Emerson's Knight offers 10 lessons for business success

Sunday, October 9, 2005
St. Louis Post-Dispatch Business G7
"Emerson's Knight offers 10 lessons for business success Although Jack Welch may have broader name recognition with the general public, business executives and scholars respect Chuck Knight as being in the same elite league of business executives."

 

 

There are many similarities between Knight and Welch. Both were long-term CEOs. Knight was head of Emerson for 27 years; Welch led General Electric for 20 years. Both produced amazing results. GE‚ market capitalization increased from $13 billion to more than $300 billion under Welch. Emerson‚earnings per share increased for 108 consecutive quarters under Knight.

Both are famous for a tough management style based on candor and results. Many people admire Knight and Welch for their approach. Many others dislike both, for the same reason.

Both have written excellent books that detail exactly how they led their companies. "Winning" by Welch and "Performance Without Compromise" by Knight contain true wisdom for CEOs and CEO wannabe. Both books deserve to become management classics.

I had a chance to sit down with Knight recently to talk about his new book and his leadership of Emerson. The Emerson that Knight took over in 1973 was well-managed and thriving. But many manufacturing firms failed to survive during the next 30 years of global competition and unprecedented customer demand for lower costs, higher quality, and better service.

Under Knight, Emerson thrived in this new competitive environment. He laid out, in his new book and in our recent talk, how he and his Emerson colleagues did it. Here are 10 lessons from that experience that have top-management relevance for the even-tougher competition of the future with the rise of China and India.

 

  • Develop a pressure-tested plan for setting business direction and identifying the sources of profit and growth. ‚The key to Emerson,‚Äù Knight said, ‚has been that every year we have been willing to spend the time to plan the businesses.‚Äù Knight spent 60 percent of his time in these planning meetings. His business unit heads spent 20 or 25 percent of their time planning. Base your plan on hard facts. Fine-tune the plan every year.

 

  • Monitor implementation, make mid-course corrections, and execute. While Knight himself led the annual planning sessions, his chief operating officer and chief financial officer led quarterly reviews of implementation. ‚We‚are not just talking about the financials,‚ Knight said. ‚Every major strategy program gets looked at. Don't wait a year and then find out your implementation was not going the way you want it.

 

  • Be ‚best cost‚the optimal combination of product, service and price‚not low cost. Knight said he originally strove to be the lowest-cost producer. ‚Then one day, we woke up and found a competitor offering prices below our costs  Japan, not China, at that time. That‚ when we went to ‚best cost‚producer‚  which coupled better quality and higher customer satisfaction with lower costs. This decision is the basis for the next three points.

 

  • Develop new products with more technology. Knight recognized that ‚we were a technology follower, but that in order to win, we had to be a technology leader.‚Äù That leadership means getting technology that defines the state of the art, that changes the competitive game, that increases sales and margins. It means spending money on engineering and development, not on basic research. Track new-product share of sales and make it a required agenda item for planning meetings.

 

  • Make intelligent acquisitions‚lots of them. ‚Acquisitions should do so many wonderful things for you,‚ Knight said, among them obtaining technology, increasing market share, and entering new product niches and geographical markets. Acquisitions must reflect the strategy and be done at prices that increase shareholder value. Follow a disciplined process that includes a senior operating executive sponsor, rigorous due diligence, and a plan for producing value and post-merger integration. Quality of acquired management is important in successful post-merger integration.

 

  • Become global‚in sales and in production. Emerson took its first global steps as a survival measure  moving some production to Mexico, then Eastern Europe and eastern Asia, to become cost-competitive. ‚Everybody understood that if we don‚ do that, we were going to lose the whole plant in a given industry, Knight recalled. ‚That was a very, very difficult area for us. That decision led to a global sales and growth strategy. Today, 30 percent of Emerson‚ investments‚but an even larger 38 percent of sales‚are outside the United States.

 

  • Move from products to systems, services and solutions. The biggest challenge he faced, Knight told me, was ‚how do we grow the top line faster. The answer: Combine products into systems. Then move to services and solutions. Moving up the value ladder leads to better margins, customer loyalty, and growth.

 

  • Achieve leadership in each niche. Focus the first seven steps in areas that reflect your competencies. Implement relentlessly. Market leadership produces higher profits in three ways: higher sales, lower costs, and slightly higher prices from selling preferred products and solutions.

 

  • Develop a culture based on shared values. Emerson has an engineering mentality. Its people address realities with integrity, candor and objectivity. It's tough but not brutal. Everyone from the Board to plant workers focuses on operational excellence and profitability. In the world of manufacturing, anything less doesn't work. This culture turns off many people. But it attracts people who want to work together to 100 percent of their ability, achieve great results, and get rewarded for it.

 

Manufacturing companies that sell vanilla products are doomed. Surviving and thriving requires a clear planning process and understanding the roles of cost control, technology, acquisitions, and globalization. Knight‚ chapters on these topics are classic.

Your company and your management style will differ from his. So my advice is ‚adapt, don‚ adopt‚Äù his approach if you want to prosper in this increasingly challenging world.

Oh, yes, I said there were 10 lessons. The final one is:

Work hard but enjoy the process. You can not give total commitment year after year unless you agree with Knight‚ last words to me: ‚Business is enormously fun.

Bill Finnie, a business consultant and adjunct professor at Washington University, writes about the do's and don'ts for success.

 

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