EY helps clients create long-term value for all stakeholders. Enabled by data and technology, our services and solutions provide trust through assurance and help clients transform, grow and operate.
At EY, our purpose is building a better working world. The insights and services we provide help to create long-term value for clients, people and society, and to build trust in the capital markets.
What strategic lessons the C-suite can learn from Bob Nardelli
In this episode of Decoding Innovation podcast, Bob Nardelli, founder and CEO of XLR-8 LLC, discusses how boards can drive organizational success through right company culture and strategic decision-making.
Company boards play a key role in continually driving organizational growth. The boards are adept at identifying opportunities and challenges, and making strategic decisions that can be lucrative, open access to new markets, drive organizational efficiency and consolidate resources.
Driving organizational efficiency is another key function of company boards. By scrutinizing internal processes and structures, boards identify areas for improvement, streamline operations and enhance overall efficiency.
In the second episode of this two-part series, Bob Nardelli, founder and CEO of XLR-8 LLC and former CEO of The Home Depot, Chrysler and GE Power Systems, discusses how CEOs and boards can drive organizational success through strategic decision-making, and why the right company culture is key to building better partnerships within and outside of the company that can drive organizational success.
Key takeaways:
CEOs must strive toward fostering the right company culture to drive growth and to enable strategic decision-making.
In the realm of growth strategy, boards play a crucial role in attaining substantial and rapid innovation for any organization.
Accountability and conviction in driving strategic decisions play an important part of improving organizational growth and investing in the right workforce.
For your convenience, full text transcript of this podcast is also available.
Announcer
Welcome to the Decoding Innovation Podcast series, brought to you by the EY-Nottingham Spirk Innovation Hub, where we explore the innovative technologies, business models and ideas that are shaping the future of industries. During each episode, we meet with stakeholders at the cutting edge to discuss innovations in their space, challenges they need to overcome, and their outlook on the future.
Mitali Sharma
Hello and welcome. I’m your host, Mitali Sharma. Our guest is Bob Nardelli. Currently, Bob leads XLR-8, a company he founded that he gives investment and advisory help to Fortune 500 and public and private clients.
Bob, you talked a lot about culture and specifically at the heart of it, the people, how you bring them in the fold, how you develop a relationship with them. But let’s talk about selecting the right person for the right job, because running a multibillion-dollar company, sometimes you have to make those decisions pretty quickly. How do you figure that out?
Nardelli
That’s probably one of the most challenging questions that a chairman, a CEO, a president has to make. One of things I would offer here – let’s make sure before we run to the posting board that we really need that job. That’s number one. Is this a meaningful high-value-return position that we want to fill? Okay. So, see, I don’t want to assume that everybody approaches it that way. We’ve got to make sure that every job that we add or every position we fill Is critical to the future of the business with the right person. Number one.
Number two, let’s make sure that we’re looking internal. And I think one of the most positive things that I’ve learned over this 50-plus years is the ability to sight talent one or two levels below your direct reports and reach down and elevate it. He or she is the most powerful thing you could do for that person and for the organization. It sends a rocket ship of message out there that people can get promoted from within. They don’t have to wait for their turn by working hard, by delivery, by demonstrating the four E’s I talked about. They would be recognized. And we would elevate them, maybe one or two levels in the organization because of their performance.
Well, what does that mean, of their performance? First of all, whether internal or external, right. You’re looking for somebody with high energy. High energy. They don’t measure themselves in time. They measure themselves in accomplishment. Right. I was in a meeting one day and I said, we’ve got to get this done. And back then, everybody was pulling out their planners, looking at their calendar. I said, “Hey, you guys are looking at your calendar. I’m looking at my watch. I mean, we got to get this done now, right?” So, I look for energy and then the ability to energize an organization.
The third E is entrepreneurial, a childlike curiosity about everything that they do, always asking questions, always trying to understand the fundamentals. How do we plus this, how do we make it better? How do we move faster? How do we make sure that we have market focus and we’re customer centric?
And the final E, of course, it wraps it all up, is execution. Are we delivering on the pro forma? Are we delivering on the acquisition? Are we delivering on the technology? Is it basically delivering on what we agreed the fundamentals would be involved in the capital allocation, the crewing that we would bring together to implement this this product or project or what have you.
So, I think it’s those – now if you go outside, you don’t have the same luxury of having seen individuals within your organization over a period of time demonstrate those four qualities.
So how do you do it on the outside? Well, certainly you mentioned, I would interview that candidate if it was a direct report. Many times, I also want to interview the next level down. One direct report to my direct reports. And then it’s critically important that your chief human resource officer has his or her thumb on the pulse of what’s critical relative to that individual to match up with what we’re trying to accomplish in the business because nothing is more distractive than either promoting somebody from within or bringing somebody in from the outside that doesn’t work out, right?
And here’s the other important thing, is you got to make sure you pass the snicker test, not the candy bar, but your organization knows if you made a bad decision, the worst thing you can do, the worst thing you can do is two things: not face into the fact you made a bad decision, right? Or demote up. Demote up. He or she’s not cutting it, so we’ll put them in this job where they can’t do harm, and the organization says, wow, he or she got demoted up. And a lot of times people come up and say, Bob, look, I’ll pick up whatever he or she were doing. Let’s save money. Let’s just get rid of that position. I’ve got capacity, I’ve only got a dozen direct reports. I could do one more. I just won’t meddle as much. Right. Because if you’re at one over two, we always look at layers in an organization. And here, here’s again, a little the way we look. If you go outside and it’s freezing cold and you got ten sweaters on, you’re not cold. As you start taking the layers out of an organization or the sweaters off, you realize what the real temperature is out there. So, make sure that you always are looking at layers, spans of control because bureaucracy sneaks in there and you start getting one over two, one over one. It’s crazy, right? So, make sure that the person has the ability for a broader span of control to reduce layers.
Sharma
Interesting that you said you would actually try to interview people maybe a couple of layers below you. So, you had your finger on the pulse. That seems to be very important in your frame of reference.
A lot of public companies talk the talk but are not able to walk the walk regarding innovation specifically when it comes to not incremental stuff, but disruptive stuff. They have the capital. They sometimes even have the personnel, but they’re not able to deliver while as maybe a smaller entrepreneurial company does.
Now, you work with all kinds. You’ve been able to make some of the biggest companies get bigger and you now work with smaller companies and are taking them big, too. So, tell us, or our audience, what differentiates and what is that X factor that enables a company to deliver on its promise?
Nardelli
There’s a lot of personality that goes into that question, both for the chairman, CEO and the board of directors. For my experience, the guy at the top sets the tone. If the tone isn’t set appropriately as to the expectations to the vision for the future, the mission for the company, the evidence of capital allocation, resource allocation, resource attraction, it falls apart internally. And you’ve seen it time and time again, where some of these massive conglomerates over the course of a dozen years or more, disappear. They just disappear. And a lot of times the chairman, CEO will get the blame. But there’s usually a dozen board of directors who have sat around on their hands and allowed that to happen. The board has to take decisive action. They have culpability in making sure that a corporation not only survives but thrives going forward because so many people depend upon it.
If you think about the auto industry, for every one autoworker, this is dating a little bit, but there were ten employees supporting that autoworker in tier one, two and three. So, when you had 145,000 UAW members potentially going on strike, you had 1.5 million people, families that could be affected by that strike. Right. So that’s the way you have to think about the weight of the responsibility you have when you’re in those positions. There’s a lot of privilege that comes with them. There’s a lot of publicity comes with them. But nothing is more important than making sure that business is successful for the hundreds and thousands of people, either investors, workers, suppliers, etc. So you have to feel the weight of that responsibility every minute of every day.
Sharma
Shifting gears a little bit. Let’s talk about boards. You’ve been on boards; you’ve worked with boards. What’s your opinion of a good board and what their job is, especially in view of the open AI, news that’s come in recently?
Nardelli
Yeah, well, it’s interesting when at General Electric, Jack’s philosophy was, if you want to work, you’re going to work for GE. And we were not allowed to participate in any boards, external boards. When I went to Home Depot, I felt that that was a little bit of a deficiency. So, I strongly encouraged my leadership team to participate on a board. I just thought, it was interesting to sit on a board and start firing questions at a CEO or the CFO. And then when they were in our boardroom and our board was firing questions at them, they had a different perspective about that. Right? In other words, they weren’t offended by those because they were asking the same darn questions when they were a board of directors’ member. So, I just thought there was a learning experience and a sense of being on that side of the table and the value it brings to our board. So, we kind of understood where the directors were coming from. Point number one.
Point number two, it was critically important that when I walked in as the chairman of the board, I literally had to turn my hat around and be open and critical myself of the CEO or be willing to take advice and counsel from the board of directors. And we had a fantastic board at GE and a fantastic board at Home Depot. We had some great members on the board that were extremely successful in their own right and valuable. And so, the things that we would spend an inordinate amount of time getting ready for the board meeting. You can imagine we had ten a year. And so, I would take meticulous notes of questions or requests, and the minute the board meeting was over, I would consolidate those, send it out to the leadership team and say, you really only have 30 days to get ready to be able to respond to these things. So, I really tried to make sure the board knew. We listened, we learned, and then we tried to provide leadership. Right. Listen, learn and lead.
And what was a good board member back then didn’t come into the room, open the FedEx box and pull the material out. Nothing was more discouraging to a team that spent countless hours doing it. So, I think a board has a responsibility to be an active participant. And I attended a board meeting last night, and I know we have all this technology, but I make a paper copy. Sorry. I highlight everything that’s in there and annotate where I want to ask a question or an understanding. And so, I just think board members need to be actively involved. The National Association of Corporate Directors are doing a good job of making sure that directors understand the roles, responsibilities and the accountabilities to be on a board in today’s environment.
Sharma
You were able to sell your vision in very different environments, and you’re still doing it to boards, to your leadership team, to people below you. What was the one thing that you want our audience to learn that will enable them to do the same?
Nardelli
First of all, you have to convey with conviction the strategy. You have to convey with conviction why it’s important to enhance the core, extend – extend the business and expand the market. And if the 350,000 associates weren’t working in one of those verticals, they were being disadvantaged when it came time to evaluation. And then you had to make it direct, you had to make it – reduce the complexity of the message so that everybody understood what you were saying. Right? You had to make sure that they understood their role and how they would achieve that success individually and collectively. And you just have to have energy in the conveyance of where you’re going. You had to have tremendous enthusiasm about winning in a very competitive marketplace. You had to talk about the importance of what it means to you individually and your families. The more successful we are, the faster we’ll grow. The better is your compensation, the better is your chance for leadership positions. We had 150,000 net new jobs a year. So, we were we were really burning and churning in the marketplace, bringing people into the family and creating a community within each of those businesses that had its own culture that you could participate in, that you felt an ownership for. Those are all the things that I feel very strongly about.
Sharma
It’s fascinating. And there is no doubt in my mind that we could sit here and talk for another two hours. But unfortunately, our time is limited. Just as a parting thought. What would be your message or advice to the upcoming CEO and entrepreneur that’s trying to change the future with their new ideas?
Nardelli
Well, it’s interesting you asked. I’ve been very fortunate for the last 10 to 12 years to go to EY’s Entrepreneur Of The Year program. And there you’ve got 2,000-plus entrepreneurs. And every time I go out there, I basically will schedule seven, eight, nine meetings back-to-back every 25 minutes and then have the privilege of talking to another entrepreneur. And each one, of course, is different. And the advice I would give some of them is do you really have a product differentiation? Are you really thinking about the funding to be able to move this thing along? Are you really bringing in the right teams, all the things that we’ve talked about, right?
So, my suggestion to your question is, for the CEOs today, again, this will be redundant, but you have to be that dry sponge in a bucket of water, and you’ve got to absorb everything you can about your business and that industry so that you can make efficient, effective and create a culture of success, of winning is the only game in town. And in an appropriate way, of course, no fraudulent, no winking or blinking, but you want to create that competitiveness within your organization. You want to stay actively involved, you want to be approachable, you want people to be able to feel tremendous pride in following your leadership, you want to convey a level of confidence and they can trust you in the direction that you’re going because their livelihood depends on it. They say, well, you’ll get another job. I may not be able to get another job. So, I have to have the confidence for myself and my family that we’re moving in the right direction. And I’ve got some continuity of service going forward. And then the marketplace has to recognize you as an innovator and a deliverer on your projections and your forecast. In today’s environment, it’s a full time 24/7 job, in my opinion, to really do it efficiently and effectively and to be able to convey all of that knowledge and confidence throughout the entire organization. That’s what I would tell you. And there’s nothing more fun. There’s nothing more exciting to me than business and operating businesses and winning in business today. You’ll love it. You’ll love it.
Sharma
Bob, this has been a fascinating conversation. There’s so much for us, everyone, to learn. I certainly did. Thank you for your time.
Nardelli
Thank you very much for the opportunity and wishing you and EY-Nottingham Spirk Innovation Hub the very best.
Sharma
Thank you.
Announcer
The Decoding Innovation Podcast series is a limited production of the EY-Nottingham Spirk Innovation Hub based Cleveland, Ohio. For more information, visit our website at ey.com/decodinginnovation. If you enjoyed this podcast, please subscribe, leave a review wherever you get your podcasts and be sure to spread the word.
Presenters
Mitali Sharma
Former host, Decoding Innovation podcast
