U NW AVER ING FAITH AMID THE BRUTAL FACTS

Good to Great
81
the B category, it would be left alone by the big monster that had invaded its
Kimberly-Clark, on the other hand, viewed competing against Procter
& Gamble not as a liability, but as an asset. Darwin Smith and his team felt exhilarated by the idea of going up against the best, seeing it as an opportunity to make Kimberly-Clark better and stronger. They also viewed it as away to stimulate the competitive juices of Kimberly people at all levels. Atone internal gathering, Darwin Smith stood up and started his talk by saying, "Okay, I want everyone to rise in a moment of silence" Everyone looked around, wondering what Darwin was up to. Did someone die And so, after a moment of confusion, they all stood up and stared at their shoes in reverent silence. After an appropriate pause, Smith looked out at the group and said in a somber tone, "That was a moment of silence for PG" The place went bananas. Blair White, a director who witnessed the incident, said, "He had everyone wound up in this thing, all up and down the company, right down to the plant floor. We were taking on Later, Wayne Sanders (Smiths successor) described to us the incredible benefit of competing against the best "Could we have abetter adversary than PG Not a chance. I say that because we respect them so much. They are bigger than we are. They are very talented. They are great at marketing. They beat the hell out of everyone of their competitors, except one, Kimberly-Clark. That is one of the things that makes us so Robert Aders of Kroger summed this up nicely at the end of his interview, describing the psychology of the Kroger team as it faced the daunting twenty-year task of methodically turning over the entire Kroger system. There was a certain Churchillian character to what we were doing. We had a very strong will to live, the sense that we are Kroger, Kroger was here before and will be here long after we are gone, and, by god, we are going

82
Jim
Collins to win this thing. It might take us a hundred years, but we will persist fora hundred years, if that's what it Throughout our research, we were continually reminded of the "hardiness" research studies done by the International Committee for the Study of Victimization. These studies looked at people who had suffered serious adversity-cancer patients, prisoners of war, accident victims, and so forth-and survived. They found that people fell generally into three categories those who were permanently dispirited by the event, those who got their life back to normal, and those who used the experience as a defining event that made them The good-to-great companies were like those in the third group, with the "hardiness factor" When Fannie Mae began its transition in the early s, almost no one gave it high odds for success, much less for greatness. Fannie Mae had $56 billion of loans that were losing money. It received about
9 percent interest on its mortgage portfolio but had to pay up to 15 percent on the debt it issued. Multiply that difference times $56 billion, and you get a very large negative number Furthermore, by charter, Fannie Mae could not diversify outside the mortgage finance business. Most people viewed Fannie Mae as totally beholden to shifts in the direction of interest rates-they go up and Fannie Mae loses, they go down and Fannie Mae wins-and many believed that Fannie Mae could succeed only if the government stepped into clampdown on interest "That's their only hope" said one But that's not the way David Maxwell and his newly assembled team viewed the situation. They never wavered in their faith, consistently emphasizing in their interviews with us that they never had the goal to merely survive but to prevail in the end as a great company. Yes, the interest spread was a brutal fact that was not going to magically disappear. Fannie Mae had no choice but to become the best capital markets player in the world at managing mortgage interest risk. Maxwell and his team set out to create anew business model that would depend much lesson interest rates, involving the invention of very sophisticated mortgage finance instruments. Most analysts responded with derision. "When you've got
$56 billion worth of loans in place and underwater, talking about new programs is a joke" said one. "That's like Chrysler then asking for federal loan guarantees to stave off bankruptcy going into the aircraft After completing my interview with David Maxwell, I asked how he and his team dealt with the naysayers during those dark days. "It was never an issue internally" he said. Of course, we had to stop doing a lot of stu-

Good
to
Great
83
pid things, and we had to invent a completely new set of financial devices. But we never entertained the possibility that we would fail. We were going to use the calamity as an opportunity to remake Fannie Mae into a great During a research meeting, a team member commented that Fannie Mae reminded her of an old television show, The Six Million Dollar Man with Lee Majors. The pretext of the series is that an astronaut suffers a serious crash while testing a moon landing craft over a southwestern desert. Instead of just trying to save the patient, doctors completely redesign him into a superhuman cyborg, installing atomic-powered robotic devices such as a powerful left eye and mechanical Similarly, David Maxwell and his team didn't use the fact that Fannie Mae was bleeding and near death as a pretext to merely restructure the company. They used it as an opportunity to create something much stronger and more powerful. Step by step, day by day, month by month, the Fannie Mae team rebuilt the entire business model around risk management and reshaped the corporate culture into a high-performance machine that rivaled anything on Wall Street, eventually generating stock returns nearly eight times the market over fifteen years.

Download 3.69 Mb.

Share with your friends: