforum.com, and information on the program is available at http://www.internationalforum.com

The High Price Companies Pay for Mediocre Managers

By Whitworth Ferguson III, Senior Contributor, The Wharton School

In their bestseller, First, Break All the Rules: What the World's Greatest Managers Do Differently, authors Marcus Buckingham and Curt Coffman contend that hiring decisions that focus mainly on pay and perks are misguided. A company can offer employees generous compensation, benefits, and extras like health clubs and daycare centers and still lose their best workers. What many otherwise excellent companies miss, according to the authors, is that one
mediocre manager can wreak havoc in even the best organization and send the most talented employees running for the exits.

Source: Marcus Buckingham and Curt Coffman, First, Break All the Rules: What the World's Greatest Managers Do Differently (New York: Simon & Schuster, 1999). For a fuller description, see Knowledge@Wharton for Feb. 16-29, 2000 here.

From her restructuring experiences at AT&T before becoming chief executive of Hewlett-Packard Company in 1999, Carly Fiorina has "distilled seven principles for personal, and business, growth and success:

• Seek tough challenges: they're more fun.
• Have an unflinching, clear-eyed vision of the goal, followed by absolute clarity, realism and objectivity about what it really will take to grow, to lead and to win.
• Understand that the only limits that really matter are those you put on yourself, or that a business puts on itself. Most people and businesses are capable of far more than they realize.
• Recognize the power of the team; no one succeeds alone.
• "Never, never, never, never give in," to quote Winston Churchill. Most great wins happen on the last play.
• Strike a balance between confidence and humility – enough confidence to know that you can make a real difference, enough humility to ask for help.
• Love what you do. Success requires passion.
• Every experience in life, whether humble or grand, teaches a lesson. The question is not if the lesson is taught, but rather if it is learned."
  

Source: Carly Fiorina, "Making the Best of a Mess," New York Times, September 29, 1999, p. C8.