Thursday, February 7, 2008

Winners often will bend rules a bit

Whether in business or in sports, the success of a dynasty is the result of vision, talent, aggressiveness and some good fortune. But dynasties also can be ruthless.

A hero is not someone who is 'perfect.' We'd have no heroes if this were our standard. We all make mistakes, but that doesn't invalidate the contributions we make in the course of our lives." -- Anthony Robbins

The New England Patriots were heavily favored to win the Super Bowl on Sunday, although this New York native is celebrating today if the Giants were able to pull off one of the greatest upsets in NFL history.
New England has already won three Super Bowls this decade. They are the first team to win 16 regular-season games. A win Sunday would have made them the equal of any NFL dynasty in history.
Yet an odd scandal marked the beginning of the 2007 season. In September, NFL Commissioner Roger Goodell punished the Patriots after a team employee was caught filming an opposing team's coaches during a game, in an attempt to decipher their signals to players. The Patriots organization was fined $250,000, coach Bill Belichick was personally fined $500,000, and the team will forfeit its 2008 first-round draft pick.
Why would Belichick, already considered an all-time great coach, be driven to take such a petty risk, filming opponents in plain sight? His reputation is already assured. He's proved himself repeatedly as a coach over the past 25 years: first, as the innovative defensive coordinator of the great New York Giant teams of the 1980s, under coach Bill Parcells; then, by winning three Super Bowls in four years with key players injured. He's considered one the greatest game-film analysts and defensive strategists of all time, and created a "value investing" approach to selecting and retaining players, refusing to overpay players in the era of free agency and the salary cap.
Belichick's behavior is not unusual, sadly. Winners, when faced with the prospect of defeat, are often tempted to bend the rules. In sports and in business, dynastic champions eventually run out of steam, when their players or products get older, or when their competitors adjust.
This raises an interesting question: What distinguishes dominating organizations from the merely successful? It is not only ability and opportunity, but a desperate need to prove oneself, regardless of past accomplishments.
The tendency to mythologize winners as heroes runs deep in all cultures. But despite their surface charm, real-life dynasties, in almost any endeavor, are likely to be ruthless and insensitive.
Another example of a long-time winner bending the rules to perpetuate his dynasty was Jack Welch, the retired CEO of General Electric. Welch, named "Manager of the Century" by Fortune magazine in 1999, grew GE's market capitalization in his time as CEO from $15 billion in 1981 to nearly $500 billion in May 2001.
Like Belichick, Welch won through a combination of aggressiveness and innovation, taking an already successful company to new heights. He insisted that all GE divisions excel (No. 1 or No. 2 in their markets) or be sold; that underperforming or unnecessary employees be identified and fired, and he pursued a series of management initiatives in an attempt to grow GE's performance and profitability. Wall Street analysts and investors venerated Welch for his consistent growth of GE's profit, and its stock price rose accordingly.
Welch's successes were substantive and real. But the remarkable consistency of GE's earnings under Welch, quarter after quarter, was a phenomenon unnatural for a large company, and it would be near impossible to achieve today. He accomplished this feat by leveraging two financial tools, which though entirely legal at the time, would be derided as gimmicks today.
First, Welch leveraged GE Capital, the firm's highly profitable financial arm, for "revenue smoothing," to achieve the desired consistency of earning performance. At the time, GE Capital, although GE's single most profitable division, reported earnings as a single unit, a practice changed by current CEO Jeff Immelt in 2002 in response to investor pressure for more transparency. --(StarTribune)


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