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[Theory] Leadership in a Time of Cholera

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A.G. Lafley, Chairman & CEO, Proctor & Gamble
A.G. Lafley, Chairman & CEO, Proctor & Gamble

If you are the CEO, broker/owner, team leader, managing partner, or otherwise in charge of a real estate company today, this is an absolute must-read.  In fact, if you read nothing else this entire year, I recommend you read this fascinating article from A.G. Lafley, Chairman and CEO of Proctor & Gamble.

The article is entitled “What Only the CEO Can Do” but the insights and lessons Lafley lays out are really about leadership in time of trouble, when enormous changes coupled to internal lethargy are threatening to pull you down.  I think his advice, based on his hard-won experience as the CEO of a Fortune 500 company, widely admired for their marketing and product management expertise, is timeless and applies across all industries.  But right now, today, in the real estate industry, I think his advice is particularly timely and particularly relevant.

Read the whole thing; you won’t regret the time spent.

The following are our observations about the lessons that a real estate company executive — particularly the CEO/owner of a real estate brokerage company — can draw from Lafley’s article.

The Four Tasks of a CEO

Lafley worked with the late Peter Drucker, the noted management consultant, as a first-time CEO of P&G.  Most of the article actually comes from his work with, discussions with, and even notes by Drucker of the work they did together.  The central question Lafley and Drucker were trying to answer was: “What is the unique work of CEOs—work that only they can do and that they must do?”  Lafley’s general conclusion is that the CEO is uniquely positioned to be the bridge between the internal world of the company and the external world of stakeholders (customers, shareholders, government, etc.):

The CEO alone experiences the meaningful outside at an enterprise level and is responsible for understanding it, interpreting it, advocating for it, and presenting it so that the company can respond in a way that enables sustainable sales, profit, and total shareholder return (TSR) growth.

Thankfully, he doesn’t leave things here but goes on to detail the four jobs of the CEO:

1. Defining and interpreting the meaningful outside;

2. Answering, time and again, the two-part question, What business are we in and what business are we not in?

3. Balancing sufficient yield in the present with necessary investment in the future;

4. Shaping the values and standards of the organization.

I believe that Lafley is exactly right, and further believe that these four tasks are immediately critical for most of the real estate organizations in 2009 as they attempt to deal with widespread technology-driven change and the worst housing market in recent history.

Defining and Interpreting the Meaningful Outside

Lafley tells the story of his first observations of the P&G he took over:

In China, for instance, we had no choice but to visit consumers where they lived and observe them where they shopped. Coming home to our global headquarters, in Cincinnati, I was struck as I walked the office halls by how many employees were glued to their computers and how much of each day people spent mired in internal meetings with other P&Gers. We were losing touch with consumers. We were not out in the competitive pressure cooker that is the marketplace. Too often we were working on initiatives consumers did not want and incurring costs that consumers should not have to pay for. (Emphasis added)

Working on initiatives consumers did not want and incurring costs that consumers should not have to pay for. I submit that this is an altogether accurate assessment of most major real estate companies since about 2000.

Consider the tens of millions, if not hundreds of millions, of dollars spent by major real estate brands since 2000 till 2009 on TV advertising.  At the same time, consumers were moving decidedly online, increasingly involving the Internet in every step of their buying (or selling) decision, and  real estate companies were stuck arguing about who should have access to MLS data, or whether they should syndicate listing data or not.  And there was never a time from 2000 to 2008 when the Interactive budget of any major real estate company in the United States exceeded the offline marketing budget.

Even after the entire industry woke up to the importance of the Web in real estate, major companies spend time and money on initiatives that can charitably be described as “internally driven”.

Even today, in 2009, knowing what we all know, major companies are embarking on initiatives to “get back to basics” — whatever that means — despite the lack of any evidence that what the consumers want is more postcards from real estate agents, more cold calls, and more “Now is the perfect time to buy or sell a house” campaigns.

And at least one industry researcher has a strong view on what it is that consumers want:

Anne Randolph, of Murray Consulting (the folks behind REALTrends), states unequivocally that what consumers want from a real estate agent is to feel that the agent “completely represents their interests.”  Yet, not a single major real estate company has come out with a strong statement about dual agency, while voices opposing it comes from independent agents and industry commentators.

The fair minded observer is forced to ask whether the CEO’s of various real estate companies have lost touch with the consumer, and have succumbed to what Lafley calls the “gravitational pull from the inside”.

And in a rough economy, with severe pressure on revenues, earnings, and expenses, it may be impossible for the CEO not to get sucked into the gravitational pull from the inside.  Surely decisions on whether to lay off 20% of the employees, or to shutter dozens of offices, in an effort to survive the storm are ones where the CEO needs to be involved.  No doubt.  At the same time, this is precisely the time when the CEO must look outwards and bring the perspective from the external world back into the organization.  I implore you, client or not, to do this.

Go on a listing call.  Go drive a buyer around and show houses.  Sit down with a first-time buyer couple in the middle of a transaction.  Go find someone in the middle of looking for a house, and sit next to them while she searches on Google, on Realtor.com, on Trulia, on Zillow, on your website, and on your competitor’s website.  Go speak to your agents, both the good and the bad, the experienced veterans and the newbies.  Visit your offices on surprise visits.  Get on Twitter, go blog, talk with people outside your organization.  Whatever and however you do it, please learn what the outside world is saying, doing, thinking, and bring that back to your organization for integration.

What Business Are We In?  What Business Are We Not In?

Lafley and Drucker consider making this decision another critical function that only a CEO — who sees the entirety of the inside and the entirety of the outside — can do, and must do.  I agree.  And I think it’s particularly important in real estate today.

First up is the challenge of actually defining what business the company is actually in.  Some real estate franchises in our industry appear to believe that they are actually in the brokerage business.  But then, some brokerage behave as if they are in the furnished office rental business (to their agents).  And some agents appear to believe that they are in the home-selling business, rather than a professional services business.  I have had very smart brokers tell me that their real estate operations are a loss-leader which feeds their title, insurance, mortgage, and appraisal businesses — where they really make their money.  Well, I submit then that those brokers are not really in the real estate brokerage business.

A popular criticism of the “traditional” brokerage model is that “they just don’t get it”.  Usually, the critic is talking about some new esoteric technology or social media technique.  Yet, I know that every broker in the world is aware of the importance of technology, the Internet, and new ways of doing things.  Maybe the problem is that they don’t truly know (or have decided) which business they are in, and which businesses they are not in.

My take on this (as a non-realtor who nonetheless knows what service means, what corporate strategy is, and what operational focus looks like) is that a company offering professional services that does not focus on the “professional” and the “service” is headed for trouble.  Ultimately, it isn’t the SEO rankings of your website, or the glossiness of your brochure that dictates success but the quality of your professionals and the level of service your customers receive that dictate success.

Of course, if you’re really in the “renting-desks-to-realtors” business, then other disciplines take precedence: marketing to realtors, recruiting agents, the ability to charge fees, and retaining the high-margin agents who pay more than they consume in services.

Figure out — and decide where needed — what business you are in, and what business you are not in and should not be in.  Only you can make that call.

Balancing the Present and the Future

A.G. Lafley admits that this task — striking the appropriate balance between present day yield (i.e., making enough money now) and investing in the future — is more art than science:

Determining the optimal balance between yield from present activities and investment in a highly uncertain future entails the riskiest choices a CEO can make. It’s as much art as science. The pull will always be to the present, because the interests of most stakeholders are short-term; few are deeply invested in a company’s performance for more than a year or two. In times of financial crisis and global recession, CEOs feel even more pressure to focus on this week, this month, and this quarter. Understandably, such pressure can result in a significant reduction of investment in the middle and long terms, including the slashing of capital projects and R&D innovation.

The real estate company leader today confronts extraordinarily tough market conditions, and does so in the middle of enormous technological and generational shifts.  The effects of the Internet have not yet been fully felt throughout the industry.  The generational shift from the Boomer to Gen-X into the Millenials has not yet been fully taken place.  To continue to invest in the long term while slashing headcount and closing offices may be nearly impossible, and yet to fail to invest may mean survival today only to face certain obsolescence upon emerging from the storm.

I don’t know that anyone — Lafley, Drucker, anyone — can say with certainty, “This is what you need to do.”  But some advice seems sound.

Lafley’s first piece of advice is to set realistic growth goals.  I read this to mean that the CEO needs to temper expectations of short-term yield.  To not confuse stretch goals with what is acceptable and realistic, given your capabilities and the market conditions.

The other piece of advice relevant to most real estate organizations is this:

[A]llocate human resources in a way that identifies and develops good people for today and tomorrow. Drucker said, “Effective CEOs make sure that the performing people are allocated to opportunities rather than only to ‘problems.’ And they make sure that people are placed where their strengths can become effective.”

Maybe the realities of the market are such that you can’t afford to invest in the latest web technology.  But perhaps you can let that bright young agent who is passionate about understanding how social media creates new channels into the Gen-Y audience experiment.  Maybe, rather than throwing roadblocks in the way of innovators, you can enable them to try and find out — while providing the business discipline and guidance to make sure they’re not just wasting time: “Sure, you can work on that corporate Twitter initiative — I’ll even pay you a few bucks for it; but I need to see 10% increase on conversion to make that worthwhile.”

Shaping the Values

Every CEO I have ever known — including myself when I was a young CEO making every mistake under the sun — loves to talk about values and culture.  Every leader can’t spend enough time talking about “integrity, ethics, customer focus, passion for winning” and so on and so forth.

Trouble is, so few actually walk the walk.

A CEO will get up at the company meeting and say something like, “We’re all about serving the consumer’s needs.  That’s our value, our culture: customer service.”  Then the minute he gets off the podium, it’s as if the whole thing was never said.  He does nothing to hold his senior managers accountable for customer service.  No effort is undertaken to measure how effective the organization is in providing customer service.  No training is provided on what the organization’s expectations and methodologies of customer service are.  Projects are proposed and approved without a single person asking whether those projects improve customer service, and if so, how and by how much.

Our view at 7DS is that “defining the values” of an organization isn’t really about the words.  It isn’t about the corporate retreats where executives sit around and talk about what the values ought to be, or how to phrase the corporate mission statement.  Pretty much every single profit-seeking organization in the world is going to have similar types of mission statements and values statements: excellence, execution, service, winning, teamwork, corporate citizenship, ethics, etc. etc. blah blah blah.

No, the task of shaping the values is in enforcing those words.  Every company says the same things.  But the excellent company enforces the words and makes them actually mean something in action.  It is the CEO’s job to hold the entire company accountable, to make sure that those words aren’t mere words, but drivers of action and shapers of behavior.

Think about your company.  Think about what you say your values are, what you think your brand stands for in the marketplace, think about what you believe your reputation should be.  Then ask yourself how you are enforcing those values, your brand, and your reputation.

Conclusion

There are likely numerous views on what it means to be a leader, especially in troubled times.  We don’t believe this is the last word, or the only correct interpretation.  But Lafley’s words resonate with us.  It doesn’t hurt that the man has turned P&G around, taking the company from a per-share price of around $27.50 in 2000 to a per-share price of around $70 in Sept of 2008, and grown P&G’s market share from 2B of 6B worldwide consumers to 3.5B of 6.7B consumers.

The final lesson from the article bears here as well, especially for the leaders of real estate companies who are facing unprecedented strategic change and markets in turmoil.

One cannot manage change. One can only be ahead of it….  In a period of upheavals, such as the one we are living in, change is the norm. To be sure, it is painful and risky, and above all it requires a great deal of very hard work. But unless it is seen as the task of the organization to lead change, the organization… will not survive.

The outside changes inevitably, sometimes very fast, and often unpredictably. Regardless of the dynamics, the same work must be done: linking the outside to the inside. The CEO is the only person who can appreciate both the inside and the outside. This work will never go away.

The work will never go away.  And you are the only person who can appreciate both the inside and the outside.  You need not, however, do it all alone.  Even A.G. Lafley had Peter Drucker and others to help him navigate the waters.

Please let us know if we can help.

-rsh

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Rob Hahn
Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.