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weLEAD Leadership Series

Exclusive interview with Don Mitchell

Interviewed by Greg Thomas

Don Mitchell is chairman and chief executive officer of Mitchell and Company, a management consulting firm established in 1977 which specializes in business strategy and financial consulting for major companies. His consulting clients are found predominately among the nation's 200 largest corporations.

In 1981, Don founded Mitchell Investment Management Company, Inc., a firm specializing in acquisitions. He also serves as its president and his clients are primarily entrepreneurs and successful executives in major corporations.

In 1989, Don Mitchell founded Leading Executive Organizations 100, Inc., and serves as the company's president. The company provides advanced executive training to CEOs, CFOs, division presidents, and investor relations executives. Mr. Mitchell is coauthor of The 2000 Percent Solution: Free Your Organization from "Stalled" Thinking to Achieve Exponential Success. He has also been quoted by Business Week, Chief Executive Magazine, Dun's Business Month, Financial World, Forbes, Fortune, Institutional Investor, Money, The New York Times, The Wall Street Journal, ABC News and United Press International regarding business strategy and investments. He has published over 20 articles on these subjects as well.

1. Don, I have just finished reading your book, The Ultimate Competitive Advantage and it offers a wealth of management experience and fresh ideas. You state in the preface that "This is the book we've always wanted to read...but could never find”. Could you please elaborate on this?

We have always been fascinated by the question of what one management task is working right now to make some companies vastly more successful than their competitors. Other books don't try to answer that question.

For example, most management books don't even attempt to find out what has made companies consistently more successful than competitors. The exceptions are books like Built to Last, Good to Great, and What Really Works. These three books, however, don't look at current best practices. Built to Last concerns activities done decades ago. Good to Great looks at management practices before 1987. What Really Works investigates prior to 1997. Also, they were unsuccessful in finding one single thing that made all of the difference. Instead, they each come up with at least five things that a company must do. Interestingly, their lists are typically covering things that many companies are already trying to do. So some of the difference is in execution, but it's not clear what those execution differences are. So you are left wondering where you went wrong.

Our research on management practices has shown that almost all companies operate around average or somewhat below average in key activities. So which activities should you try to improve first? How much benefit will you get? You cannot seem to even find out! So you can put a lot of effort into areas with limited benefit, without intending to do so.

Instead, our research continues through 2002 and is very current as a result. We also checked out the research that others have reported, and found that those conclusions didn't explain the performance of the most successful companies from 1989-2002. Interestingly, our study group of top performers seldom appear in the earlier literature. When they do, there is no mention of continuing business model innovation.

We find top performers compared to competitors in all continuing business model innovators. We find almost no top performers compared to competitors in non top performers recently. Interestingly, the companies described in the other books don't even qualify for being top performers in our study.

Our book also provides the methodology, examples and questions that a reader needs to implement our findings. The existing books make it unclear how to do what they recommend. We've tried to combine a research report, case studies, a methodological description and a workbook.

2. Much of your book focuses on the need for developing successful business models and that of continual learning. A cynical reader might interpret this to mean constant rapid change and an even more disillusioned workforce trying to implement the "strategy of the month". How would you reply to this?

We had the same question. Actually, continuing business model innovators seem to make fewer changes than companies that are not continuing business model innovators. They just make major changes all at one time every 2-4 years, rather than piecemeal changes all the time. Some of the companies have also found ways to make the changes so that major parts of their organizations are totally unaffected. Paychex, for example, makes modular business model innovations by adding new organizational elements. The existing organization only seems to be affected by a business model innovation every ten years or so. American Woodmark only makes its changes every 7 years.

We also checked on employee surveys, and found that continuing business model innovators rated very highly in employee satisfaction. For instance, Xilinx is typically one of the top 50 companies to work for. In addition, we found these companies had below average turnover rates for employees in their industries.

The CEOs explained that employees enjoy the continual learning model, because they end up liking their work better. Employees also report that they feel more security because the business model innovations cause their companies to grow so rapidly compared to competitors.

The skepticism you describe does seem to occur at the beginning of business model innovations, but is mostly dispelled within five years as the program evolves into its second successful innovation.

Companies continually innovate now in some areas such as in developing new products and new services, and inventing new technologies.

Business model innovations also seldom seem to cause layoffs, which is a major source of friction in most companies.

Finally, these companies usually work first on firming up their values and communications which help make the changes less disruptive.

3. In a chapter entitled, Cut Harmful Costs, you encourage the reader to convert business model gains into new and substantial customer benefits. This is referred to as one of the most important secrets to retaining and gaining a competitive advantage. Yet, this is in direct contrast to the typical corporate philosophy to cut costs only to increase margins. What is the end result of cutting costs simply to increase margins?

Cutting harmful costs helps focus the organization on making positive change that everyone appreciates. The reaction is to increase sales by attracting new customers, more purchases from existing customers and retaining existing customers. Most of these costs occur outside of the organization. Usually such costs occur for the customer or end user. When a company focuses on using cost cutting to raise its own margins, it usually does so by adding costs for its customers, end users and other stakeholders. Those added costs hurt sales and reduce cooperation from other stakeholders.

4. In chapter 4 of your book you state that the best business model "impresses each stakeholder that she or he will benefit more by encouraging the success of this company's business model than by supporting any other, or by ignoring the company”. At a time when recent surveys show greater employee discontent than ever before, how can the organization’s leader(s) make this impression? What are some ways this can be done?

Actions speak louder than words. Leaders who act according to these principles seem to have no trouble getting the point across. In most of the continuing business model innovating companies, the CEO has been in place for many years and employees know the person well. When his or her behavior changes in these ways, employees notice the difference and pay attention.

In many of the innovators, the continuing learning activities are increased at the same time. The company leaders develop these learning activities and become the faculty for the courses. They encourage everyone to challenge them if they act not in accordance with their own teachings.

Most companies also find that they have to shift compensation and promotion policies in order to eliminate conflicts of interest between what the organization needs to have done and the individual's personal interest.

We have an article coming out in Chief Learning Officer in October that discusses these points in more detail.

5. In chapter 5, you discuss how a barber created a new business model by using the Socratic method to help hearers learn. I quote from this example below. What can we learn from Mr. Cogliandro's example?

“Mr. Cogliandro also listened carefully to his customers. After he understood how they wanted their hair cut, he would ask them about their families, their backgrounds, their work and their cares. If he didn’t understand something, he would keep asking questions until he did. And he never forgot a single thing anyone said. After years of these conversations, he would sometimes realize that he had information that would help his customers. But why would they listen to a humble barber? Mr. Cogliandro became a master of the Socratic method, asking questions to help hearers learn. He would begin, “Excuse me. May I ask you just one question?” By the end of the haircut, that one question would become dozens…In the process he created a new business model as a barber, providing helpful advice at no extra charge”

The key lesson from Mr. Cogliandro's example is that you can add much more value to other lives, as long as that is your continual focus. The best way to do this is by learning as much as you can about your stakeholders. Asking open ended questions will open minds and help you access better information, so you can think of ways to help them. In many cases, we can bring our stakeholders together in ways that would not otherwise occur and allow them to help one another. Actually, his example is very similar to the Business Objects example where stakeholders can share information and ask better questions of one another.

6. Of all the fine organizations you mention in your book including those you studied, which organization do you admire the most and why?

Every reader seems to take away a different "favorite" as their model. For me, Habitat for Humanity is my ideal. In every measure of effectiveness, they outperform any other organization we studied. I'm especially attracted to the high moral principles they live, and the great positive impacts they have on all stakeholders. I hope that all the heads of nonprofit organizations will consider their example very carefully, and seek to apply it.

Thanks Don for helping us to better understand the qualities of top performing organizations!

To read a weLEAD book review of the Ultimate Competitive Advantage, please click here!

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