Interview with Bill George
Harvard Business School Professor and
Former CEO, Medtronic
Leaders Speak Series
Bill George was the COO, then CEO and Chairman, of Medtronic from 1989 through 2002, the years when annual revenue increased an average 18% and earnings increased 22%. A host of innovative products were introduced during this time, and the price-to-earnings ratio of Medtronic’s stock went from 11 to 45. But the Medtronic story goes beyond growth and earnings, demonstrating how to build an excellent, ethical, and enduring company.
George is the author of Authentic Leadership, True North (co-authored with Peter Sims), Finding Your True North, and Seven Lessons for Leading in a Crisis. He currently teaches at the Harvard Business School.
Here are edited excerpts of our interview with him for Triple Crown Leadership.
How would you describe Medtronic’s leadership approach?
George: The company was very mission-focused and values-centered. Our employees were focused on patients, thanks to the annual holiday program, which highlighted Medtronic patients, and the mission-medallion ceremonies that all new employees went through in their first six months.
[Authors’ Note: Medtronic’s bronze medallion bears the words “toward full life” and is intended to remind employees to honor the company’s mission: “You are here not to make money for yourself or the company, but to restore people to full life.”]
But what the company lacked was closed-loop management and good discipline. They operated with excuses, alibis, and reasons for non-performance. Products that would normally take 24 months to come to market took 48. We changed that to a 16- to 18-month cycle, which put Medtronic way ahead of its competitors and changed the whole game. But that required disciplined, close-loop management.
The same was true with budgetary controls. People felt that they could overspend budgets. As one senior executive said to me, “I’d rather ask for forgiveness than permission,” and he hired 80 people that weren’t authorized during the middle of a hiring freeze. People could stop the founder, who actually had no managerial responsibility, tell him about a program, and he’d say, “Go for it!” The next thing you know, they’d spent a million dollars on it.
I talked a great deal about empowerment with accountability.
How else did you approach leadership at Medtronic?
George: I embraced the mission and values and talked about them all the time. I believed in being very close to the customer. The organization was very inward looking. So, I started going out to major medical centers and spending a great deal of time with doctors. I said to all of the engineers, “You need to get into medical centers too.”
We also de-layered the company, taking out two to three layers of management. We said, “You don’t need six or eight direct reports; you need twelve to twenty.” That put management much closer to customers and to the action.
How would you describe Medtronic’s culture?
George: The culture was very caring, people-oriented, values-centered, and mission-driven. But the culture was soft. The board used to call it a country club. If there were non-performers, the organization would say, “This person is very loyal.”
The company did not have the leadership skills at the top, that had to be totally rebuilt with new hires as well as picking some people who seemed to have potential and giving them a shot. There were no general managers, so we took some functional heads and made them general managers. Most of them made it; some did not.
It sounds like you were guiding the culture in a new direction?
George: A completely new direction. It was a little jarring to people. We had to grow up. We had to grow from a mid-size company to a large company. I had to get the leadership team on board for this, and pick out those who were on board, and others had to step aside.
A good example was the head of worldwide business, who had the capacity to look the other way when there were ethical deviations. To my knowledge, he never actually conducted any ethical deviations, but he looked the other way. He accepted that as normal.
In the old days, no one wanted to ask what the overseas distributors did. Their independence was a shield for unethical behavior, as long as they signed a statement indicating they would be ethical.
A former general counsel of Medtronic said, “Don’t ask too much about what the distributors do.” I learned certain Korean distributors were providing prostitutes for physicians after they had implanted their pacemakers. I asked the head of international to send a letter that day terminating all four distributors. Everyone said, “You won’t have anyone in Korea.” I said, “We’ll start over. We don’t tolerate unethical behavior.”
What other changes did you make when you came in?
George: We had major quality problems, so I put in our own internal focus on quality, made that the driving force of closed-loop quality measurement and getting the actual quality results up in the eyes of the customer.
Human Resources was supporting many of the poor performers. They thought loyalty was more important than performance, that management was too tough and that we needed managers who were people oriented. Sometimes, people give the impression of being people-oriented. They say all the right words, and people love to work with them, but they never get results. So, I changed the Human Resources leadership.
We had a series of ethical crises internationally because leaders accepted that this was the way that business was done. We had to fire a lot of managers and send others over to hold the fort. We put in performance-management systems, did not tolerate unethical behavior, and weeded out the poor performers.
What role did the board take in creating this new culture?
George: One of the reasons the board hired me was to put in closed-loop management. I was the first executive hired from the outside. I had free rein to run the business, and I quickly reorganized it into strategic business units and away from the worldwide functional organization. The board was extremely supportive.
Did you consider Medtronic to be a high-performance organization?
George: It was not a high performance organization early on, but from about 1994, yes. I would define a high-performance organization as one that can sustain its growth by excelling in the areas where it considers itself the best. Medtronic was the best innovator and the best provider of customer services. Those were the two areas where it excelled. Business Week once called Medtronic an “innovation machine.”
Medtronic then got lots of awards as the most ethical company, most innovative company, most admired company in the industry, and one of Fortune’s most admired, year after year.
What did you look for in your leaders?
George: The most important thing was to be passionate about the mission, to believe in and execute the values of the company, and to translate those into actual results. People who really got it from a mission standpoint, who were committed to and would practice the values every day, and would translate that into results for patients. Those are the best leaders.
How important is a healthy personal core in leaders?
George: Extremely important. Long before I joined, the company had a meditation room, which was symbolic of the fact that people needed to be reflective. I spent a lot of time encouraging people to think about how their personal values aligned with the company’s values, and how their personal mission of leadership aligned with the company’s mission. If they couldn’t do that, it was best that they leave. Some people saw the world strictly as numbers. They didn’t get what was at the other end of those numbers.
Our cafeteria served only healthy foods. We put major fitness centers in every one of our facilities. We put one in our new headquarters, and within six months, we had to double the size because it was being used so heavily. As a result, Medtronic’s healthcare costs were less than half of the national average.
I used to leave meetings regularly at 5:30 and go coach soccer. People would say, “Where are you going?” I’d say, “I’m going to coach my son’s soccer game.” That sent a message.
Did you change the mission, values, or vision of the company?
George: Our mission and values were well established. The vision did change in 1990, and I changed it again in 2000 because I think that visions should change every ten years. In 1990, we established a ten-year vision for Medtronic to become the world’s leading medical technology company. Then in 2000 it changed to “creating lifelong solutions for people with chronic disease.”
We created a series of task teams to look at different aspects of what the world would look like in the year 2010, including the technology, marketplace, and disease states. The head of strategic planning led the teams. It took about nine months. We had an executive-level committee team that reviewed the ideas and came up with the new vision after reviewing what the various teams had to say.
We brought a lot of new people in, and the key was making sure that the newcomers got fully inculcated into the culture. First, we interviewed for it. Second, we got them involved in their own mission medallion ceremonies, so they “got it.”
Do you think that leadership has a hard edge and a soft edge?
George: I don’t like the words “hard” and “soft” because I think that the hardest job any leader has is to align the people around the company’s mission and values. It’s really hard work. In a global organization, it’s extremely hard. But I think that one must do both, and that’s a fact in closed-loop management that you have to expect people to deliver. What good is a mission or a value if there’s no performance?
You have to have leadership to do both. The top person can’t be the soft side, and then have someone else, the number two person, lean the hard way. You’ve got to do both yourself. I don’t think it’s too much to ask from your leadership team. If you want to be a leader in Medtronic, you’ve got to do both. You’ve got to embrace the mission and values, and you have to perform, or you can’t work here.
Was leadership at Medtronic concentrated or disbursed?
George: I believe leadership is everyone’s job. The top leader’s job is to get others to lead. I think that leadership should be distributed widely throughout the organization, and the compensation system, such as bonuses and stock options, should be aligned with that distributed notion. People repeatedly said, “Don’t give me all those stock options. Let’s spread them around to my people.” It became a very normal kind of thing, so we very broadly spread the compensation system in our company. At our 50th anniversary in 1999, everyone got 100 shares of the stock.
Did you ever struggle to bite your tongue to keep from dominating a meeting?
George: All the time. I got pretty good at that. I wanted to get my opinions out, and I wanted you to take me on. I don’t want you to bother with authority. So that was hard, yes. I tend to be very direct, and I assume that you’re strong enough to take me on. Not everyone is. Some people still have deference to power. It took a while for people to realize that it wasn’t just a hard edge that I had.
What was it like leading at Medtronic?
George: You have a team of people around you that are really trying to make a difference, and you hit barriers, and the team really comes together, taking on really tough problems, working together in the trenches to get it done. People who have more expertise step up. People are willing to give everything they’ve got and be honest and open about problems they have, and they call on support from others.
Any other thoughts on leadership?
George: You can’t drive high performance today from the top. You have to empower people to perform. Just having processes and disciplines will not be sustainable. It may get results for a short time, it may pull you out of some difficulties, but it will not be able to sustain success. The reason is that people in organizations today are not going to work in a large, bureaucratic, command-and-control organization. The key is giving young people an opportunity to step up and lead, giving them chances to show what they can do. People in organizations are looking for more than money. I think that the economists in the nineties got it wrong by saying that it’s all about maximizing shareholder value, and that the stock price is the single point to measure everything by. That’s nonsense.
The reality is that when you operate with marginal values, and you have a marginal strategy, and you’re a heroic figure in the eyes of the media, you’re probably going to destroy the organization.
There is too much focus on the short term. The short-term focus has blown up. Academics will say there’s no difference between the long-term and short-term because you use present-value analysis. That meant projecting the value of an instrument ten or twenty years out, as many of those failed financial institutions did. They didn’t really know. Everything was on short-term, fee-based income, and this whole instant gratification, instant bonuses, just destroyed so many institutions.
How would you describe great leadership?
George: Great leadership involves a vision of what can be, the courage to take it on, and the ability to bring people together and align them around that vision and mission. It takes the capacity to practice those values–your values and the organization’s values–every day. It needs discipline at that practice. You can’t say one thing and do another. Great leaders know how to empower other people to step up and lead. They don’t exert power over other leaders. That’s an old-fashioned notion. They know how to empower other people at all levels to step up and lead.
Bob and Gregg Vanourek are authors of the new book, Triple Crown Leadership: Building Excellent, Ethical, and Enduring Organizations (McGraw-Hill, 2012), based on interviews with 61 organizations in 11 countries.