McKinsey Quarterly

Voices of experience on the CEO transition

| Interview

Moving fast, infusing the right culture and values, and targeting performance and skills—these were among the early priorities for the former CEOs of Aetna and Covidien. In a pair of video interviews with McKinsey’s Simon London, former Aetna CEO Ron Williams speaks to the importance of building a leadership team with the right values, and former Covidien CEO Jose Almeida (currently the CEO of Baxter International) reflects on divestitures and acquisitions and the moves he and his team made to reallocate capital. What follows are edited transcripts of their conversations.

Interview transcript

Aetna’s Ron Williams on making critical moves

Moving at the right pace

Our pace of change always had to be rapid but measured. Our business is truly a technology business, and one of the things you learn is to never take apart anything you do not fully understand. Because when you snip the wires, you may never get them back together, and our customers will suffer. So we have to be in control of the inputs and outputs and customer-service levels. We often made very dramatic changes and important strategic moves, such as when we built our own pharmacy-benefits-management company up from nothing and later sold part of it, but we made sure it was extremely controlled so that we didn’t end up with a mess on our hands.

A decision I always look back on was the failure to pursue the strategic advantage when we had it. We had committed a lot of resources to develop an important, innovative product that made us recognized as an industry leader. One of the mistakes we made was we let our competitors get into that space. If we had made acquisitions and taken other approaches, we would have had a very strong lock on a very important and growing product category. We had a lot of debate about it, and the notion was, “Well, we have the capability, why spend scarce capital on acquiring more?” Often, the fact that you keep a property out of another entity’s hands is a poor rationale for an acquisition. In this case, it would have been a good rationale in retrospect.

Moving on values

I spent a lot of time on culture and values. Our senior team would go offsite and really talk about what kind of company we wanted to be. What was our vision? What kind of culture do we want?  What kind of values? How did we align our strategy, our culture, our technology, our executional capabilities, and our financial aspirations to really set the standard in the industry? The CEO has to infuse the culture and the values into the organization, and that means you must select a leadership team that believes in, articulates, and lives by those values. The technical skills and competencies—you can find those in lots of people, but your team has to have leadership skills as well.

Setting targets for Covidien: Jose Almeida reflects

Targeting performance

We used to have roll-up strategies from the business units to corporate, and corporate would create a forecast for the business for the next three years. The forecast would then be negotiated down with the units and result in a growth objective for the next three years. We completely changed that; that was probably the biggest change we made. We started with the desire to become a top-quartile performer in total shareholder return. We deconstructed TSR to the point that we understood the gap between the current work the company was doing on a discount-cash-flow basis versus the desired discount-cash-flow basis, and we found the difference was a few billions of dollars. So we went to work trying to fill the gap by changing the capital allocation into R&D projects, or through divestiture and acquisitions or other moves. Then we rolled down that strategy to the business units, which then developed specific plans. We knew what we had to do and how long we had to do it.

Targeting the right skills

Make sure your team has the right players for the moment, and make quick decisions to remove those who should not be at the table. Then in recruiting people, we tend to undervalue some important leadership skills that sometimes don’t show up in the skills matrix. Everybody values the drive for results, the quality of decision making, dealing with ambiguity, but there are some valuable skills that you don’t see everywhere. One is learning on the fly. People who can learn fast will take charge of a situation and can be mobile between businesses and functions. Another one is managing innovation. To manage innovation, you have to have the ability to allow empowerment, entrepreneurship, and to let go of control. Those skills are not often found in traditional hierarchical companies, where people tend to become very process-driven. And process is a tremendous hindrance to creativity and innovation. So go find those gems, the people who have those skills that are undervalued in your company’s leadership-skill inventory. Because those people will make you more successful as a CEO.

Targeting adaptability

Perhaps most important is adaptability. A great many companies today are matrix-organized. You can’t manage in this very complex world without a matrix, but everyone inside wants to be a general manager. They want to be the P&L owner. They want have that opportunity to manage a business. People need to understand that in a world where things are so complex, you can’t really do that anymore. When you’re launching a global product, you can’t have the responsibility of selling that product in every country under your accountability. You have to work through others. You’ve got to be able to influence others without having the power. That adaptability is huge. Many people who do not possess it fail at their jobs because they can’t understand emotionally how things work.

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