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Turnarounds Starts with the Truth

When Ed Ludwig was promoted from CFO to CEO of Becton, Dickinson and Company (BD) in May of 1999, he quickly discovered that the company wasn’t going to make its numbers for the year. BD had expanded too much and too quickly in the late 1990s; its leaders had let the company’s cost base grow to rapidly, and several acquisitions hadn’t delivered the expected value. Although its long-term prospects were good, the company was now paying a big price for its missteps in lost credibility on Wall Street,

Rather than point fingers at others in the company, Ludwig decided it was time to do a 360-degree performance assessment of BD’s senior leadership team, including himself. Early in 2000, he selected sixteen of his best managers to form an internal task force that would carry out a holistic performance assessment of BD’s organization. This was done using an approach known as the Strategic Fitness Process, which BD had developed in the early 1990s in collaboration with Harvard Business School faculty, and which Ludwig found to be a useful way of quickly ascertaining the pulse of the organization and the key problems that were impeding performance.

The task force interviewed key leaders throughout the organization. Their goal was to identify the issues impeding BD’s current performance and long-term success, and solutions that would unleash BD’s financial and social value. After all, BD was a 100-year-old medical technology company that aspired to be as well known for its contributions to global health as the Red Cross is.

 

The Big Barriers

The task force members identified two main barriers to success. The first was a project called Genesis, a multimillion-dollar SAP enterprise resource planning (ERP) system that Ludwig had initiated as the CFO. He had intended for Genesis to deal with manufacturing issues and the IT glitches associated with the Y2K problem, and he had also expanded it into other business areas. By the time Ludwig became CEO, Genesis, in Ludwig’s own words, was “way off track.” The design wasn’t working right. The implementation group had isolated itself from others. A hundred million dollars had been spent, and the project was far from complete. What’s more, Ludwig acknowledged, “my name was all over it.”

The second problem was BD’s distributor’s incentive programs, which tended to distort ordering patterns that, in turn, caused significant inefficiencies in the supply chain. While these types of incentive programs were common in the industry at the time, they were inconsistent with Ludwig’s aspiration to manage the company for the long term.

Ludwig responded to these findings by taking personal responsibility for fixing both problems. He stood up before his leadership team and the members of the task force, and said, “These things are wrong. One is broken and the other isn’t the right answer for us or for our distributors, and we’re going to stop.” He declared that BD would stop offering the distributor incentives by the end of the year, even if it meant the company would “miss the numbers.”  And implementation of Genesis would also be stopped until all the implementation problems were fixed.

To make good on these promises, Ludwig had to endure the toughest period in his professional career. After the September Labor Day break, executives returned to a major restructuring plan. “We took a big charge,” Ludwig recalls. “We eliminated 1,200 positions. We terminated the distributor incentive programs, all at the same time. So this was sort of a nuclear blast.” From a share price that had reached over $40 at the time of his appointment as CEO, BD’s stock sunk to a low of $22 a share on September 26, 2000.

 

The End of the Beginning

Then came the breakthrough. Around 7:00 o’clock one evening, the investor relations director burst into Ludwig’s office and announced that an independent investment analyst named Rick Wise, had changed his negative view of BD’s stock and gave it a buy rating. “I didn’t know Rick Wise from Aunt Tille,” Ludwig says. But he believed Becton Dickinson had “gotten religion.” By the end of October, BD’s share price had rebounded to the mid-30’s.

After that Ludwig delayed the implementation of Genesis for a year at a cost of about $10 million, in order to fix it. The results were well worth the effort. Indeed, another independent analyst cited the BD project as “one of the most successful SAP installations he had ever seen.” Not only did BD end the inefficient distributor incentives, it completely revamped its sales and distribution procedures. Order fill rates, back order management, process inefficiencies—anyway you wanted to look at the system— it was greatly improved.  

The task force highlighted a number of other fundamental issues that threatened BD’s long-term effectiveness:

  • Managers were confused about the company’s strategic direction and weren’t confident of the firm’s ability to achieve its operational goals.
  • There was considerable disagreement about key roles and responsibilities within the company’s management structure. For example, there was tension between businesses, regions and functions as to who was ultimately responsible for strategy and operations.
  • The top team leaders were not seen as effective communicators, which further undermined middle manager confidence.

 

The Three Greats

As Ludwig and his team crafted their responses, they did not shy away from the “brutal facts.” But they also didn’t let those facts inhibit their ability to aspire to greatness. From that beginning, Ludwig came to refer to the three major BD’s initiatives that would define the rest of his career as the Three Greats: Great performance, A Great Place to Work, and A Great Contribution to Society.

With respect to great performance, BD has not missed its quarterly numbers from 2000 onward. Improvements in gross profits from 48% to 52 percent between 2000 and 2010 were driven substantially by the new operational disciplines.  In its three core business segments, the company has established global leadership in Biosciences, expanded its reach in Diagnostics, and revitalized its Medical Instrument business.

In response to employee feedback that the company was under-investing in training and development, Ludwig created BD University, which provides leadership development opportunities for managers at all levels using BD leaders as teachers. Business unit managers are now required to make sure they have made provisions for a minimum number of replacements for themselves. Ludwig retired in July 2011 and his successor, Vince Forlenza, has carried on with his own imprint on career development.

BD’s has a long tradition of corporate social responsibility, including participating in the first Salk Vaccine program. As one of the world’s largest manufacturers of syringes and needles BD has also built on its long-time investment in health worker safety with new product safety innovations. BD’s leadership on global health issues among multinationals has followed a similar pattern to the company’s leadership on safety.

Trust and Credibility

For Ludwig, his most important accomplishment was the “trust and credibility” he gained, from his team and the rest of the organization when he stood up and said, “things are wrong.”  In a large corporation, Ludwig believes that truth breeds trust and trust is essential to success.  Today BD’s country managers, the regional leaders, the general managers, and the business presidents are all doing a better job supporting one another and anticipating problems while they are small and before they get big, “If you have a $6 billion operation, operating in 50 countries with 27,000 people, (2011 worldwide revenues were $7.8 billion and employees 29, 379 as of FY end 2012) somebody is going to be off their game,” says Ludwig, the higher ambition leader and realist.

 


Adapted from: Higher Ambition: How Great Leaders Create Economic and Social Value (Harvard Business Review Press, 2011) 

 

 

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