The Frontline Advantage

image:amazon.com
culled from:hbr.org


The managers most responsible for a company’s success or failure happen to be the ones with whom the CEO spends the least amount of time. The people I’m talking about are frontline managers—shop-floor supervisors, leaders of R&D or sales teams, managers in restaurant chains or call centers. They’re at the very first level of management across a company’s business operations and functions. Depending on its size, a company might have anywhere from 1,000 to 20,000 such managers. Typically, they make up 50% to 60% of a company’s management ranks and directly supervise as much as 80% of the workforce.

Frontline managers make up roughly 60% of a company’s management ranks.

It is the frontline managers who must motivate and bolster the morale of the people who do the work—those who design, make, and sell the products or deliver services to customers. These managers are central to a company’s business strategy because they oversee its execution. They represent an all-important feedback loop that allows the CEO to stay abreast of the latest developments in the business. For all these reasons, frontline managers are a key CEO constituency, as important and deserving of attention and time as the senior executive team, business unit and functional heads, or major customers or investors.

Frontline managers directly supervise around 80% of the total workforce.

Yet few CEOs think that it’s their job to mobilize frontline managers. They may give the occasional speech during a site visit or hold a town-hall-style meeting or two. They may even practice some version of “management by wandering around” to stay in touch with different parts of the organization. But they rarely go far beyond such perfunctory measures. What they need to be doing is something altogether different: singling out frontline managers as a critically important group in the management ranks, spending significant personal time in direct interactions with them, and using those interactions to mobilize the entire organization. I call this approach leading through the front.

Leading through the front isn’t easy. It demands a lot from the CEO: making strategic decisions about which frontline managers to focus on as leverage points in the organization, being savvy about when and how to interact with them, freeing up time and attention, and connecting the dots between what may seem like narrow problems facing frontline managers and larger issues facing the company. But it can be done. And when a leader taps into the enormous latent power tied up in a company’s frontline managers, the payoff is a more resilient and more successful organization.

I’m a former CEO, so I’ll talk about what I know: how CEOs can lead through the front. But the lessons are just as relevant to anyone who is heading up a large organization, be it a business unit, a corporate function, or a regional operation.
A Company of Passionate Drivers

I learned the importance of engaging with frontline managers over more than a decade as a turnaround CEO in the pharmaceutical industry. In 1997, I took the top job at Pharmacia-Upjohn, a company in so much trouble that one analyst wrote, “Only a miracle can save this company.” I was able to bring it back from the brink, merge it with Monsanto into a new company called Pharmacia in 2000, and finally merge it with Pfizer in 2003 in a $62 billion deal that represented a 52% premium over Pharmacia’s stock price.

Having worked myself out of a job, I next became CEO of Schering-Plough, a company facing multiple crises that threatened its very survival. In six years, I helped fix Schering-Plough’s immediate problems, took sales from $9 billion to $20 billion, increased the number of late-stage drugs in the firm’s portfolio from five to 12, and upped blockbusters from zero to five, making the company one of the top growth companies among its peers and a leader in relative total shareholder return. Schering-Plough’s business became so attractive that Merck proposed a merger in 2008, which was completed the following year at a value of $46 billion—a 60% gain in Schering-Plough’s stock price from when I had joined the company in 2003.

Both Pharmacia-Upjohn and Schering-Plough faced what looked like insurmountable problems. In both cases, I made engaging and motivating frontline managers a cornerstone of my turnaround strategy.

Many companies will never face situations as extreme as those at the companies I led. But nearly every business confronts unanticipated shifts in technologies and markets, major disruptions in traditional business models, pressures from customers, suppliers, and competitors (both incumbent and new), and consolidation among ever larger global players. It’s no longer good enough for an organization and its people simply to keep executing past routines. Leaders must create an organization that is adaptable and highly responsive. Increasingly, companies need to build a culture of what I call passionate drivers—people who question the traditional way of doing things, dig into complex problems and stick with them until they are solved, and have an appetite to innovate.

In my experience, frontline managers are the key to bringing such an organization to life. After all, they are directly responsible for managing the vast majority of a company’s employees and, therefore, have exceptional leverage on company performance. How they feel about senior management and the company as a whole influences the way they lead their people. When they are engaged and energized, they communicate that to employees. The result is a charged-up and aligned organization.

In addition, frontline managers are central players in a company’s business strategy. Many executives assume that talking strategy with these managers will only distract them from focusing on their specific roles. I couldn’t disagree more. In my experience, the hardest thing about strategy is the execution. How well frontline managers understand the company’s strategy and their own specific role in it will in large part determine whether that strategy is successful. It’s the CEO’s job to communicate the strategy to them directly and get them to own it.

Finally, frontline managers are a powerful untapped resource for the CEO. Despite all the innovations in communications technology, one of the biggest challenges facing the leader of any large corporation is getting timely, unfiltered information about what’s going on in the business. Frontline managers have their fingers on the pulse of operations and of the marketplace. Easy and open communication with them helps the CEO detect unanticipated developments and respond to them rapidly.
Getting Started: The CEO Dialogue

The first step for a CEO who wants to lead through the front is to make time for regular interactions with selected frontline managers. This sends the message that he or she believes their work is important. But the real value comes from exposing the CEO to issues that these managers are dealing with.

Routine interactions needn’t be a burdensome commitment: They can be folded into things the CEO is already doing. For example, just about every CEO I know spends a considerable chunk of time visiting company operations around the world. Typically, site visits involve discussions with local management, meetings with customers and government officials, and sometimes a larger event with the local workforce. Frontline managers should be a priority on these visits.

Soon after I first became a CEO, I decided that I would meet with representatives from the frontline community, both formally and informally, on every site visit I made, to communicate my vision and solicit their perspectives and concerns. I continued to hold formal business reviews with the local general manager and his or her team. But I also met with frontline managers without any local top management present. We called these meetings CEO Dialogues, and over the years, my staff and I developed some simple rules for making sure that they were effective. (See the sidebar “Cultivating Effective Dialogue.”)
Taking the “Trivial” Seriously

When engaging with frontline managers, you have to be willing and able to get into the nuts and bolts of the business. If you’re in a meeting with frontline managers and don’t know what makes their part of the business tick, they’ll sense it immediately. They may even call you on it.

Sometimes you’ll find yourself getting involved in issues that, at first glance, may appear to be unworthy of CEO attention. Don’t let that stop you. You’ll learn that what seem like trivial issues or problems often turn out to be incredibly important.

At one Schering-Plough CEO dialogue, for example, frontline sales managers in our Russian operation told me that their single biggest complaint was how long it took to get corporate approval to assign a company car to a new sales rep. Believe me, I had more-important issues on my plate—or so it seemed. But in troubleshooting the problem with my staff, I realized that this issue was much bigger than just the cars themselves.

Obviously, having to take a bus or a subway or a train to visit customers was an obstacle to sales force productivity. Worse, though, we were losing some really good reps to competitors for no other reason than that they were promised immediate use of a company car.

I came to see that the business environment in Russia was developing so fast that it resembled a kind of gold rush. We needed to free up the local organization from some of the usual corporate bureaucracy, bring in better and more entrepreneurial people, and compete harder and more flexibly for the best talent.

The experience ended up affecting my whole approach to that part of the world. I significantly accelerated Schering-Plough’s activities in the region. As a result, we were able to gain a position in the Russian market that was stronger than those of much larger competitors—all because I heard district sales managers complain about how difficult it was to get a company car.
Deciding When to Go Deep

All frontline managers are important, but at different times some are more important than others. For instance, certain groups may be especially critical to resolving an immediate crisis facing the organization. Others may be central to realizing the company’s long-term strategy. As circumstances demand, groups may require more than just the occasional routine interaction, and the CEO will need to get deeply involved in their work.

When I joined Schering-Plough, its top line was dropping, and the company was burning cash. A major source of the problem was the ineffectiveness of our U.S. sales organization, which was responsible for generating roughly half our total revenues. The group wasn’t meeting its targets, and there was a lot of frustration and finger-pointing. To make matters worse, some of our sales and marketing practices were being investigated by U.S. attorneys for possible violations of the law.

As I saw it, the organization needed a whole new approach to selling. Instead of focusing, as usual, on high-pressure tactics to maximize short-term results, our sales reps needed to become more professional, more focused on building deep, long-lasting customer relationships. I wanted our customers to view them as trusted consultants rather than as traditional salespeople. This would amount to an enormous cultural change. Sales reps would need to develop in-depth knowledge not only about the full range of products in our portfolio but also about the science behind the products. We would have to address highly sensitive issues such as how reps were paid (relying less on monthly commissions and more on fixed salary) and challenge assumptions about what constituted high performance and how it would be rewarded. We would need a wholesale change in the mind-set of our sales reps and their attitudes about their role.

I knew I was putting the roughly 400 district sales managers in a very tough spot. As the direct managers of Schering-Plough’s 4,000 U.S. sales reps, they would be the tip of the spear of my plan to reinvent the company’s sales culture. To be successful, they would have to learn new leadership skills. As the brand-new CEO who was proposing this major change effort, I had to take the lead as their mentor, teacher, and coach. During my first two years at Schering-Plough, I worked closely with the sales managers to communicate my vision, get their buy-in, and model the new behaviors that they would need to model for the sales reps.

I decided that the first large company event I attended as CEO would be the annual meeting of the entire U.S. sales force. A few weeks before the event, I met with the district sales managers to tell them what I intended to say: We were going to change the way we did things and start emphasizing new values such as “business integrity” and “putting customers first.” I told them that they had an absolutely central role in the effort. Their support at the annual meeting was crucial to bringing the reps along.

For a long time after the event, I made it a practice to hold one-on-ones with many of the sales managers to discuss the specific challenges each was facing with his or her reps and to ask how I might help. I even had my training staff create a handbook that spelled out their new leadership role. That handbook became the prototype for a companywide frontline-management training program designed to help all new managers plan their first few months on the job.

It was a long, hard slog to change our sales culture. Some reps who had been among the highest earners under the old commission system decided to leave. But after about a year, I knew that our efforts were paying off. One indication was that some of the company’s oldest products, which had been posting declining sales, began to take on new life. That meant our reps were selling a fuller portfolio, not just pushing the latest products. Another was that in customer satisfaction surveys, scores for some of our key sales groups, such as specialty sales and managed care, went from the bottom quartile to the top. Eventually, as the new sales culture took hold and the U.S. district sales managers became confident in their own leadership skills, I was able to pull back from my heavy involvement.
Exposing Senior Managers to Frontline Perspectives

One of the key tasks for any CEO is to be the architect of how decisions get made in the company. A CEO who leads through the front will incorporate voices from the frontline ranks into management’s decision-making process. The point is not necessarily to give frontline managers new decision rights. Rather, it’s to make sure that their point of view is heard by the senior managers making the decisions.

A good example of how I did that at Schering-Plough concerns another major crisis the company faced. Not long before I became CEO, the U.S. Food and Drug Administration had hit the company with a $500 million fine (the largest in the FDA’s history) for what regulators considered inadequate quality management in the company’s manufacturing systems and insufficient commitment on the part of management to solving the problem. Upon being appointed CEO, I had signed an ongoing consent decree, which among other obligations made me personally responsible for more than 200 improvements in our manufacturing operations. If the company failed to show regular progress, we were liable for quarterly fines and worse. An elaborate and costly structure of project teams had been put in place to make the improvements.

To monitor progress, I scheduled a recurring meeting called the CEO Biweekly. There were about 15 regular attendees, including the company’s top manufacturing executives, the plant managers from our four U.S. manufacturing sites, and middle managers overseeing the effort. In addition, I often brought in supervisors from the four plants—frontline managers who ran the production lines and were members of the improvement teams—to report on specific initiatives.

I had included the plant supervisors because I wanted to keep the process honest. At one point, for example, it became clear that our improvement efforts were falling behind schedule. Everybody had a theory about why this was happening, but I wanted to know what the supervisors thought. They told us that the reason was simple: Despite our complex infrastructure of improvement teams and all the money we were spending on designing solutions to the problems, at the end of the day it was the plants’ production schedulers who controlled what happened on the lines—and their decisions were driven exclusively by the demands of the production schedule. As they understood it, their job was to make sure production targets were met. The result was that they weren’t allowing enough downtime for the engineers in charge of making the necessary improvements to work on the lines. So the CEO Biweekly group came up with a new policy that was widely communicated and reinforced: Engineering improvements were as high a priority as production—and the schedulers had to work with the improvement teams to manage the trade-off between those two goals, not just optimize one. Who knows how long it would have taken to arrive at that simple solution if we hadn’t listened to the managers on the ground?
The Power of a Higher Purpose

Immediate crises like those I faced at Schering-Plough can devour a CEO’s attention and time. Be careful that they don’t cause you to neglect other key groups of frontline managers. Often there are units that don’t represent a big part of the current business or are not facing an immediate problem but whose activities are absolutely critical to a company’s future. Here, too, the CEO who leads through the front has a crucial role to play as champion and chief motivator.

In the pharmaceutical industry, for example, a company’s future is only as good as its R&D. Lead times are long, and failure rates are high. It’s a tough job that’s getting even tougher as regulatory agencies introduce stricter standards for drug approval, governments put pressure on companies to lower prices, and biomedical science becomes more complex. In my experience, the key differentiator between success and failure in pharmaceutical R&D is not so much the knowledge or expertise of a company’s researchers (although, of course, that is important) as it is the level of their personal engagement and motivation—especially in the face of unforeseen obstacles and setbacks. That’s why I’ve made it a priority in every company I’ve led to connect with the frontline managers leading our R&D teams, understand the challenges they face, and go out of my way to show that I personally value their efforts.

One time, at Pharmacia-Upjohn, while visiting our R&D facility in Uppsala, Sweden, I was shown a new delivery mechanism for our human growth hormone Genotropin. Because the recipients of human growth hormone are children, device technology is important: The less intrusive and painful the mechanism for delivering the drug, the better. The prototype was a penlike device with a spring-loaded needle that allowed for a quick injection. But there was some concern because using the device required injecting the drug into the belly, which children might find scary.

The moment I was handed the saline-filled prototype, I proceeded to inject myself. In part, I was gathering data. I realized, for instance, that the injection could be administered so easily and so quickly that it would be over before most children had even focused on it. But I was also sending a message. The people standing around me were startled to see the CEO engage in such a visceral way. They understood that I really felt the issue was important.

Another effective way I have found to unleash personal engagement and emotional energy is to infuse people’s tasks and goals with a sense of higher purpose—above and beyond the economic or strategic goals of the company. A higher purpose isn’t just window dressing, peddled to prospective employees or the public. It’s a very pragmatic way of strengthening organizational resilience.

In 2007, Schering-Plough acquired Organon BioSciences, which previously had been a division of the Dutch conglomerate Akzo Nobel. Researchers at Organon had developed a medication called asenapine that showed promise for treating bipolar disease and schizophrenia. The company had licensed the product to Pfizer, but the compound had been languishing in late-stage trials for years. In October 2006, Pfizer had walked away from the drug. Both investors and investment bankers took Pfizer’s action to mean the drug had no future; they placed little or no value on it during our M&A due diligence.

But in getting to know the researchers who had developed asenapine, I was impressed by their commitment to creating drugs to combat serious mental disease, a major area of unmet medical need. Their determination made me think the drug just might have a future—but only if they put their all into getting the compound approved. I didn’t talk to them about the potential impact of asenapine on Schering-Plough’s top line or our need to restock the company’s product portfolio. I told them that patients suffering from mental disease were counting on them. Eventually, they were able to resolve the obstacles keeping asenapine from final approval, and today it is one of the few new medications that have been approved in the United States for use with patients suffering from bipolar disease or schizophrenia. We succeeded in part because by appealing to the R&D team’s sense of higher purpose, we unleashed the energy and motivation necessary to find a solution.
Empowering the Front—Without Undermining the Middle

One response I get frequently from executives when I talk about leading through the front is “Doesn’t that risk undermining your middle managers?” It’s a legitimate question—and it applies to senior managers as well. You have to strike a delicate balance between empowering frontline managers and making sure your actions and responses don’t short-circuit the formal chain of command.

You have to empower frontline managers, but make sure you don’t short-circuit the formal chain of command.

It’s important to communicate to managers at all levels that frontline managers are a critical part of the enterprise and that it is the job of everyone, not just the CEO, to support them and learn from them. And when it comes to sharing information, leading through the front is an open system. It is not permissible for anyone to use the chain of command to hold on to—let alone hide—information that ought to be shared. At the same time, however, you should never use the information you get from frontline managers to discipline or punish their bosses. The response should always be at the level of company policy, not individual performance.

Never use the information you learn from frontline managers to discipline or punish their bosses.

Here’s an example of what I mean. In the course of working through the problems facing our manufacturing operation at Schering-Plough, I got to know a number of manufacturing supervisors who were informal leaders in their plants. I treated these shop-floor influencers as my eyes and ears in our manufacturing operations. I went out of my way to develop personal relationships with them. I told my administrative assistant to put through their calls no matter what I happened to be doing. I even gave some of them my personal cell-phone number.

One evening, I got a call at home from one of these supervisors. Our senior manufacturing executives had recently made a decision to shift production of one of the drugs made in his plant to a facility in Canada. The change wasn’t scheduled to take place for some time. The supervisor had called to tell me that, in an effort to save money, the plant manager had decided not to purchase an important piece of equipment necessary to keep up with state-of-the-art quality-assurance standards. The supervisor was worried that the decision would compromise our new emphasis on high quality. Frankly, I agreed with him.

But here’s the critical part of the story: My first reaction wasn’t to call up the plant manager and chew him out. After all, we were also emphasizing the efficient use of capital throughout the company. I could see how, from his perspective, the decision to move the production line might look like a good opportunity to save on his capital expenditures. Still, if the savings were going to compromise quality, even temporarily, then the decision was a bad one.

Instead of going directly to the plant manager, I worked with my senior management team to establish a new company policy: As long as a manufacturing plant was responsible for producing a specific drug, it was required to invest in the production line—right up to the moment the drug was transferred to a different site. The company’s long-term manufacturing strategy shouldn’t undermine its commitment to best-in-class quality assurance and compliance.

In the end, far from opposing the empowerment of frontline management, the other management ranks at Schering-Plough came to welcome it. Why? Because the more that frontline managers themselves could function as engaged leaders, the better their bosses and bosses’ bosses could do their own jobs.

I remember the moment when I first realized that the notion of leading through the front had taken hold. It was soon after we rolled out our companywide frontline-management training program. I was worried that it would be difficult to persuade senior managers to make time to host the kickoff meetings for the three-day training sessions. To my surprise, there were so many volunteers that we had to turn people away. They realized that empowering the front line had the secondary effect of empowering them as well. What leader could ask for more?