Management and Career

Falling victim to your job's low expectations

2012-02-22T14:32:15Z

If you aspire to become a great manager, simply striving to meet your company's actual (versus espoused) standards probably won't get you there.

By Linda A. Hill and Kent Lineback, contributors

FORTUNE -- One morning, years ago, Kent heard loud laughter outside his office and found several people clustered around Charley, the head graphic designer who was easily the largest and most popular member of the marketing department Kent ran.

"Charley lost 25 pounds," someone said when Kent joined the group. Charley's weight was a common topic of office conversation but only because Charley himself brought it up so often.

"That's great, Charley," Kent said. "Congratulations!" Then -- always the boss, though this was hardly a management matter -- he asked, "What's your goal?"

The smile dropped from Charley's face.

"That," he said, "was it."

It wasn't one of Kent's most sensitive moments. Later, when he apologized to Charley one-on-one, Charley said, "You were right. I need to lose more. But I got in a group and we all swore do-or-die to lose 25 pounds. That became my goal."

To be sure, there's little connection between losing weight and business performance except that Charley's experience illustrates a principle -- the Opportunity Gap -- that we in business often overlook because we work in groups and group norms are powerful forces of influence.

How to make it in the soda industry

2012-02-21T19:06:41Z

Sales of soft drinks are flat and industry giants like Coke and Pepsi are busy looking for the next big thing. For small beverage companies, selling out may be the only path to success.

By Sierra Jiminez, contributor

FORTUNE -- If you've ever played mix master at the convenience store soda fountain, you know just how rewarding it can be. Indianapolis-based startup uFlavor wants to take that concept and bottle it. The company offers 42 flavors on its website, which consumers can mix and match, customizing sweetness, carbonation and even caffeine levels. uFlavor's ambition is to make its product available in soda fountain machines as well. The idea is clever, but helping it take off may be difficult.

The $74.2 billion soda industry is more or less dominated by the Manichean struggle between Coca-Cola Co. (COKE) and PepsiCo (PEP). Coca-Cola holds about 42% of the market share and Pepsi 29%. "What you have is essentially a duopoly between Coke and Pepsi. So, it's a real challenge for startups to get any sort of shelf space," says Michigan State University Assistant Professor and food retail specialist Phil Howard. For a beverage startup, partnering with one of the two inevitably starts to look like the only guaranteed way to grow.

For now, uFlavor is trying to make it on its own. "For us, the dream is to make this an entirely different flavor experience. I would hate to see that not come to fruition because we sold to a large company," says uFlavor Chairman Michael Cloran. Cloran and his team officially launched the company in December. The company says it plans to allow consumers to personalize their soda flavor and bottle design by the end of 2012. And within the next 18 months, the company says it will have a soda personalization vending machine available that can combine and bottle beverages on demand. The firm is self-funded and distribution of online orders occurs from its Indianapolis headquarters.

MORE: Pepsi's CEO faces her biggest challenge

Growing beyond there may be difficult, according to Honest Tea co-founder Seth Goldman. In 1998, Honest Tea was in a similar predicament. Goldman's wife was delivering the product to stores on her way to work. And his business partner Barry Nalebuff operated a distribution center out of his garage. "If you read our original business plan, what [is] glaringly missing is any discussion of the importance of distribution. We were just stuck. And this is where so many beverage companies have a challenge," Goldman says.

The company had put together a patchwork distribution method. Not quite successful enough to be picked up by any major beverage distributors, Goldman and Nalebuff turned to natural and gourmet food distributors to get their products on store shelves. "At that point, we'd been at it for 10 years, and our goal wasn't to be a beverage distributor, it was to be a brand," he says. So Coca-Cola approached Goldman with a proposition: invest in a minority stake of the company and allow Honest Tea to use the beverage giant's distribution manpower. By the time Coke fully acquired the brand in 2011 for an undisclosed amount, Honest Tea had jumped to more than 75,000 retail accounts, up from 15,000 three years earlier. By the end of this year, Goldman says the company will be five times its size before partnering with Coke.

All brands haven't fared so well. Besides Red Bull, Jones Soda Co. (JSDA) is one of few firms that has managed stay independent and growing. Hopes for Jones Soda were actually pretty glum between 2007 and 2010, with revenue stagnating. After a leadership switch in 2010, the company managed to improve its distribution tactics. The key, says President and CEO of Jones Soda Co. Bill Meissner, is to make a unique product, not just another energy drink or cola. When Meissner joined Jones Soda, he also brought with him a team of ex-Vitamin Water and SoBe veterans -- both firms that were acquired by Coke or Pepsi.

MORE: Meet the 18 Fortune 500 female CEOs

The goal was to strengthen Jones's position as a craft soda company. The Seattle-based company has two key businesses. MyJones, the its individual bottle personalization service, allows customers to order beverages with a home photo and message on the label through the company's website. It makes up about 8% of the company's total revenue, Meissner says. (Jones also rotates about 15,000 personal home photo submissions from its customers in regular national distribution each year.) While the company is still underdeveloped in retail, its overall online sales have managed to carry the brand. Meissner estimates Jones will make more than $100 million in sales by 2016, up from $20 million last year. "Premium soda just isn't a category big players like Coke and Pepsi can do well," Meissner says.

Coke and Pepsi have been aggressive about acquisitions. Most recently, the companies have turned their sights to the latest beverage craze, coconut water. In 2009, Coke bought a 20% stake in Zico Beverages for an undisclosed amount. Around the same time, O.N.E. coconut water signed an investment agreement with Pepsi in exchange for use of the company's distribution arm. Despite the help of industry leaders, Zico is number two coconut water brand based on sales and O.N.E. is number three. The lone holdout? Vita Coco. Instead it partnered with the Dr Pepper Snapple Group (DPS) for distribution only. It then turned to stars like Madonna, Demi Moore, Matthew McConaughey, and Rihanna for capital. The company says acquisition is still a possible exit strategy -- just not yet. "When you're acquired by one of those big companies you lose a lot of the entrepreneurial spirit that drives and creates a brand," says co-founder Michael Kirban. For uFlavor, meanwhile, it seems like there aren't many different avenues to success.

Filed under: Contributors

The real threat facing the airlines

2012-02-17T17:39:23Z

Over the past decade, the airline industry has desperately turned to mergers in hopes of achieving economies of scale. They're missing the bigger problem.

By Shelley DuBois, writer-reporter

FORTUNE -- The litany of woes plaguing airline executives is well-known: high labor costs, volatile fuel prices, thorny legislation, not to mention trying to sell a highly commoditized product to customers that love to hate them. Management has more or less tried to solve the problem by merging to achieve economies of scale. In the last ten years, US Airways (LCC) and America West, Delta (DAL) and Northwest, Southwest (LUV) and AirTran, Air France and KLM, and, now, Continental and United (UAL) have hooked up. (US Airways and Delta are reportedly eyeing a bankrupt American Airlines, as well.)

Here's what they may be missing: their brands. Branding consultants and aviation experts say the big airlines have lost focus on their brands as a result of their drive to make operational gains. Yes, successfully running an airline is bafflingly complex, but a strong identity, they argue, still sells tickets. "If three airlines are flying between New York and Chicago, the only reason to pick one over the other is because it's cheaper," a position no already-strained business wants to find itself in, says Allen Adamson, managing director at brand consultant firm Landor and Associates.

MORE: American Airlines is better off flying solo

Smaller airlines have generally been more skilled at wielding their brands to differentiate and sustain their businesses. "Success in the airline business has not, in the past, been brand-driven," Adamson says, "-- with the exception of Virgin, Southwest, JetBlue (JBLU)." Consumers happen to really like those firms. According to a JD Power and Associates 2011 North American Airline Satisfaction Study, smaller carriers tended to score higher on average than larger firms. Top scores went to the likes of JetBlue and Southwest.

Of course, such airlines are much smaller than American, United or Delta, which each permanently employ about 80,000 people. Southwest, for example, has slightly over half that number of employees; JetBlue employs some 12,000 permanent workers. Southwest, JetBlue and Virgin have also made an effort to steep employees in their respective corporate cultures from the outset. Virgin has a leg up, argues Chris Rossi, senior vice president in North America for Virgin Atlantic Airways, because the airline came from Virgin Group, which is fundamentally an entertainment company. "Our approach was to prioritize the customer experience -- how do we make it something that they look forward to?"

MORE: The dirty little secret of online travel sites

That isn't the typical DNA at most large airlines. There, a lot of the management came out of the military, says Edward Lawler, the director of the Center for Effective Organizations at the University of Southern California. "Their model was a very traditional, top-down kind of approach that doesn't necessarily give flexibility to employees or listen to what they need." Trouble is, he argues, effective customer service begins with personnel. "That was never built into the other airlines," he adds. Instead, many larger airlines have a complicated relationship with their employees. Shifting around heavily unionized labor forces can be difficult, he adds. What's more, many employees at newly re-shuffled major airlines are the ones who have weathered the worst including seismic layoffs, says Adamson.

Of course, the major airlines know that branding is important. "American is in the middle of the restructuring process and plans to emerge a very different airline," an American Airlines spokeswoman said in a statement. "The airline looks forward to emerging from the restructuring process with something new and different for its customers." Creating a coherent corporate culture is also on United CEO Jeff Smisek's to-do list. Last year, he told Fortune, "My management team and I are spending a lot of time on developing the new culture. [We're] very focused on that because you do run the risk in any integration of ending up with mediocrity." Delta did not respond to a request to comment in time for publication.

MORE: Why American Airlines should consider bankruptcy

For now, the success of small airlines with strong brands is likely to begin pushing against the branding approach of larger airlines. "I think the pressure is going to come from the regional guys that are getting pretty good at creating a unique experience and delivering around it," says Andrew Pierce, U.S. President of brand consultancy firm Prophet. "Those guys are going to become more formidable." They could chip away at the edges of a market that big carriers guard closely. Without a coherent brand strategy, those major carriers will continue to play the price game. And, in this market, with fuel costs and customer behavior difficult to predict, a broken brand is the last problem any airline wants on top of everything else.

Filed under: Contributors

Dr. David Agus rethinks the war on cancer

2012-02-21T20:53:23Z

A noted USC oncologist and one of Steve Jobs' doctors has written a book that turns much of what we thought we knew about medicine upside down.

By Brian Dumaine, senior editor-at-large

FORTUNE -- At a meeting of the nation's top oncologists in Denver a couple of years back, Dr. David Agus, a prominent cancer researcher, was giving a keynote address. Agus talked about the need to take a new approach to treating cancer. He argued that focusing on killing or slowing the spread of cancerous cells was not enough. After all, despite a half-century of research by some of the best medical minds in the world, the death rate from cancer hasn't changed much since the 1950s. Instead, doctors should try to keep a patient's entire system healthy so the disease is less likely to take root in the first place. He said we should be able to control cancer without fully understanding it. At that, hisses arose from the audience.

A few Bronx cheers aren't enough to discourage a scientist as determined as Agus. He believes he has found a new way to greatly reduce the odds of getting sick and has set out his philosophy in a potentially game-changing new book, The End of Illness, which just became a New York Times bestseller. In it, he offers his prescription for preventive medicine, and backs it with studies and lively anecdotes.

When I caught up with this slim, casually dressed man, he rattled off ideas as if he couldn't let the world know fast enough about his thinking: "I want doctors to treat toward health and not treat toward disease," he said. Agus had his eureka moment after reading a 2004 Fortune article called "Why We're Losing the War on Cancer," by Cliff Leaf. Himself a cancer survivor, Leaf, a Fortune editor at the time, wrote that researchers have come to treat the individual features of cancer rather than putting their efforts into directly controlling cancer. "We have forgotten that curing cancer," says Agus, who was on the team of doctors who treated Steve Jobs in the last years of his life, "starts with preventing cancer in the first place."

"We have forgotten that curing cancer starts with preventing cancer in the first place." --Dr. David Agus

Today, if we get cancer, we attack the cells. If we get a heart attack, we perform a bypass. That's fine, but why not avoid the disease in the first place? Agus believes that diseases like cancer and heart disease should be thought of as verbs and not nouns. In his lexicon, "cancering" suggests a systemic problem. He points to a study of women who, after treatment for breast cancer, were given either an osteoporosis drug or a placebo. The ones who took the drug had a 40% lower rate of recurrence of the cancer, as their system was changed and the cancer didn't grow back. "Keep the soil healthy," says Agus, "and the bad seed won't grow."

One way to keep your body's soil healthy is to treat inflammation. When something is wrong with your body, it goes into panic mode and triggers inflammation, a process that rallies the vascular, immune, and cellular systems to heal injured tissue. Numerous studies show that patients who take statins -- which not only lower cholesterol but reduce inflammation -- lowered cancer rates by 40%, although no one knows exactly why. That's not all. A growing body of evidence suggests that inflammation may be linked to a host of other diseases, from heart attacks to Alzheimer's to diabetes. This doctor's orders? Ask your physician if you should be on Lipitor or other statins and a regimen of baby aspirin, which help curb your body's inflammation.

There are other simple ways to fight inflammation. Agus explains that it's better to walk a lot than to do an intense burst of exercise and then sit behind a desk all day. (The rhythmic part of walking helps your lymphatics function, part of the system that controls your immune system.) Wear comfortable shoes, which lowers stress on joints. (Walking barefoot or in high heels can cause damage to the joints and thus inflame your feet.)

Fortune's guide to the future

His approach has its detractors. Dr. Rita Redberg, a professor of medicine at UCSF, argues that the evidence doesn't support the widespread use of statins. "I prescribe medicine to make people feel better or live longer, and statins do neither," she says. Not only that, statins can have side effects ranging from muscle aches to diabetes.

Of course, Agus thinks statins in many cases do more good than harm and, anyway, are just one tool in his arsenal. The nice thing about his approach is that nothing requires a superhuman effort -- a lot of it is just commonsense, healthy living.

Agus also believes we need new tools to really understand our bodies. He suggests that each of us get genetically profiled. This won't tell us whether we'll contract a certain disease but will tell us the probability of getting it, allowing us to make the proper adjustments. A few years ago he co-founded Navigenics, a company that does genetic screening at $400 a pop and is backed by venture capitalist John Doerr of Kleiner Perkins, an early investor in Google (GOOG). When Agus had his own DNA profiled -- the results are in the book for all to see -- he found he was at risk of having a heart attack. This was strange because his cholesterol had always been low. Nonetheless, it was enough to persuade him to go on a healthier diet and start taking statins.

New tools may also make it possible to detect diseases at a much earlier stage. The key is understanding how proteins -- which are the building blocks of life -- operate. Faulty proteins can be early indicators of a disease. The trouble is, tracing proteins is incredibly hard to do -- they have to be examined at the level of a single neutron. About eight years ago Agus started another company called Applied Proteomics. He joined up with supercomputer guru Danny Hillis to create a system with the horsepower to catalogue hundreds of thousands of protein levels. The company is still a work in progress, but if it succeeds, it will provide an important diagnostic tool.

When Agus's book was reviewed by the Daily Mirror in England last month, he says he got 7,000 angry blog and e-mail responses. Some accused him of trying to cash in on his DNA-profiling firm. Agus's response? That he has only a small stake in the DNA firm.

Agus, however, has a bigger challenge ahead. He needs to get his ideas widely accepted by the medical community. Maybe then he can turn those hisses into cheers.

This article is from the February 27, 2012 issue of Fortune.

Filed under: Contributors

New job? Get a head start now

2012-02-16T20:22:40Z

About 40% of executives who change jobs or get promoted fail in the first 18 months. One way to avoid that is to lay some crucial groundwork before your first day.

By Anne Fisher, contributor

FORTUNE -- Dear Annie: I'm starting a new job in about two weeks as head of a somewhat troubled division at my current employer's biggest competitor. It's a larger role than I've had so far in my career, and I'm pretty excited about it, but it comes with some significant challenges, since the business I'll be running has been hit hard by the recession and the European debt crisis, revenues and earnings are down, and morale is in the tank.

The CEO who hired me said everyone there is expecting me to "hit the ground running." I've got some ideas about what needs to be done right away, which I talked about in interviews (and which presumably got me hired). But on the theory that there's no such thing as too much information, I'd appreciate any thoughts from you and your readers about what works, and what doesn't, in this kind of situation. --Parachuting In

Dear P.I.: It's fortunate that you have two weeks before your official start date because, according to executive coach George Bradt, you'll need every minute of that to get off to the strongest possible start. "The best way to build your team, take charge, and get great results fast is to create time by starting earlier than anyone thought you would," he says. "This one idea can make or break a new leader's transition."

Bradt is basing that partly on his own decades of experience as a senior manager at Unilever (UN), Procter & Gamble (PG), and Coca-Cola (KO), and partly on his work with 600 job-changing managers since 2002 as principal of PrimeGenesis, the executive coaching firm he started in 2002. Bradt is also co-author of a new book you might want to check out, The New Leader's 100-Day Action Plan (Third Edition).

His mission is to lower the failure rate among executives newly hired or promoted into big jobs, which research shows has stood at about 40% for at least 15 years now.

"New leaders who miss the opportunity to get a head start, before their official start date, often find out later that organizational or market momentum was working against them even before they showed up for their first full day at the office," Bradt says. Gulp. Borrowing a term from the product-development world, Bradt calls the time before you're officially on board the "fuzzy front end." Here are four ways to make the most of it:

1. Meet with critical stakeholders as soon as possible. "Identify the people in the company who can have the most impact on your success in the new job," Bradt advises. "These include your direct reports, critical support people, peers, potential allies, and even the person who wanted your job but didn't get it." Call or visit each of these folks, even just for a quick chat or a cup of coffee. It sounds simple but, Bradt says, "It always makes a huge difference. It's a game changer."

2. Have a plan for listening and gathering information. "Different stakeholders will have different views of the same situation," Bradt notes. Asking for their perceptions and suggestions "is not a search for the One Truth. Rather, it's an exercise in understanding people's views, both on what's going well and what's not and why, so that you can work effectively with each of them. Come into these conversations with an open mind and actively listen."

While you're at this, try to find out about what Bradt calls "shadow metrics" in the organization you're joining, meaning key measures of how things are going that may not be evident at first glance: "What are the key measures of success along the way? How are they tracked, and how can you get access to them?"

3. Craft your message. How are you going to present your ideas -- the ones you believe got you hired -- on where the business needs to go from here? "Part of preparing to lead is thinking through the messages you want to send, right down to details like whether your office setup will be informal and open-door or more formal and structured," Bradt says. People will be watching closely and talking to each other about you, he adds: "Everything communicates, and not always what you intended, so be careful."

4. Start making a hundred-day plan. The knowledge you gather before you officially start "should help you begin to put things in context and decide what you want or need to do on your first day, during your first week, and in your first three months," says Bradt. "It's important not so much to learn everything there is to know before you show up, which would be impossible anyway, but to have a plan in place to learn more."

Granted, this is a lot of work. "People tend to resist doing all this because there's usually a time squeeze involved in changing jobs, where your old employer wants you to stay as long as possible, and your new one wants to rush your start date," Bradt notes.

"It's also very common to want to take at least a short vacation to rest and recharge between jobs," he adds. But tempting as it might be to sit on a beach and unwind for a few days, if you really want to start strong, you just haven't got time.

Talkback: What helped you most in starting a new management job? If you've ever had a new boss come in from outside the company, what did he or she do well at the start, and what do you wish had gone differently? Leave a comment below.

Filed under: Ask Annie, Contributors

The case for the outspoken CEO

2012-02-15T17:26:17Z

Should the chief executives of Goldman Sachs and Starbucks really be speaking out on hot button issues?

FORTUNE -- Rarely do you see a CEO with a picket sign. High-level executives aren't the kind of leaders who man the bullhorns at protests rallies or captain dinghies to save the whales. Political issues are polarizing, and companies that take sides risk turning off customers.

Yet some CEOs are stepping into the limelight on hot-button issues. On February 5, the Human Rights Campaign released a video featuring Goldman Sachs (GS) CEO Lloyd Blankfein advocating same-sex marriage. Blankfein wasn't alone. Nike (NKE), Amazon (AMZN), Microsoft (MSFT), and Starbucks (SBUX) have all issued statements in favor of same-sex marriage in Washington State. Starbucks CEO Howard Shultz has been outspoken on other issues as well. On November 1, 2011, he launched a program to help create jobs in America. To date, the company says it has raised around $7 million for the Create Jobs for USA Fund.

Corporate leaders have always been involved in issues that could be seen as political activism. Some have even turned away potential customers for the sake of their own values. Retired Coscto CEO Jim Sinegal, for example, had a policy that no customers were allowed to carry firearms in stores -- even in states where concealed carry is legal.

MORE: Harvard biz alums have a job lesson for the U.S.

But in general, most companies steer clear of controversial issues to sidestep risk, says Michael Useem, a professor of management at the Wharton School of the University of Pennsylvania. "You pick up a little gain from customers that like what you're doing, but you could also conjure up calls to abandon your products." Since the late 80s and early 90s, Useem says, corporate shareholders have grown increasingly powerful. That has pushed CEOs to focus more and more on returning value for shareholders every quarter.

That's their job, argues Adam Galinsky, a professor of ethics and management at Northwestern's Kellogg School of Management. "They weren't hired by companies to serve a political purpose," he says, "now they're conflating the business purpose and the political purpose." It's not surprising that CEOs are speaking out though, Galinsky says, because, "the balance of power has tipped more in favor of CEOs versus the board of directors." Because of that, he says, CEOs face less risk when they speak out on controversial issues, even though it could potentially harm shareholders.

Perhaps some CEOs have begun to question the prioritization of shareholder value over the company's defining values. They may even be advocating for social progress when no one else will, Useem says. "Given the fact that government is extremely deadlocked and politics very partisan, CEOs may be stepping forward to say, 'if the government can't lead in these issues, we have an obligation to do that ourselves in a way that transcends the normal parameters of quarterly earnings,'" he adds.

MORE: CEOs and the dogs they love

Starbucks seems to be headed that way. "Delivering long-term shareholder value is essential, but companies can and should hold themselves to higher standards of achievement," the company told Fortune in a statement. "We believe companies that do so will also see a positive increase in the bottom line -- customers want to support companies that have values similar to their own."

For Goldman, advocating same-sex marriage is also an issue of attracting the best talent. Competition for great employees in the financial sector is especially fierce. And a company will have an edge if it can get the best people, regardless of who shares their bedroom. In a statement Goldman said, "Our success depends on our ability to attract and retain the best talent around the world and to foster a culture where our people can reach their full potential. This is attainable only if every person feels comfortable bringing his or her whole self to work."

In the future, other corporate leaders could follow suit, Useem says, speaking out for social change if it could help them attract the talent they want, or line up with customer values, thus boosting their bottom line long-term.

MORE: Motorola is the ammo Google needs

Still, one false move could very well lead to other business leaders choosing caution over activism, Galinsky warns. "All it takes is one or two high-profile cases in which a CEO of a major company makes a very strong political statement that leads to true discernable costs for that organization."

It all depends on how employees and consumers respond to outspoken CEOs -- these CEOs could be a good sign for people worried about leadership of the country, Useem argues. "I think these moves should help other company executives appreciate that they've got a role to play in the country more broadly. Hopefully it's not going to damage their bottom line to do so."

Filed under: Contributors

How 3 great companies work

2012-02-13T18:30:51Z

An inside look at how Toyota, Nike, and SV Angel keep on growing.

By Geoff Colvin, senior editor-at-large

FORTUNE -- Einstein observed that no matter how smart you are, or how long you ponder, you can never be sure how a watch works unless you look inside. He was making a point about understanding the universe, which we'll leave to physicists and just note that it's the same with business. We can easily study a company or an industry from the outside, but we'll never really know how it works until we get inside. That's why, in this special package of articles, we're presenting examples of the classic deep Fortune story, going inside three companies to see how they really work.

Start with a dethroned king -- Toyota (TM), colossus of the global auto industry until just two years ago, when it was humbled by a confluence of crises. In "Toyota's Comeback Kid," auto industry authority Alex Taylor III reports from New York, Los Angeles, and Toyota City, Japan, explaining exactly how the quondam king intends to regain its throne and why its chances look good.

If you want to see into the future of marketing -- and you do -- there is no better place to look than Beaverton, Ore., specifically the Jerry Rice Building at Nike headquarters. Few fields have been disrupted by the infotech revolution as profoundly as marketing. Online advertising will exceed print advertising this year for the first time, says the eMarketer research firm. In "Nike's New Marketing Mojo," Scott Cendrowski reports from inside the Jerry Rice Building on why Nike (NKE) has slashed its ad budget (no Super Bowl commercial this year), where it's putting its marketing muscle instead (Twitter, Facebook, your phone), and what it means for the rest of us (lots).

Now proceed 600 miles due south to the heart of the infotech revolution, Silicon Valley. A new generation of potentially world-changing companies is being spawned there, and the man who invests in more of them than anyone else is Ron Conway, a figure little known outside the Valley. It turns out that to understand how Silicon Valley works today, you need to understand Ron Conway. Fortune's Miguel Helft explains the man and his methods.

How a watch works, once you figure it out, isn't all that interesting. How Toyota, Nike, and Silicon Valley work is extraordinarily interesting and more. It's important.

How it works

Toyota's Comeback Kid

Nike's New Marketing Mojo

A Silicon Valley startup's best friend

This article is from the February 27, 2012 issue of Fortune.

Filed under: Contributors, How it works

A CPA and a tax analyst walk into a bar...

2012-02-13T16:41:58Z

Number crunchers who enjoy a good joke are more likely to succeed, says a new survey. They may even make more money.

By Anne Fisher, contributor

FORTUNE -- Accounting and the professionals who practice it don't strike most people as a barrel of laughs. Yet it seems that number crunchers who know how to lighten up are in demand.

That's according to Accountemps, a finance-and-accounting staffing firm whose researchers recently asked about 1,400 chief financial officers, "How important is an employee's sense of humor to fitting into your company's corporate culture?" An overwhelming 79% said a little levity is "very" or "somewhat" important. Only 20% said it doesn't matter at all.

"All work and no play can erode employee morale," observes Max Messmer, Accountemps' chairman, adding: "Job candidates should let their personality shine through when they meet with prospective employers. An interview is no place for a standup comedy routine, but it is the right time to show hiring managers you are approachable and will be easy to work with."

Another survey, this one by Accountemps' parent Robert Half International, suggests that lightening up might even help with higher starting pay: For candidates with the right skills and great cultural fit, about 40% of CFOs are more willing to negotiate bigger salaries than they were a year ago. Only 5% of CFOs said they're less flexible on compensation for top candidates than in 2011.

Messmer advises accounting mavens that "it's okay to laugh at yourself. Share a funny story. Kick off meetings with an amusing anecdote to put everyone at ease," before getting down to business.

A comptroller, auditor, or compliance officer cracking up the room? Well, maybe. In defiance of the stereotype of accountants as humorless drones, the Internet is awash in accountant jokes, most of them on accounting websites, and thus presumably written by finance types themselves. Like this one: How many accountants does it take to change a light bulb? Let me run some numbers on that and I'll get back to you.

Or this one: A surgeon, an accountant, and a lawyer are debating whose profession goes back the furthest. The surgeon says, "God made Eve out of Adam's rib, so obviously surgery came first." The accountant disagrees. "Before that, God created the universe by bringing order out of chaos," he says. "That's accounting." Then the attorney speaks up. "I've got you both beat," she says. "Answer me this. Who created the chaos?"

Actually, that's more of a lawyer joke, isn't it? The verdict is still out on whether jocularity makes for better jurists.

Filed under: Ask Annie, Contributors

Pepsi's CEO faces her biggest challenge

2012-02-13T12:27:23Z

During her tenure, Pepsi CEO Indra Nooyi has often failed to hit her stated profit targets, which investors consider an unforgivable sin. A great deal is riding on how she leads over the next several months.

By Geoff Colvin, senior editor-at-large

Indra Nooyi

FORTUNE -- Indra Nooyi is in a leadership crucible. It isn't quite as hot as it was, now that the company she runs, PepsiCo, has laid out a broad strategic plan for the next couple of years. But it's still an extremely demanding test, the kind that no CEO enjoys but that most CEOs confront. For Pepsi's employees and shareholders, and for Nooyi personally, a great deal is riding on how she leads over the next several months.

Nooyi's most obvious problem is Pepsi's stock. Last year between May and September it dropped 15%, which panicked some investors. More fundamentally, the stock has gone nowhere since Nooyi became CEO about five and a half years ago. During that same period, angry investors point out, Coca-Cola stock is up about 40%.

If that comparison were as far as the complaining went, it wouldn't be much of a problem. The comparison is unfair. Back when Nooyi got the job, Coke (KO) stock had been falling for years, the result of seven years of poor management after the death of legendary CEO Roberto Goizueta; the stock had plenty of room to move up. But Pepsi (PEP) stock had been rising steadily through years of continued strong management; Nooyi took over near the height of the economic expansion, and the stock was fully valued, perhaps overvalued. The unflattering comparison with Coke is bad luck for Nooyi, nothing more.

But she faces a deeper problem. During her tenure Pepsi has often failed to hit her stated profit targets, which investors consider an unforgivable sin. Specifically, the company is getting beaten up in its flagship product category, drinks, in the world's largest market, North America. The soda pop planets shifted in their orbits last year when Pepsi-Cola was displaced as America's eternal No. 2 carbonated soft drink (after Coca-Cola); the new No. 2 is Diet Coke.

That reordering is especially distressing to investors because there is scarcely a more beautiful business in the world than producing branded soft drink concentrate. Capital requirements are low, and profit margins are stratospheric. If Pepsi was now making a mess of that franchise, then it was becoming a fundamentally different and much less attractive company.

That's exactly what investors fear is happening. Nooyi has boldly changed Pepsi's strategy to emphasize nutritious, "good-for-you" products like Quaker oatmeal in addition to its "fun-for-you" (read: "bad-for-you") products like Mountain Dew and Fritos. The new strategy is visionary and clearly in harmony with societal changes. The trouble is that good-for-you products aren't nearly as profitable as branded sugar-water.

Nooyi's challenge now is to show that while she isn't backing off from her strategy, she hasn't forgotten how Pepsi makes money. At a major presentation to investors, she announced that the company this year will spend an additional $500 million to $600 million on advertising and marketing, mostly for high-profit drinks and snack foods. She admitted that Pepsi marketing, besides being underfunded, hasn't been all that good lately and said she's taking steps to make it better. She'll cut costs significantly, partly by laying off 8,700 employees. And instead of announcing an over-ambitious profit goal, as she has often done, she said profits would actually fall 5% this year. Nothing ambitious about that.

Irate investors have been calling for Pepsi to sell off its snack food business or for Nooyi to step down, or at least announce a likely successor. She did none of that at the presentation. Instead, by outlining a plan that will take two years to pay off, she showed that she has the board's support. But if that plan doesn't show clear signs of working before year-end, the board's support could evaporate. That's why the next several months are make-or-break for her.

All leadership crucibles are different, but in some ways many of them are similar. CEOs are always in the impossible position of serving conflicting demands, and sometimes they get the balance wrong, as Nooyi has done in shifting to a new strategy without sufficiently maintaining a lucrative traditional business. CEOs also get into trouble by acting too slowly, and Nooyi acknowledged she had done that.

"I wish we had stepped up our overall brand support, especially in North American beverages, earlier," she told investors. She added, "I also think some of the people moves that I made perhaps could have been made a bit earlier." She demoted the head of PepsiCo Beverages Americas only last September.

Nooyi's plan looks plausible, and investors seem willing to give it a chance; they pushed the stock down only incrementally despite the surprisingly downbeat profit forecast. Now she absolutely must execute the plan against strong and merciless competitors in a volatile economic environment. The heat is emphatically still on.

Filed under: Contributors

Nike's new marketing mojo

2012-02-10T20:39:03Z

How the legendary brand blew up its single-slogan approach and drafted a new playbook for the digital era.

By Scott Cendrowski, writer-reporter

FORTUNE -- Few outsiders have visited the third floor of the Jerry Rice Building at Nike's headquarters. Even most Nike employees know little about just what the staffers working here, on the north side of the company's 192-acre campus in Beaverton, Ore., actually do. A sign on the main entrance reads RESTRICTED AREA: WE HEAR YOU KNOCKING, WE CAN'T LET YOU IN, and it's only partly in jest. Inside, clusters of five or six employees huddle in side conference rooms where equations cover whiteboard walls. There are engineers and scientists with pedigrees from MIT and Apple. Leaks are tightly controlled; a public relations man jumps in front of a visitor who gazes at the computer screens for a little too long.

Once upon a time, the hush-hush plans and special-access security clearance would have been about some cutting-edge sneaker technology: the discovery of a new kind of foam-blown polyurethane, say, or some other breakthrough in cushioning science. But the employees in this lab aren't making shoes or clothes. They're quietly engineering a revolution in marketing.

This hive is the home of Nike Digital Sport, a new division the company launched in 2010. On one level, it aims to develop devices and technologies that allow users to track their personal statistics in any sport in which they participate. Its best-known product is the Nike+ running sensor, the blockbuster performance-tracking tool developed with Apple (AAPL). Some 5 million runners now log on to Nike (NKE) to check their performance. Last month Digital Sport released its first major follow-up product, a wristband that tracks energy output called the FuelBand.

But Digital Sport is not just about creating must-have sports gadgets. Getting so close to its consumers' data holds exceptional promise for one of the world's greatest marketers: It means it can follow them, build an online community for them, and forge a tighter relationship with them than ever before. It's part of a bigger, broader effort to shift the bulk of Nike's marketing efforts into the digital realm -- and it marks the biggest change in Beaverton since the creation of just do it, or even since a graphic design student at Portland State University put pen to paper and created the Swoosh.

Nike's new digital hook: the Nike+ logo; the new Nike FuelBand; and the Nike+ SportWatch GPS

Just try to recall the last couple of Nike commercials you saw on television. Don't be surprised when you can't. Nike's spending on TV and print advertising in the U.S. has dropped by 40% in just three years, even as its total marketing budget has steadily climbed upward to hit a record $2.4 billion last year. "There's barely any media advertising these days for Nike," says Brian Collins, a brand consultant and longtime Madison Avenue creative executive.

Gone is the reliance on top-down campaigns celebrating a single hit -- whether a star like Tiger Woods, a signature shoe like the Air Force 1, or send-ups like Bo Jackson's 'Bo Knows' commercials from the late '80s that sold the entire brand in one fell Swoosh. In their place is a whole new repertoire of interactive elements that let Nike communicate directly with its consumers, whether it's a performance-tracking wristband, a 30-story billboard in Johannesburg that posts fan headlines from Twitter, or a major commercial shot by an Oscar-nominated director that makes its debut not on primetime television but on Facebook. Says Jon Bond, co-founder of Kirshenbaum Bond Senecal & Partners who now runs a social media agency: "Clearly they think they can get by without big television campaigns anymore."

The reason for the shift is simple: Nike is going where its customer is. And its core customer, a 17-year-old who spends 20% more on shoes than his adult counterparts, has given up television to skip across myriad online communities. Not only does Nike think it can do without the mega-TV campaigns of old, it says the digital world allows the brand to interact even more closely with its consumers -- maybe as closely as it did in its early days, when founder Phil Knight sold track shoes out of his car in the 1960s. That's a major change, Nike CEO Mark Parker explained to Fortune during a recent interview in his tchotchke-filled office in Beaverton. "Connecting used to be, 'Here's some product, and here's some advertising. We hope you like it,' " he says. "Connecting today is a dialogue."

Of course, it's impossible these days to find a Fortune 500 company without an app or a social media strategy. But Nike has been lapping other blue-chip marketers in this domain: It spent nearly $800 million on 'nontraditional' advertising in 2010, according to Advertising Age estimates, a greater percentage of its U.S. advertising budget than any other top 100 U.S. advertiser. (And Nike's latest filings indicate that that figure will grow in 2011.) It's hired scores of new engineers to make technology for online communities (Digital Sport has grown from 100 to 200 employees in the past six months and has moved into a larger space on the outskirts of campus). And the brand has overhauled its $100 million-plus campaigns around major events like the World Cup and Olympics to focus on online campaigns first. The result? Before, the biggest audience Nike had on any given day was when 200 million tuned in to the Super Bowl. Now, across all its sites and social media communities, it can hit that figure any day.

That's all the more impressive given that Nike shouldn't be good at this. After a decade of growth, its sales have reached $21 billion, making it the world's largest sports company, a full 30% bigger than closest rival Adidas. But biggest is rarely best in the brand game, where niche players routinely run circles around lumbering giants, especially in the new digital world. Hot upstarts like Under Armour (UA) and Lululemon (LULU) have established fast-growing, cultlike followings, while smaller players like Quiksilver (ZQK) and Vans are already going after next-generation tweens. Even Adidas's 2006 merger with Reebok has created a new formidable global foe.

None of this is lost on Parker. "My fear was that we would be this big blood bank of a company that was dabbling across all these areas and wasn't seen as cool, as interesting, as relevant, as innovative," he says. Not too long ago Parker sketched a big Swoosh being eaten by a dozen Pac-Men to demonstrate how easily competitors could overtake Nike.

Just market it: 7 of Nike's notable campaigns

Like almost every large company, Nike stumbled early in the digital world. In the late '90s it celebrated the start of NCAA March Madness on its home page in every country. Europeans had no idea what was going on. But it improved over the years. Around 2005 its then-revolutionary Nike iD online store, where customers could design their own shoes, became a surprise hit, reaching $100 million in sales within a few years.

In 2006 it started experimenting with social networking and online communities, partnering with Google (GOOG) for a World Cup-related social network called Joga. Then came Nike+. After Nike engineers started noticing everyone on the Oregon campus using iPods, teams at Nike and Apple met to hash out a simple idea: synchronize jogging data with an iPod. Steve Jobs loved the idea (Apple CEO Tim Cook serves on Nike's board, but Parker also had a good relationship with Jobs). Powered by a sensor inside running shoes, the service both monitors a runner's performance and provides digital coaching. A voice lets runners know how much farther they have to go; the PowerSong function generates a musical blast for extra motivation. At the end, it logs details of the workout onto Nikeplus.com, where users can store and analyze the data, get training tips, and share workouts with friends. Whereas Nike's digital campaigns communicate the brand image, the Nike+ platform creates an intimate conversation and a laboratory that lets the company study its customers' behaviors and patterns. The company won't offer financial details about Nike+, but analysts say the 55% growth in membership last year was important in driving sales in its running division up 30%, to $2.8 billion.

Two years ago a group including Stefan Olander, 44, a longtime marketing executive (and Matthew McConaughey look-alike) formally pitched Parker on the idea for Digital Sport, a cross-category division that would take the Nike+ idea -- chip-enabled customer loyalty -- into other sports. Up and running a month later, the Digital Sport division now works across all of Nike's major sports.

A massive digital billboard in Johannesburg asked fans to submit messages.

For all its success, though, a follow-up blockbuster to Nike+ has been elusive. The company has high hopes for the FuelBand, a $149 wristband that measures movement and calculates its user's exertion levels throughout the course of the day. Like Nike+, users sync to the Nike platform online to analyze their results. At the FuelBand's official unveiling in Manhattan -- a splashy event emceed by Jimmy Fallon -- Parker compared it to the launch of Nike Air or the first Air Jordan shoe.

While Digital Sport is crafting gizmos, Nike has also been revamping its giant advertising bursts around major events like the World Cup and Olympics. The highlight of its 2010 World Cup campaign, for instance, was a commercial produced by Nike ad agency Wieden + Kennedy and shot by Babel director Alejandro González Iñárritu. Called "Write the Future," the ad featured Nike soccer stars Wayne Rooney and Christano Ronaldo imagining the riches that come with winning the cup. But instead of making its debut on-air, the ad launched on Nike Football's Facebook page. Wieden and other agencies spent months cultivating a base of 1 million "fans" and teasing the ad's debut. When it aired, it whizzed around blogs and wall posts at warp speed, gathering 8 million views in a week to set a viral-video record.

For decades Nike's closest partner in reaching the masses was Wieden + Kennedy, the famously hip place whose 30-year collaboration with Nike is one of advertising's longest and most prolific. But Nike's digital shift has had reverberations here too. In 2000, Wieden handled all of Nike's estimated $350 million in U.S. billings. Now those campaigns are increasingly split between Wieden and a host of other agencies that specialize in social media and new technologies. In a closely followed dustup in 2007, Nike dropped Wieden from its running account reportedly because the agency was behind in digital efforts. Wieden has added more digital positions to its Nike "platoon." (Wieden reclaimed the running account just 13 months after losing it.) But it now splits billings with agencies like R/GA, AKQA, and Mindshare. "Collaboration is the new thing," says Dan Sheniak, Wieden's global communications planning director on Nike, maybe trying to look on the bright side.

Perhaps the biggest impact of Nike's shift falls to the people whose names adorn every building on its campus: superstar athletes. Consider the controversies that Tiger Woods, Michael Vick, Lance Armstrong, and LeBron James -- Nike endorsers all -- have sparked over the past five years. Industry insiders say the effect is difficult to measure in the short term. But as the marketing mix becomes less about hero worship and more about consumer-driven conversation, they say, Nike is insulating itself from an era of athlete endorsements gone wrong. "Everybody's realized there's not the same one-to-one relationship as in the past: When Jordan's hot, his shoes are hot," says a former Nike executive. "I don't know if hero worship is the same as it used to be."

To be sure, marquee athletes haven't disappeared: Kobe Bryant is arguably the biggest sports celebrity in China, Nike's second-largest market, and Michael Jordan's brand remains one of the company's most powerful franchises. But for the first time in its history, Nike isn't wholly reliant on a handful of superstars to move merchandise.

So is it working? Is Nike's massive digital push a true replacement for its marketing past? Its unconventional approaches have won accolades from insiders. "They have their finger on the pulse of what their customer is looking for," says David Carter, executive director of USC's Sports Business Institute. Institutional investors who pay close heed to Nike's subtlest moves have voted in favor of the changes: The company's stock has returned 120% over the past five years as the S&P 500 index (SPX) has returned just 2.5%.

That's not to say everything has been a slam dunk. Nike shut down its Joga network after the last World Cup game in 2006, confusing the million-plus members who'd signed up for it. Its Ballers Network, meanwhile -- launched in 2008 as an app that let basketball players organize street games -- recently had less than 300 users in the U.S.; a recent wall post was a teenager complaining he couldn't get it to work. And critics say products like the FuelBand and Nike+, while dazzling, are more about keeping Nike's retail prices high than innovating.

In public Nike executives will protest this characterization. But if running shoes continue flying off the shelves, they won't blink at the criticism. That's exactly the kind of shrewd marketing attitude that drove Nike's past success. After perfecting the art of big branding, it's moving on to a world in which its consumers want to be told less and just do more. Which, when you think about it that way, might not be such a big change after all.

This article is from the February 27, 2012 issue of Fortune.

Filed under: Contributors, How it works

HP: Same issues, different year

2012-02-10T22:12:08Z

It is a new year at HP with yet another CEO. But while things seem to change at the tech giant, they continue to face the same old governance problems.

By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance

HP CEO Meg Whitman

FORTUNE -- Last proxy season, HP achieved the dubious distinction of receiving a majority no vote from its shareholders on its executive compensation programs. According to a Council of Institutional Investors study, investors bestowed that distinction on less than 1.6% of companies, those deemed to be the worst pay offenders.

Last year, too, HP's (HPQ) board nominations process (which removed four board members and added five more) came under fire because the process did not conform to stated board policy guidelines. In the run up to the proxy filing, HP provided varying explanations about the process, which had been headed by chair Ray Lane. As a result, proxy advisory firm Institutional Shareholder Services (ISS) recommended against the election of some HP board members.

It is a new year and HP issued its new proxy last week. But the more things seem to change at the tech giant, the more they stay the same.

HP sports a different CEO this year for the third year running (Meg Whitman replaced Leo Apotheker who replaced Mark Hurd who left in August 2010). HP, yet again, is proposing a new board slate to shareholders (with two new board members and four, including the former CEO, having exited). And the proxy this year reveals the same shortcomings as it did last year: misguided compensation and board nominations.

Maybe HP has good intentions, but it's falling down on execution.

Plenty of pay, but where's the performance?

To keep things simple, let's not even get into the issue of former CEO Leo Apotheker's $25 million exit pay for failure last year. Let's focus on what's to come. HP has made some changes in its compensation policies, which it outlines in the Compensation Discussion and Analysis section of the proxy in hopes this may satisfy investors. "HP has a 'pay-for-performance' philosophy which forms the foundation of all of the HR and Compensation Committee's decisions regarding compensation," an HP spokesperson says.

But if we look into what Whitman and Lane were actually awarded following the shareholder rebuke last March, HP seems to be itching for a no vote on "say on pay" yet again.

During Whitman's tenure as an HP board member (before she was appointed CEO on September 22), HP's stock dropped by over 50%, in part related to a board-approved strategy. After becoming CEO, she was awarded stock options on September 27 enabling her to buy 1.9 million shares. Under the terms of her award, the stock price must close at 20% above the exercise price (for 20 consecutive trading days) for a portion of the stock options to vest and 40% above for another portion to vest. That may sound like pay for performance, but is it?

By almost any measure, it turns out, 20% and 40% aren't high hurdles at all. First, the stock was 50% higher when she joined the board. Second, prior to the stock's abrupt drop at the end of August (on her watch as a board member), the stock price hadn't closed as low as the option's exercise price since August 16, 2005. Third, the average closing price of the stock in the five years preceding the award was 77% higher than the exercise price. And without even announcing a new strategy, the stock price was already up 23% on February 3, 2012.

How much is this payday worth? Once the 40% hurdle is cleared, this bonanza will be worth $18 million. If the stock price rises to the average five-year price, it will be worth over $34 million.

That's pay. But where's the performance? Was this stock option arrangement really necessary to entice Whitman to the CEO spot and motivate her to perform her job? Other than a motivation to not sink the stock again, how does it motivate her to make a real difference over that which she can control?

Timing is everything -- and Lane has suffered similar good fortune. HP's stock price was down by 45% during Lane's tenure as a board member (and as chair) before he assumed the executive chair position. Yet despite HP's poor performance during his earlier tenure, he was awarded an option to purchase 1 million shares when he became executive chair, with similar vesting requirements as Whitman's. What does this mean? He'll get a haul that is more than half of Whitman's. Such pay can only be described as stratospheric for an executive chair.

Some shareholders, who are voting again on executive pay this year, will be considering whether a director "say on pay" proposal (as appears on Apple's (AAPL) 2012 proxy) could address these concerns in future years.

A board that's spread too thin

HP has had significant turnover on its board, and this year is no exception. For any board, selecting the right members with the time and talent to do the job well is critically important. Directors' "service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties," the HP proxy says.

What are the general guidelines good boards follow? At most, sitting CEOs should sit on one outside board and board members who have retired from full time executive duties should sit on a maximum of four boards. If the director is the chair or lead independent director, or if the director runs a company or sits on the board of a company that needs particular attention, they should sit on even fewer boards.

HP would, by most any measure, fit in the "needs attention" category. HP's board did not turn in a stellar performance last year and the company is in need of a clearly articulated strategy that the board has adequately vetted and approved. But taking into account the stated HP policy and the attention HP needs from its board, some members up for election don't appear to qualify.

Whitman sits on three outside boards -- P&G (PG), Zipcar (ZIP), and Zaarly -- all of which "she committed to serve on … before she agreed to become HP's president and CEO," according to an HP spokesperson. But Whitman didn't actually join Zaarly's board until over a month after her tenure as CEO had already begun.

Whitman finds her outside board service to be of value and "plans to honor all of her outside board commitments as long as they do not interfere with her obligations to lead HP," HP's spokesperson says.

But many CEOs resign some or all of their board seats when taking on new challenges. According to Spencer Stuart research, there has been a nearly 50% decline in active CEOs serving on boards in the last 10 years and currently less than half of CEOs serve on any outside board.

To address how a CEO may view outside board membership versus how the board and shareholders may view it, many boards today actively limit CEO participation on outside boards (to none or one) as a condition of employment. If Whitman only works the average amount of hours for directors (according to the National Association of Corporate Directors), her outside board service takes up over 51 hours a month. Shareholders will have to decide if three outside boards is too many for a sitting CEO in a company whose stock price has still not fully recovered from the self-induced shocks that have occurred while she was sitting on HP's board.

Lead director Rajiv Gupta, chairman of Avantor Performance Materials and senior advisor to New Mountain Capital, sits on the HP board plus the boards of Delphi Automotive (DLPH), Tyco, The Vanguard Group "and several private companies." Pat Russo, who heads the compensation committee, sits on five boards including HP.

Maybe shareholders will decide to send a message on pay and board elections this year. If they don't, maybe next year, we'll just see more of the same.

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://thevaluealliance.com), a board advisory firm.

Filed under: Contributors, Management

How Alvin Ailey keeps dancing

2012-02-10T18:50:44Z

Artistic director Robert Battle describes the challenges and payoff of keeping his modern dance company fresh and relevant.

Robert Battle, artistic director at Alvin Ailey

FORTUNE -- In 1958, in the midst of the civil rights movement, a young African American man originally from Texas formed a multi-racial modern dance troupe, a daring move. The group first performed in New York City at what was then called the 92^nd Street Young Men's Hebrew Association (now the 92^nd Street Y).

That company, the Alvin Ailey American Dance Theater, has since become a major force in American arts. In 2008, Congress named it a "cultural ambassador to the world."

So the pressure is on Robert Battle, who took the helm as artistic director of the company in July 2011. He speaks with Fortune about the challenges and the payoff of keeping a modern dance company modern.

Fortune: How did you first get into dance?

Robert Battle: I was born, completely bow-legged. I always say that because of the irony of being in dance in such a big way. When I was about five years old, I got braces and straightened my legs out.

About that time, I moved with my family to Miami to live with my cousins because my great aunt and uncle raised me and my great aunt had a stroke. My cousin, who's still the one I call mother, was into the arts. I started imitating her on the piano, and they realized I had an ear for music.

You know those kids with a high voice until they are 14? I was that child. My voice changed around Michael Jackson time -- everybody was imitating Michael Jackson in the 80s, and that got me more interested in dance.

I auditioned for dance in my high school and I got in. I loved it. Dance was the one discipline where I felt comfortable.

What was you first experience with the Alvin Ailey dance company?

I saw Alvin Ailey's Revelations when it came to Miami. I just fell in love with that work. It was like, Christmas for a young person, do you know what I mean? When your eyes are wide open and everything was unbelievable. That got me more into dance, more serious about it.

What would you say makes the Alvin Ailey company unique?

When Mr. Ailey started the company in 1958, during the time of the civil rights movement, he was this young African American stepping out on a wing and a prayer because he felt he had something to say about his people and about his culture in a country that didn't always value either of those things. He created such a positive message out of a sometimes very negative environment where we weren't allowed to take certain ballet classes over here, or be in the same hotel over there. Sometimes when the company traveled, they were integrating the hotels where they stayed for the first time.

You think about Mr. Ailey stepping out on that precipice and you look at the company now: we're sitting in this wonderful center for dance and we've been named by Congress as cultural ambassadors to the world, all because of the vision of this young black man. It's incredible.

What is the message of the company?

Mr. Ailey said it so well: "Dance comes from the people and should always be delivered back to the people." He wanted people to be in awe of what these dancers are able to do, but he wanted them to see reflections of themselves on stage.

That message comes across in dance because performers use their bodies and everybody has a body, so there is that connection. Even though these bodies are pretty spectacular.

I wish I had the body of an Alvin Ailey dancer.

Right, me too. There's nothing wrong with that.

How do you carry on such a rich tradition?

Be true to yourself and your convictions, because that speaks to the time you're in and to the future. When I'm teaching dancers, I have them do the simplest gesture with their arms, and I say, "You have to own that, no one will do that gesture exactly the way you do."

So if my gesture is being a leader and presenting what I see as the truth to the world through these dancers and through my choice of repertory and through my own choreography, even if I'm criticized, I have to stand in the belief in my own convictions. I find that that is the greatest challenge, but the greatest reward too.

What are other challenges?

As a choreographer, I'm very in tune with body language; I'm in tune with how people feel. I don't believe you can be an effective leader if you don't have that kind of sensitivity. But that sensitivity can sometimes get in the way of hard decisions. So you do have to find within yourself the distance to make decisions that are for the greater good of the company.

As artists, we wear our hearts on our sleeves. In that way, it isn't a corporation. We are asking the dancers to be vulnerable on stage. So in asking all that, we're very sensitive to how they feel.

And you have to turn plenty of people down who want to be in the company.

Yeah. Somebody's going to be rejected, we agree on that when they come through the door. Dancers are sort of used to that, they have to be.

Any advice on how to survive an audition?

You have to go ahead and know you might get cut, then you can express your love of movement and the strong desire you have to communicate that to an audience. You still may not get in, but you'll have a better time.

Filed under: Beyond the Boardroom

Will your company back your new business idea?

2012-02-10T15:45:18Z

"Intrapreneurship" can keep your job and your company interesting and competitive, but it comes with its fair share of obstacles. How to pitch your idea to the powers that be.

By Anne Fisher, contributor

FORTUNE -- Dear Annie: I have an idea for what I think would be a terrific new line of business for the company I work for, but I'm daunted by the thought of actually trying to get it off the ground. Senior managers here sometimes talk about encouraging people to be more "intrepreneurial," but this isn't really a startup-incubator type of culture like, for instance, Google. (Most of our businesses, which are widely diversified, are in old-line manufacturing and transportation.) I need to figure out the best way to approach higher-ups about getting support, including funding and staffing, for my idea. Can you or your readers give me any pointers? — All Fired Up

Dear AFU: As you probably know, intrapreneurship has a long and storied history in U.S. companies, going back to the famous "skunk works" at Lockheed Martin (LMT) during World War Two. A more recent example is Apple's (AAPL) Macintosh, which was developed by a small, informal team led by Steve Jobs, who later described the project as "a group of people going, in essence, back to the garage, but in a large company."

"Innovation in companies doesn't happen without intrapreneurs," says Gifford Pinchot. "Almost every big, game-changing invention you can name is the result of a passionate person pushing it through despite others' efforts to kill it."

Pinchot, a Seattle consultant who founded and runs a business school called the Bainbridge Graduate Institute, is generally credited with having coined the term "intrapreneur." He wrote two books you might want to check out: Intrapreneuring: Why You Don't Have to Leave the Corporation to Become an Entrepreneur and Intrapreneuring in Action: A Handbook for Business Innovation. Take a look, too, at Pinchot's web site, which features 10 Commandments for Intrapreneurs.

Commandment No. 1 may give you pause: "Come to work every day willing to be fired." Gulp. Trying to launch a new business within a huge bureaucracy isn't for the faint of heart, in part because, Pinchot says, it "triggers the corporate immune system," inviting resistance from people who see any change to the status quo as a threat. (In your own company, I suspect you know who these people are or you wouldn't be, as you say, "daunted.")

Based on his own experience (he once started a new consulting business within a large firm), and that of hundreds of other intrapreneurs he has interviewed and studied, Pinchot suggests three ways to start turning your idea into a reality:

1. Find an influential sponsor. "These days, there is less money around for trying out new lines of business, because so many companies are in cost-cutting mode," Pinchot notes. "But there is always a way to get resources for the right project." Begin by persuading one higher-up that your idea can fly -- maybe one of those senior managers you mention who talks about encouraging intrapreneurship. Says Pinchot, "Friends in high places can calm the corporate immune system for you" and champion your cause.

2. Connect what you're proposing to what the company is already doing. Rather than pitch your idea as a radical new concept (even if it is one), Pinchot advises describing it as "a logical extension of one of the company's current businesses. Too much change too fast scares the hell out of people, so avoid overdramatizing or overpromising. Emphasize that you are just exploring the idea and testing it with potential customers, which is always a sound strategy anyway."

3. Begin with small requests. "The trick in the very early stages is to always ask questions to which the answer will be 'yes,'" says Pinchot. "Take small steps. Get people used to saying 'yes' to you." For instance, instead of asking to have someone assigned to help you develop your new business, be ready to do the lion's share of the work yourself. "Asking for the moon right away" will just stir up naysayers, Pinchot says: "You don't want to give people a reason to attack what you're doing."

To that advice, Mike Kestenbaum adds a couple more tips. A former investment banker who joined giant Internet company IAC (IACI) in 2004 as a mergers-and-acquisitions analyst (he helped IAC acquire Dictionary.com and CollegeHumor Media), Kestenbaum now runs a new IAC app he invented, CrowdedRoom.com.

"Do your homework and know the market -- especially the potential customer base, and the competition -- inside out," he says. Overcoming skepticism about your idea requires that "you know more about the market for it than anyone else in the room."

Kestenbaum also recommends "tapping into the skills of other people in your company. I was lucky in that IAC has so many people who are experts at making new sites successful," he says. "You can also get input from your in-house specialists in new product development, market research, or wherever your own skills aren't quite enough."

Pinchot couldn't agree more, partly for an interesting political reason. "Asking for advice is a good way to get people on your side," he says. "So ask, and then be sure to thank them for their insights." This is especially helpful, he adds, if you can enlist the expertise of someone who is trying to block your idea. "Once you have involved that person in your project, you engage their ego. They're now contributing to it, so it must be good," Pinchot says. Expressing your sincere appreciation is essential, he observes: "Very few people can resist gratitude."

Good luck!

Talkback: Does your company encourage "intrapreneurship"? If you've ever proposed a new product or service, what became of your idea? Leave a comment below.

Filed under: Ask Annie, Careers, Contributors

Why companies hide their eco-friendly bona fides

2012-02-09T16:13:37Z

Environmentalism may be in vogue, but many successful businesses are thinking twice before screaming green.

By Ethan Rouen, contributor

The Maker's Mark distillery in Loretto, Kentucky

FORTUNE -- At the Kentucky home of Rob Samuels, the chief operating officer of Maker's Mark bourbon and grandson of founder Bill Samuels Sr., not far from the nature preserve on which the distillery sits, the 54-year-old first bottle the company ever made sits behind the bar.

"If we were to open that bottle tonight, it would taste exactly like what we produce today," he says.

Maker's is possibly the most environmentally friendly and socially responsible alcohol company in the world, but Samuels believes that the many initiatives the company has taken are just part of doing business. What most customers need to know is only that every time they peel off that red wax seal, they'll get what they are paying for.

"It's part of the DNA of Maker's Mark," Samuels says of the company's devotion to the environment. "The way we connect with consumers is in part about who my grandfather was. He was very modest. It's not about standing on top of a mountain and screaming the loudest that this is happening."

The "green" label has wormed its way into the marketing campaigns of countless products as businesses try to capitalize on the growing environmental consciousness of consumers. Even environmentally damaging products with notorious reputations like bottled water and vinyl siding now boast their green credentials.

But many of the most genuine corporate innovators in the environmental space prefer not to throw it in their customers' faces. Whether it's coming from a fear of sounding disingenuous, a perceived lack of customer interest in corporate social responsibility, or a slew of competitors claiming the same mission without the same results, many successful businesses are thinking twice before screaming green.

"What's important is looking at the fit between customers and products," says Sanjay Dhar, a marketing professor at University of Chicago's Booth School of Business. "You must assess the needs and motivations of your customers and the importance of integrating the message of green with … the product."

The unpredictable career of a high-flying exec

2012-02-09T16:44:14Z

Val Rahmani left an executive gig at IBM to head malware-fighting startup Damballa. Such a move may seem risky, but it doesn't compare to the CEO's hobby: aerobatic flying.

Interview by Colleen Leahey, reporter

Val Rahmani, CEO of Damballa

FORTUNE -- Val Rahmani's career path is almost as difficult to follow as a plane barrel-rolling and humpty-bumping during an air show. Though she's now the CEO of Damballa, a startup that protects companies like Comcast from nasty online hackers and bots, Rahmani wasn't always so sure where she was headed. Hailing from England, she came to the States in the mid-90s to work as Lou Gerstner's executive assistant at IBM.

From there, Rahmani became a bit of an entrepreneur within the corporation. She managed team after team, focusing on new frontiers like open systems (then back to mainframes), global wireless, and the company's UNIX server software business. After overseeing IBM's (IBM) $1.3 billion acquisition of Internet Security Systems, Rahmani became the general manager of that department -- only to leave two years later for Damballa. Under her leadership, the startup secured $12 million in funding last February.

This all seems humdrum compared to Rahmani's extracurriculars: She's taking "rap dance" lessons, she's a skilled ice dancer, and she's a member of the British Aerobatic Team. Much like her career, Rahmani loves the excitement that accompanies a challenge. "I often find myself taking risky things and making them as safe as possible," she says. Here, Rahmani tells Fortune about her personal career path and her take on risk.

Fortune: You've jumped around quite a bit, getting a PhD in chemistry from Oxford and ending up as an engineer and then in sales at IBM. What came next?

Rahmani: I was on a ski vacation in the U.S. while I was heading the Unix business in England and I got a call from my boss saying, "Can you reroute from Breckenridge to New York? We want you to interview to be executive assistant to Lou Gerstner." I'm like, "Oh really? But I like what I'm doing!" But, Lou had been there a couple of years and who turns down working for Lou Gerstner, when the whole world was talking about him? I interviewed with him on a Thursday and he said, "When will you start?" I started the following Monday.

You eventually moved back to Europe to run IBM's mainframe division. How was the transition?

I must have been 40 and this is about 95% over 50-year old males. So I've got these 300 people in front of me and they're all 50-year old males. And they must have wondered what was going on. I stood up and said, "We're going to reinvent mainframe. Mainframe's going to be the cool thing again. And you could see half of them thinking this is amazing and the other half going, "Oh my god, I've got to get out of here. She's smoking something." But I was in charge, so they all had no choice but to listen to me.

Later on, you headed IBM's Unix division, a $3.5 billion business. Has your management style changed over the years? If so, how?

What I've always done -- and I'd been criticized for it every year [at IBM] -- I've always looked more at the people below me than the people above me. The people below you know how to do what they're doing. What they need is guidance, direction, a clear vision, and they need to know where their piece fits into that and why they're making a difference. The successful leaders I've seen are those who actually listen to the people who work for them who are really the experts, rather than playing politics at the top. It's more fun that way.

You left IBM in 2010 to become the CEO of an Internet security startup. What's the online criminal culture like?

There's different levels of online criminals, as there are in any crime. There's the low-level guys, who go after credit card numbers and personal information and passwords. They're like the drug dealer on the street corner if you will. They get paid 30 cents for every machine they infect in the U.S. and 10 for every one they infect in Europe and 5 in Asia.

Then a different set of criminals take over and see what they can steal off of those machines. They sell credit cards, passwords, personal information on the web. So there are websites where there are bank accounts available for sale. You know, X Euros per bank account.

And then there are the senior criminals who know exactly what they want, who will take those same infected machines and just take the ones they really want. They'll buy these machines on the web from the "owner," and you'll get a criminal who truly wants, you know … M&A data from lawyers. They've got very specific things in mind that they want to go and get. And then you get state-sponsored data -- probably not the ratio you see in the press -- but we see state-sponsored data going out to China and other countries.

You got your pilot's license almost 20 years ago, and eventually got into aerobatic flying. What were the early days like?

I was living in White Plains and a friend said there's this great aerobatic pilot close by. I had my flying license, but maybe about 8 hours of aerobatics, maybe 10, which is nothing. So I get out to this little old airfield in the middle of nowhere in New Jersey and there's an old guy shuffling around and I go, "Hi, I've been told to look for Jim Cheedning." And he goes, "That would be me." The guy is too old, he can barely strap into the plane. As it turns out, he's a great aerobatic pilot. I flew with him probably every other weekend for a year or so.

What does it feel like when you're up in the air?

You just have to have the guts to do what's called negatives [accelerating downward]. The real difference in intermediate and unlimited levels is positive feels kind of okay, negative is where you're pushing, your eyes feel like they're coming out your head. That's the bit that's horrible, and that's the difference of going up to unlimited. You see stars.

Leaving IBM for a small startup, fighting online criminals daily, and doing flips in the sky. It all seems a bit risky.

I don't take risks. I work really hard to minimize risk in everything I do. So it sounds like we're taking a risk, but we work really hard to pre-flight the plane, make sure it's safe, to fly over a runway, in the same way as I make sure my team changes their passwords and keeps everything we do safe. And I make sure my customers understand how to keep safe.

I think my whole life is about trying to take the risk out of risky things, if that makes sense. I'm constantly putting myself in risky situations -- and trying to make them safe. I'm sure what I do does have some amount of risk, but not a lot, I don't think.

Editor's note: A previous version of this story incorrectly spelled flight instructor Jim Cheedning's last name.

Filed under: Careers, Contributors

Career wisdom in just 6 words

2012-02-09T14:51:11Z

You wouldn't think six words could say much, but entries in a recent contest carry bite-sized chunks of insight.

By Anne Fisher, contributor

If someone asked you to sum up in six words what you've learned so far about how to succeed in business, what would you say? When Smith magazine and consulting firm Mercer posed the question last year, they got thousands of entries, which they winnowed down to 400 for a book called Six Words About Work. A sampling of the winners:

"Always start with assuming good intentions." — Teri Edman
"Don't hire geniuses, hire capable people." — Larry Bradley
"Persistence has more value than qualifications." — Mitch Polack
"Work like you own the company." — John Thornton
"Need the facts? Ask a secretary!" — Jim Berman
"Know security guards, cleaners by name." — Wesley Coll
"You're not learning if you're comfortable." — Debbie Beets
"Do one more thing than requested." — Gary Belsky
"Screw-ups will happen. Just own them." — Kara Carthel
"Cutting corners only creates more paperwork." — Dyan Titchnell
"Walk the hall rather than call." — Juliette Mirsepasy
"Add value — otherwise you're a commodity." — Randall Lane
"If you don't know, say so." — B. Saville
"Get the hardest part done first." — Cathy Smith
"Pretend impossibilities are possible. They are." — Sandi Hemmerlein
"Fail fast. Learn fast. Improve fast." — Steven Robins
"Avoid all paintball team-building games." — Mary Gordon
"Go outside the building to scream." — Carol Wilson
"Surprise your spouse, not your boss." — Laureatte Loy
"Don't laugh while boss is ranting." — Leslie Wolf Branscomb

And speaking of bosses, how about a 42-word crash course in how to be a great one? Consider these descriptions of "the best boss I ever had."

"Took responsibilities very seriously, not himself." — Anita Sanders
"Two ears, one mouth, engaged wisely." — Bob Myers
"Asked for ideas, and used them." — Deborah A. Cunefare
"Provided guidance, didn't take the credit." — Peter Ashkenaz
"Shouted 'Get out now!' at 6 p.m." — Atsuko Dudash
"Promoted truth, justice and, eventually, me." — George Sosa

Maybe you've never worked for a boss who inspired you to echo Dana Shaw's encomium -- "Shame he couldn't have superhero's cape." But here's hoping your underlings never echo six words from contestant Lacy Foland: "Wait. People have good bosses? Unfair."

Filed under: Careers, Contributors

Akio Toyoda: Toyota's comeback kid

2012-02-08T19:30:44Z

The grandson of the founder has the carmaker back on track after a spell of bad luck and breakdowns.

By Alex Taylor III, senior editor-at-large

Toyota president Akio Toyoda is also a certified test driver.

FORTUNE -- When the final tally was made for 2011, Toyota Motor (TM), formerly the world's largest automaker, slipped to third place in production behind General Motors (GM) and Volkswagen. It's not surprising: Toyota has endured a string of calamities over the past three years -- natural and man-made -- that would make even the company's famous paranoia seem like sunny optimism. The latest is endaka, the strong yen that causes everything that Toyota manufactures in Japan to be more expensive and undermines its profitability. A November issue of Automotive News predicted "more misery" for Toyota as "sales slip, floods delay, shoppers stray."

At the head of the company all this time has been a young president who was effectively born into the job and has little experience in crisis management: Akio Toyoda, the grandson of the company's founder. For a decade, while the automaker was being run by professional managers, Akio rose up the corporate ladder without making much of a mark. (For the sake of clarity, we'll use his first name, pronounced a-KEY-o, in this story.) Thrust into the presidency in 2009, he immediately had to cope with a global recession, massive recalls, and a deadly tsunami. Auto production plummeted, and at the same time Toyota lost its most important competitive advantage: its reputation for exceptional quality. Americans saw Akio apologizing before Congress and later tearing up in a YouTube video. U.S. market share tumbled. After reaching 18.3% at the end in 2009, it fell all the way to 12.9% for 2011. Emboldened by the recall crisis, competitors spread word that Toyota, once considered the unstoppable force of the automotive world, had been reduced to the status of also-ran.

But I had been hearing different things -- that Toyota had coped remarkably well with the tsunami, and that the recall crisis had served as a wake-up call for a company grown complacent. With a big boost from its new president, who took an intensely personal interest in its products, it was connecting with customers again.

The University of Michigan's Jeffrey Liker, a leading Toyota scholar, told me, "Akio has reenergized the company. He's promised to be the closest president ever to the gemba [where the real work is happening]."

Toyota's big product offensive

The Toyoda scion was traveling to the U.S. more frequently to fire up dealers and had taken charge personally of the sagging Lexus brand. Independent studies were beginning to show that Toyota cars were regaining their reputation for quality and value. With 19 new or redesigned models coming in calendar 2012 -- an exceptionally large number -- including a big expansion of the Prius hybrid line, the Toyota steamroller seemed ready to regain its old momentum.

One of Toyota's guiding principles in times of crisis is genchi genbutsu, or "go and see." So to find out for myself what the changes meant for a company I had been covering for more than 20 years, I interviewed Toyota executives in California and New York, and then flew to Japan.

Of all the woes Toyota has suffered, none has stung like the recall crisis of 2009-10. Ignited by reports of horrific accidents, some fatal, caused by cars that ran out of control and couldn't be braked to a stop, it eventually involved the recall more than 8 million Toyotas and Lexuses -- equivalent to a year's production. Independent investigations turned up no mechanical or electronic defects -- only some misplaced floor mats and sticky accelerator pedals to go along with driver error -- but exposed major flaws in the corporate culture. Toyota, it turned out, was still being managed the way it had been in the 1950s: Every decision was tightly controlled in Japan; the U.S. was treated like a vassal state. When American managers found defects in vehicles, they had to follow a tortuous bureaucratic process to register their complaints in Japan, where they were often met with skepticism and defensiveness. As it had long feared, Toyota had succumbed to "big-company disease."

Consumer confidence in its cars plummeted, and Toyota's higher-ups were shaken. "We learned we are not so ahead of competitors as we might have thought," Yoshimi Inaba, who heads sales and administration in the U.S., told me. "We were a little complacent." Toyota began to develop quicker reflexes. When a defect was identified in a Lexus SUV, Toyota organized a recall in just eight days. But it balked at delegating more executive authority to America. Rather than designate one person to head all of its North American operations, it maintained its traditional silo structure. Its giant sales operation in Southern California, and its equally large manufacturing complex headquartered in Kentucky, continued reporting to different executives in Japan.

2012 Lexus LFA: An ultra-exotic two-seater, the $375,000 sports car embodies Toyota's new, more aggressive attitude.

Just as it was trying to put the recall crisis behind it, the new management was tested again in March, when an earthquake and massive tidal wave disrupted production. The tsunami damaged plants in the north of Japan, disrupting the supply of over 500 parts, and Toyota couldn't find replacements. Its first-tier, just-in-time suppliers near Toyota City were not directly affected, but up north were second- and third-tier suppliers that Toyota did not know much about.

Akio assembled general managers of departments such as body engineering and powertrain in Japan, and took the unusual step of instructing them to restore production and not waste time reporting upward. They sent two-man teams of engineers to visit each supplier plant and to identify and locate backup parts until the suppliers were running again. By April, unavailable parts were down to 150, and by May, according to Liker's count, all but 30 of the 500 parts were available. Toyota solved the problems in half the time expected, but Liker figures the company still lost 800,000 production units -- 10% of its annual output. Plans to make up most of the shortfall through overtime work were pushed back by October floods in Thailand that affected about 100 suppliers. As a result, inventories in North America won't be completely replenished until March.

As I fidgeted through a 14-hour flight to Japan in a well-worn Boeing 777, I wondered what I would find. I figured Toyota had gotten some bad breaks, but I wondered about how committed this ponderous and bureaucratic company was to change.

After overnighting in Tokyo, I moved on to Nagoya, Japan's third-largest city -- one hour and 40 minutes away by Shinkansen bullet train -- where Toyota occupies several office buildings. I met with executive vice president Yukitoshi Funo, one of Akio's key advisers. Funo, who holds an MBA from Columbia and formerly oversaw U.S. sales, told me there had been an upheaval at Toyota. "[Akio] has dramatically changed the way the company is managed," he said through an interpreter. "There are two major pillars to how he manages: First, be fast; and second, be flexible. Usually Japanese companies are based on a 'bottom up' management style, which slows down the pace of decision-making. In looking at other companies, we realized the need for a certain level of 'top down' to move quickly."

Akio shrank the board of directors by half and took out layers of management. Funo revealed a more significant development: Akio has begun meeting informally with his five top advisers every Tuesday morning to review the company's operations. They work so closely together that Funo called it "pit work" management. No agendas or written reports are allowed, and decisions are made on the spot. "Basically, the six people have a very strong personal bond. So it's not a very emotional or heated debate as we have a very good understanding among each other." They can move quickly. After Akio visited Tesla Motors (TSLA) in California in 2010, the Tuesday morning meeting signed off on a $50 million investment in the electric-car maker. Subsequently Toyota agreed to buy $60 million worth of Tesla batteries to power its all-electric RAV 4 crossover.

Funo said Akio has made another fundamental change in the way Toyota is managed. Traditionally, Toyota has rotated its top executives, so a sales specialist could be assigned to purchasing, or a product engineer to manufacturing. Now they stay within their specialties so that they can leverage their experience. "It's very American," said Funo. "I'm not really sure how what he learned at Babson [the Boston college where Akio studied business] has affected how he is running the company. But he is not typical Japanese management." That turned out to be an understatement.

The next day I made the 40-minute car ride to Toyota City to meet with Takeshi Uchiyamada, Toyota's top engineer and another participant in the Tuesday morning meetings. In 1993, Uchiyamada accepted the challenge of Toyota's elders to develop a car with 50%-better fuel economy; today he's known as the father of the Prius. More than 3 million of the hybrids have been sold since 1997, and it has been expanded into a sub-brand with additional models.

Akio is pushing Toyota to make "always better cars," and Uchiyamada is the point man. For years enthusiasts have complained that Toyota treats cars like transportation appliances and allows companies such as Hyundai to seize design leadership. Uchiyamada says the critics were right. He told me: "Basically, Toyota's growth had been underpinned by QDR [quality, dependability, reliability] that was very high compared with competitors'. However, since the Lehman shock [in 2008], large-scale sales of Toyota vehicles have decelerated. Compared with past practices, we need to make products that are even more attractive. We have stepped up our efforts emphasizing design, high quality of the interiors."

Appearances count, but Uchiyamada has no intention of allowing Toyota to lose its green credentials either. This spring Toyota will launch the plug-in Prius, a $32,000 car that he believes is the best short-term solution to freeing the automobile from gasoline. Unlike conventional hybrids, the plug-in has a large battery that can power the car for up to 15 miles on electricity alone and be recharged at home. "I think the plug-in is the most practical technology of the future that will see great potential for mass dissemination. It can be recognized as an electric vehicle without having to worry about running out of battery. If the battery runs out, the car can be driven as a normal hybrid, so the amount of battery mounted in the vehicle can be minimized." I asked him how he compared the Prius to the much-publicized Chevrolet Volt, and he gave me a surprisingly candid answer. "The Volt has a longer driving range in EV mode, but for that they have greater battery volume. After the battery runs out, the Volt's power performance deteriorates when driven by a gasoline engine. So I believe the cost of the Volt will be higher than the Prius plug-in."

Akio Toyoda's Toyota timeline

When my interview with Uchimayada concluded, it was time for the meeting with Akio. It was to be held in a characteristically Japanese setting: a meeting hall in a private park near Toyota headquarters, where the company had reassembled the former residence of Kiichiro Toyoda, Akio's grandfather. Akio bounded into the interview room with the energy of a TV game show host, clearly more confident and relaxed than the man I had met 2½ years earlier, just after he had become president. Seated at a table across from me, he took questions in English and watched me intently while the interpreter translated his answers from Japanese.

Akio Toyoda at the Toyota Gazoo Racing Festival at the Fuji Speedway in Japan

Unlike his gray-suited, office-bound predecessors, Akio, 55, is more comfortable in a fire-resistant Nomex suit and crash helmet than he is in a coat and tie. A certified test driver, he evaluates as many as 200 Toyotas and competitive vehicles annually, and appears happiest when he's behind the wheel. After speaking at a U.S. dealer meeting in Las Vegas last April, Akio unwound by driving an 850-horsepower NASCAR stock car at a nearby speedway. His passion, he says, has made it easy for him to settle into his job as president. He explained, "I was very glad to hear from my father [honorary chairman Soichiro Toyoda], 'I leave everything in your hands.' Of course, over the past two years the environment has seen dramatic change, but one thing I maintained, which I think protected me from these hardships, is that I love cars, and I kept saying to people constantly that we need to come up with always better cars. Whenever a new car is launched I have to drive it myself. So by trying out as many vehicles as possible, I think I can compare Toyota cars with comparable vehicles, and by driving directly I can understand the strategic direction of the company."

Much of his wheel time recently has been in a Lexus. Although it is intended to be a global brand, the Lexus has never caught on in Europe, and its aging designs were turning off U.S. buyers. Akio bypassed several layers of management to take direct responsibility for the brand and invested hours fine-tuning the ride and handling of the latest model, the 2013 GS. To give Lexus a sportier image, he also championed the development of the $375,000 LFA, a carbon fiber supercar, and personally tested the car on Germany's famed Nürburgring, where speeds top 180 mph.

"It has a limited production run of 500 units," he said of the LFA. "It seems to be a very secret sauce."

Does it make sense for the head of a company as large as Toyota to spend so much time evaluating its products and micromanaging small details? Well, it worked for Steve Jobs, and Akio believes it is an essential component of his leadership. "As you know, our cars are evaluated as good, not emotional," he said. "I think it's possible for Toyota to improve upon the emotion of cars. There are capable engineers who are about to do that. So what I think is needed is to really have a champion to encourage people to take action on that, to serve as a leader to address any problems after a challenge."

The smooth functioning of his Tuesday morning group makes it possible for Akio to spend more time with product development. "Actually I was very uncomfortable since I was a little boy with so-called yes-men who were just obedient to what I said. These five executive vice presidents who support me are experts in their respective areas, with experience of more than 40 years. I am the ultimate person in charge of this company, [but] I found it is very important to ask them for their views."

One topic on which advice is plentiful is how to deal with the strong yen, which has appreciated 35% since 2007 and is at a 65-year high. At 77 to the dollar, the currency cost Toyota $1 billion in profit during the quarter ended Sept. 30; Toyota needs an exchange rate of 80 yen to the dollar to remain profitable. It is working with its suppliers to reduce costs, but the currency imbalance threatens the future shape of the company. Already two-thirds of Toyota production comes from overseas, compared with half as recently as 2006. Akio has pledged to maintain a manufacturing base in Japan with a capacity of 3 million cars to protect parts makers and its skilled-labor supply, but Funo said that number "is not carved in stone" and that Toyota may shift more production to the U.S.

I had more questions to ask Akio, but my hourlong time slot had expired. He stayed around to shake hands and pose for pictures. Then he ducked into a black LFA and drove off, the sound of the exhaust growling in his wake.

Most of my concerns about Toyota had been addressed. No company is better at the nuts and bolts of the car business, but years of success had hardened some ill-advised practices that are now being discarded. Akio had personally taken on its most persistent shortcoming -- an inability to connect emotionally with customers through its products -- and he was making progress. Toyota does not make a practice of showing future models to outsiders, but I learned from dealers that the 2013 Avalon sedan, due next spring, will be something special in style and appeal. If subsequent models achieve a similar high standard, then Akio's mantra of "always better cars" may join the Toyota lexicon alongside genchi genbutsu.

This article is from the February 27, 2012 issue of Fortune.

Filed under: Contributors, How it works

Yale B-school wants a piece of the spotlight

2012-02-08T18:29:53Z

Veteran B-school dean Ted Snyder has come to Yale with an ambitious agenda, designed to garner the attention and influence that has long eluded the business school.

By John A. Byrne, contributor

Yale School of Management

(Poets&Quants) -- Ever since Yale University launched its School of Organization and Management in 1976, the place has been something of an unconventional business school. Its founders envisioned a school that would be small, communal, unorthodox, and steeped in theory and research, able to groom leaders for both business as well as the public and non-profit sectors.

But the decision to avoid creating another me-too business school has had some unintended consequences. For years, SOM has unsuccessfully battled the misperception that it is merely a school for non-profit management, a haven for do-gooders outside the MBA mainstream. And despite basking in the glow of one of the world's most valuable educational brands, the school has never been able to develop the stature of any of its Ivy League rivals.

Enter Edward "Ted" Snyder, the 58-year-old veteran dean who signed on as SOM's new leader last fall. He arrived with extraordinarily high expectations. "I like what I do so I don't feel pressure," says the soft-spoken Snyder. "I feel really good about the prospects here. I've been at business school deaning for awhile so it gives me the credibility to say, 'Folks, this is what we face.'"

Snyder is more than just another dean in a hot seat. Having served as dean at two other major business schools -- the University of Chicago and the University of Virginia -- he's something of a business school physician. He worked magic at Chicago's Booth School of Business, bringing in the largest gift to any business school ever -- $300 million -- nearly doubling the school's endowed professorships, tripling scholarship assistance, and moving Chicago to the very top of BusinessWeek's influential rankings.

What's the matter with Yale?

After seven months at Yale, what's his diagnosis?

Snyder believes the school has been under-funded and under-marketed. There's been too little effort devoted to leveraging the university's formidable brand, no advertising budget, and mediocre scholarship support to get the best students. The small size of the school has made it difficult to gain critical mass, so its alumni network isn't as strong as it should be and many corporate recruiters find the MBA pool too small to fish in.

And, like most other U.S. schools, SOM lags in getting up to speed on globalization.

A good comparison is Cornell University's Johnson School, a similarly sized Ivy League institution. Although SOM's $536 million endowment is more than three times the size of the endowment at the Johnson School, its annual operating budget is roughly the same: about $60 million. If Yale spent at the same ratio of endowment to budget as Cornell, SOM's operating budget would be more than triple its current outlays. That money could be spent to improve the quality and size of its faculty, to provide a more sizable support staff, to fund more scholarships to entice the best applicants, and to more aggressively promote Yale's strengths via marketing and advertising.

Sal Khan: Building a better university

2012-02-09T04:44:18Z

The Khan Academy founder discusses the flaws of the U.S. university system, college affordability, and what he's looking for in a job candidate.

Interview by Scott Olster, editor

FORTUNE -- Student debt is nearing a record $1 trillion in the U.S. Jobless law school grads are suing their alma maters for false advertising. Needless to say, the cost of higher education -- not to mention the return on the investment -- has become a sore spot for many.

With an election on the horizon, the Obama Administration has not been deaf to the grumbling. The president addressed the topic in his State of the Union, and his administration has since launched a campaign to stem the rise in college tuition by tying a school's federal aid prospects to its affordability. Vice President Joe Biden, Secretary of Education Arne Duncan, and Senator John Kerry were dispatched to university campuses earlier this week to tout the plan. In all the tut-tut over college affordability, there been some nostalgia for the time when some world-class, public universities -- The City University of New York and The University of California, for example -- didn't charge any tuition for many of its students.

Salman Khan's Khan Academy -- a free, nonprofit education site with more than 2,800 video lessons and financial backing from the likes of Google (GOOG) and the Gates Foundation -- has picked up this mantle, at least in spirit. Fortune caught up with Khan a few months ago while he was just about to speak at the Future of State Universities Conference in Dallas. Here is an edited transcript of the conversation.

Fortune: Judging from the counter on your site, it looks like Khan Academy is not too far away from delivering its 120-millionth lesson. What has surprised you the most about all those users?

Sal Khan: I've been surprised at how motivated a lot of people are that you wouldn't traditionally think would be that kind of a motivated student. They were the kid who failed out of college, failed out of high school, hated academics.

I gave a talk last week to a bunch of chief learning officers from companies and one woman came by and said, "My husband hated school. He's dyslexic. He was a fireman and he just started watching the videos and he got really into it. He got really into math, really into physics. Went back to college, got a math degree and a physics degree, a master's in physics, and is now teaching physics."

And so, it's this reality that there are people like that out there that have completely gotten frustrated and disengaged with the traditional model that tends to judge you and label you in very early stages and really doesn't let you learn at your own pace.

What would you say are the limitations of what you are offering at Khan Academy?

The main limitation is we're not granting people formal credentials. We get a lot of letters from people, they're not going to class anymore. And they're just showing up to take an exam to get a credential. And we all know that happens. We did a little bit of that ourselves in college.

At the end of the day, the most that we can do is teach and learn. We can give someone rewards and badges to make them feel good, but they can't put that on their resumes just yet.

Speaking of resumes and credentials, it seems like more people are getting degrees, but they say less and less about how well someone will perform on the job. What's your take?

It's a bit of a statement on the existing system that us or Google or Facebook have to have such a rigorous interview process because we really don't know what a 4.0 in computer science means any more. I think the conversation has to go beyond getting more people to major in electrical engineering or computer science. The conversation is how do we equip people so that they can actually perform well in that type of environment?

How would you pull that off?

Right now, the priority in a four-year institution is to learn things for exams and in your spare time and your summers you might be able to do an internship. I actually think that should be flipped around. I think the focus should be doing internships. An internship 30 years ago was working the mailroom. An internship today at Google is optimizing an algorithm that researchers at universities don't even have access to. I would say the interns that we had this past summer were doing far more rigorous theory than they would do in their coursework. So when I say internship, it's not getting coffee for the boss or stocking mail.

Many universities, especially public ones, are dealing with painful cuts in government funding and bracing for the possibility of more to come. How do you think that affects what you are trying to do at Khan Academy?

I'd like to see a reality where if someone wants to work when they turn 18 to help support their family and they learn at their own pace on something like the Khan Academy or other things, that they can just on their own get a bunch of the credits they need just by testing out of things. And maybe they have to show up on campus for a semester of labs or something. You're getting a person like that to the end point that they need to get to, in a way that's actually good for everybody.

Then again, so many people land jobs in a way that has very little to do with academic merit. It has to do with the people that they meet while they were at school.

I agree with that. I think the strongest argument there is business school. I think the one thing business school does very well is that they kind of understand that that's what they are about. But I think society has recognized that business school is an optional thing. What you are describing is a powerful tool, just as going to a fancy prep school -- going to Andover or Exeter -- is great. But that's not something that we necessarily have to say everyone has to have access to….

Is the idea to keep Khan Academy free going forward?

Yes. It is core to our mission in that the learning part of Khan Academy will always be free. The incremental cost for us to teach an incremental student is zero or close to zero. So it's our mission that we shouldn't put a gate there.

When I thought about the two home run outcomes as a for-profit or as a not-for-profit, as a for-profit, a home run outcome for Khan Academy is we reach a bunch of users, we capture a bunch of revenue, maybe we get acquired or we have some type of an exit, an IPO, and Sal will be rich. That's not bad, not a bad thing. But the home run as a not-for-profit institution is just maybe we can be this new breed of institution that is kind of like a Stanford or MIT, but the brand isn't built purely on its selectivity. The brand is based on its quality of what it's delivering and it can reach millions, or maybe one day billions, of students and maybe be around for hundreds of years.

Filed under: Careers, Contributors, Strategy

Best Companies: The quiz

2012-02-07T17:33:34Z

Does your employer belong in the pantheon? Could it be that the answer depends on where you stand?

By Stanley Bing

FORTUNE -- We've done our best to identify corporations that are a pleasure to work for. But we couldn't possibly list them all. Maybe your company, too, is a party on a half shell! Take this quiz and find out.

When I go to work in the morning, I ...

A. Smile a little secret smile to myself.
B. Do a crossword puzzle on the train.
C. Have a sphincter the size of a pinhead.

The clothing I am expected to wear to work ...

A. Is a badge of honor. I wear it to sleep.
B. Is a uniform. All institutions have them. Get over it.
C. Makes me feel like a trained monkey.

My boss ...

A. Is a titan of Excellence. God bless her.
B. Is a smart guy and can hold a drink.
C. Would club a baby harp seal.

Which would you rather have: free beverages or a pension?

A. Did you know that we get an entire kitchen full of free food and drinks? I don't even leave the building for lunch! I just work straight through! What a perk!
B. I miss my old pension plan, which was taken away in 2006, but I understand why the company did it.
C. I can buy my own Gatorade, thanks.

My understanding of the overall strategic goals of the corporation ...

A. Is fleshed out for me at regular meetings with my boss, who is fully briefed by his boss, and so on and so on and scooby dooby dooby.
B. It's above my pay grade.
C. Beyond making money, you mean?

The length of my average workday ...

A. Is basically whatever I think it should be, as long as I get the job done. Some days I even work from home. In my bathrobe!
B. Nine and a half hours. In at 8:30. Out at 6. For the past 15 years.
C. Expands to fill all available space, blocking out the sun, until I exist in a formless, shapeless void filled with nothing but that which must be done.

Do you feel secure about your employment status?

A. I don't really think about it too much. I know that if anything bad were to happen, the corporation would take care of me.
B. Sure. Now and then. But in a way, getting fired would be a form of liberation I wouldn't mind exploring.
C. Night and day. My entire persona is bound up with this screwy job. I don't even know who I am without it.

My combination of benefits and perks ...

A. Is obscene!
B. Is standard for somebody at my position in a company of this size.
C. @$#% off.

Scoring: For each (a) answer, give your corporation one point. You are obviously an executive of some kind, and your answers have absolutely no bearing on the quality of life for average people in your corporation. For each (b) answer, give your corporation two points. The Organization has you trained. Whatever it's doing, you are contributing to it. Finally, for every time you chose (c), give your company five points. Your life has been ground down to a nub, but you still identify with the entity that is your bane and your beacon. The enterprise must succeed with crazy people like you indentured to it. Keep up the good work.

This article is from the February 6, 2012 issue of Fortune.

Filed under: 100 Best Companies to Work For, Contributors, Stanley Bing

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