Scientists are trained to do two things that managers are often not. The first is to interpret patterns in the evolution of the state of things. The second is to respect the truth, regardless of how inconvenient or controversial its implications are. Unfortunately, often the truths they tell fall upon deaf ears.

In 1979, a German-born research chemist, Wolfgang H. H. Gunther, was making an exciting career move from Xerox to Kodak. During the courtship phase of the discussions, Gunther was invited to give a presentation at Kodak. He gave a talk using overhead projector slides that were generated on the Xerox Alto (an early version of a personal computer, courtesy of Xerox PARC). Among the people he subsequently spoke with was an executive named Tom Whiteley, the head of Kodak’s Emulsion Research Division. Whiteley asked how Gunther visualized the future of technology. As Gunther said to me, “And then I casually said: ‘Of course, with video cassette recording cameras, 8-mm movies have already had it.’ At which point I thought I had blown the interview because he, sort of, freaked out and berated me for not understanding how well-entrenched the Kodak technology was.” Recall that this was 1979—the very year that the Hunt brothers tried to corner the silver market, with the result that Minoru Ohnishi of Fuji Photo began to think about a future without film. Gunther was already thinking of a future without film. The Kodak executives couldn’t conceive of such a thing. Fuji, as we saw in chapter 1, was already determined to move to the next wave. Kodak’s leaders couldn’t bear the prospect, determined to continue to exploit the company’s longstanding advantages in film.

At any rate, Kodak did make Gunther the offer and he went off to the Kodak labs, eventually received a prestigious research award (the CEK Mees Award for Scientific Excellence in 1982/1983), was listed as an inventor on over a hundred patents (assigned to Xerox, Kodak, Sterling, Nycomed, and Medical College of Wisconsin), and eventually retired after being caught up in multiple reorganizations following Kodak’s disastrous foray into the pharmaceutical business. Whiteley, in a later-life avocation that can only be described as ironic, became a highly respected amateur paleontologist.² He spent his postretirement years studying creatures that died out because of their failure to adapt.

Absolute candor and a willingness to accept the idea that a once-successful model needs to change are critical to leadership in a transient-advantage-oriented firm. Denying problems wastes critical time. In 1984, five years after Gunther joined Kodak, a Forbes article with the title “Has the World Passed Kodak By?” summed up many of the issues the company faced at that time.³ Instead of taking the article as a possible wake-up call, Kodak’s management instead put together a seven-page, single-spaced series of rebuttals to the claims made in the article.⁴ Calling the article a “cover-story hatchet job,” the documents provided detailed counterarguments (under the word “Rebuttal,” underlined and centered, just in case anyone missed the point). The concerns raised by the journalists concerned poor management, deteriorating financial performance, poor execution of new product introductions, low morale, being forced to source products externally, and miscellaneous other problems. The rebuttals took the unconvincing form of outright denials in the form of “Kodak does not have poor management” and “Current management has overcome any historical complacency regarding the company’s ability to meet its growth and profitability objectives.” The piece also expressed a traditional excuse for management whose companies are not doing well—blaming forces beyond their control.⁵

So here we are, as of this writing a good twenty-nine years after the “hatchet job,” and Kodak has declared bankruptcy. The once-humming factories are literally being blown up, and the company’s brand, which Interbrand had valued at $14.8 billion in 2001, fell off its list of the top one hundred brands in 2008, with a value of only $3.3 billion.⁶ It really bothered me that the future was so visible in 1980 at Kodak, and yet the will to do anything about it did not seem to be there. I asked Gunther recently why, when he saw the shifts coming so clearly, he did not battle harder to convince the company to take more forceful action. He looked at me with some surprise. “He asked me my opinion,” he said, “and I gave it to him. What he did beyond that point was up to him.” Which is entirely characteristic of scientists like Gunther. They may see the future clearly, but are often not interested in or empowered to lead the charge for change. Why do I know this story so well? He happens to be my father.

Strategy making is often carried out by a small group of people without a great deal of input from the rest of the organization. That is risky. There is a profound lesson here for those entrusted with steering their organizations through uncertain patches. Often, the people who see changes coming are not those in charge of making major organizational decisions. They are technologists, scientists, and pattern recognizers. Often, also, the people who are in positions to make difficult choices face the prospect of personal and career catastrophe if the predictions turn out to be true.

As Alan Mulally, currently the CEO of Ford, observed, “You can’t manage a secret.” Strategy in a transient-advantage context dramatically increases the importance and value of obtaining difficult, disconfirming information at both the organizational and personal level. Environments that can move from advantage to advantage will be rich in feedback flows, both down and up the chain of command. Allowing senior executives to become isolated from the reality of what is going on at the company’s competitive arenas or allowing them to become protected from feedback about their own behavior will increasingly be recipes for disaster. Alex Gourlay, Chief Executive of the Health and Beauty division of Alliance Boots, emphasized this point at a recent management conference. “How do we make sure that bad news travels faster?” he challenged his leadership team to ponder.

It is often surprisingly difficult for senior people to get unfiltered information. For instance, I once had in class a senior executive from a telecom provider that was known for its spotty coverage, particularly in the New York area. I asked him about why their senior leaders didn’t appear to be more upset by this—weren’t they also infuriated by dropped calls and missed connections? Oh, “No worries,” I was told. “We know their travel schedules, their routes, and where they are likely to be when they visit. We always make sure the signals along those passageways are good and strong!” Ironically, in their effort to improve their bosses’ connectivity, the (we hope) well-intentioned staff were depriving them of the very information they would need to correct massive customer outrage. I see it all the time: senior people are kept in an alternative reality, in which the issues and problems that affect their customers are buffered for them.

Diversity is also going to become critical. In a situation replete with complexity and unpredictability, one never knows where the next important idea will emerge. If the senior team is very homogeneous, it limits the amount of mental territory that they can cover, when contrasted with a team that brings more diverse perspectives in terms of age, gender, socioeconomic status, or other attributes. Diversity in unpredictable contexts is not a “nice to have”—it will increasingly become competitively essential.

It will also be vital to combine different skills in the senior team and the rest of the organization. Not everybody is going to have a skill set that can effectively operate in each phase of the wave. Some people are more comfortable with the ambiguity and learning-rich environments of the innovation and launch stages. Some enjoy bringing order and stability to a large business, as we might find in the ramp-up phase. Some—many traditional leaders—will be brilliant at exploitation. And some might even be good at disengagement and reconfiguration. Being more explicit about the different skills and roles people bring to the tasks will be crucial. As Kris Gopalakrishnan of Infosys noted, each of the company’s founders took a different role in the early company, with some leaders focusing on marketing, others on building technology platforms, others on operations, and so on.

In any case, getting beyond denial that there is a problem has to be part of a mind-set to cope with transient advantage.

I have had personal encounters with Berlitz on a couple of different dimensions. It all started with a decision on the part of my daughter, Anne, and me to take German lessons—together. I wanted to improve what our teacher resignedly calls my “kitchen German,” and Anne was interested in adding another European language to her repertoire. We signed up for intensive German lessons—as often as three times a week for three hours each—at the Berlitz on-site studio in Princeton, New Jersey.

Berlitz sure didn’t make it easy. When I first called to set up the series, I was told that I would have to make an appointment and come in to the office in person, just to schedule the course. Well, given my travel schedule, that pushed things back by three weeks! When we finally did get in, we were presented with a fixed menu of options, and very expensive options at that. Although we loved Charlie Townsend, our teacher, we seemed to be struggling with Berlitz policy all along the way. Whether it was asking Charlie to teach us grammar (“I’ll do it,” he said, “but don’t tell them that, because it isn’t the Berlitz method!”) or trying to figure out a schedule that worked for us, or figuring out whether I could find a way to continue the lessons once Anne went back to school, the company was one big, inflexible, grumpy old organization.

Our experiences were typical—Berlitz was very hard to do business with. Its performance showed; when contrasted with hip, upbeat competitors such as Rosetta Stone, with its ubiquitous ads about glamorous Italian supermodels being wooed by American farm boys, Berlitz looked downright dowdy. Rosetta Stone was gearing up for an IPO; Berlitz was treading water. In transient-advantage terms, Berlitz was well on its way to a long, slow, deadly period of erosion of its competitive advantages.

I got to thinking about Berlitz from a strategy point of view when I met Marcos Justus, at the time Berlitz’s head of operations in Brazil. Justus is tall, razor thin, and intense. He speaks English ever-so-slightly accented with Portuguese (his native language, one of several that he speaks fluently), and when he gets excited, his thoughts seem to race ahead of his ability to get the words out. He’s constantly looking for new ideas, and when he finds one he likes, he grabs on to it with ferocious intensity and will not let go. The quest for new ideas brought him to my Columbia Business School short course, “Leading Strategic Growth and Change.” He still gives the course and the people he met in it credit for helping him reinvigorate the business in Brazil. Rather than positioning Berlitz as a simple language training company, he changed the branding and positioning to that of a luxury brand. Brazil, like many emerging economies, he reasoned, had a few really wealthy people at the top of the economic pyramid. Why not target the company to serve them? Advertisements changed from common or garden-variety ads for language proficiency to ads showing elegantly dressed women carrying their Berlitz materials out of their Audis to go to class—that sort of thing. It worked.

Based on his success in Brazil, Justus was asked to help reinvigorate the company’s US operations. I went and chatted with him at Berlitz’s offices near Princeton, New Jersey. The denial stage was long gone by this time, and everyone knew the company was having problems. The first challenge was figuring out what to fix. One of his insights about the United States was that language skill training in America is a “nice to do,” not a “need to do.” As he explained, in most of the world, if you can’t speak English, it is a career setback, so selling language training is relatively easy. In the United States, however, you have to create a need. So where to start? Berlitz keeps track of everyone who calls to inquire about a course. What Justus found was that for every ten inquiries the company received, only three people actually signed up. So the first thing he started to do was survey those who did not convert. What the survey-takers basically were told was that the company was too expensive, too inflexible, and not innovative. As he said, “It was kind of depressing, but we had a huge opportunity—there was lots to do.”

He and his team set about doggedly tackling the problems of expense, flexibility, and innovation by introducing new formats, new products, new delivery models, and new pricing structures. The goal was to reinvigorate the basic offering as a place to start. He eliminated the rigid Berlitz schedule requirements (most of which grew up over time to suit the teachers, not the students) in new products such as “Berlitz Connect.” Lessons can be face to face or virtual. They can be recorded. A cultural component has been added, as well as quizzes and the chance to replay lessons that may not have sunk in. The fees can be paid by subscription (as opposed to the traditional Berlitz up-front payment plan). The company also introduced the “Berlitz Virtual Classroom,” which makes group pricing and interaction costs possible even for people who are widely dispersed. Justus told me about how this led to a thriving business in Arabic. As it happens, some 1,500 inquiries per year in the United States were for Arabic language lessons, but they were too spread out for the traditional Berlitz group-class approach. By combining the students virtually, people who never could have become customers were now signing up.

Rather than sticking with the original, proven model, Justus has invigorated the business in the near term. For the longer run, Berlitz’s new CEO seeks to position the company as a cultural training organization and a global education company that can partner with your company to have a global-ready team. Think of it like a pyramid with language at the base. Then comes cultural understanding. Following that is what the company calls diversity and inclusion, and then global leadership skills.

The company has also taken a fresh approach to its brand, using humor to promote the idea of language proficiency. In one viral video with millions of YouTube hits, a member of the German Coast Guard is seen responding to a desperate plea on the radio:

“May Day, May Day, we are sinking!”

“Hallo—Zis is ze German Coast Guard.”

“We’re sinking, we’re sinking!”

“What … what are you sinking about?”

The scene cuts immediately to the phrase “Improve Your English,” set against a backdrop of stirring music and the tag line “Berlitz, Language for Life.”

Psychologists tell us that we all have a pervasive bias in our thought processes, namely, to seek out information that confirms what we believe to be true and to reject information that calls what we think is so into question. It’s called the confirmation bias. The organizational analogue is to seek confirmatory evidence that all is well. Part of the new playbook for strategy is to do what Justus did at Berlitz and actually seek out disconfirming evidence. The idea is to create an environment in which people can share evidence that things may be changing and thereby spark action. This can be easier when it is obvious that the organization is in trouble—it’s much harder when things seem to be going well, at least on the surface.

The data is often there, if anyone cares to look. The question then becomes who in the organization has the credibility and clout to get those in power to pay attention. There are a number of ways this can happen. The first is to drive it from the top, with strong CEO decision making. If the implications of a change in strategy are personally challenging or risky for other senior leaders, this is often the only way to do it. A friend of mine, a consultant, tells a story about one of the most dreadful projects he ever worked on—as it happens, for a telecom company facing the advent of the digital age. As he described it, the company was asking the consultancy team to help think through how it could remain relevant. The team recommended something similar to the strategy that Verizon has subsequently pursued, a FIOS-type play. The proposal had to be presented to the top thirty people in the company. As he put it, “The new organization we designed needed only four senior-type people. So you’re going to get twenty-six people to vote to eliminate their own jobs? It was doomed from the start.” Unlike Verizon’s Seidenberg, the CEO at that firm was a “consensus guy”—what was missing was a CEO who would drive the new strategy. That company, incidentally, has since disappeared, swallowed up in the wave of subsequent telecom mergers, and those senior folks who opposed the radical changes the consultants recommended lost their jobs anyway.

A second approach is to empower a group—insiders, outsiders, or some combination—whose primary purpose is to gather the evidence, sift it, and feed the resulting insights back to the decision makers in the firm. My friend from a medical device company explained that his firm has just recently set up a disruptive analysis group to consider the question of how the company’s business model could be disrupted. It has an organization and a budget that is separate from the rest of the mainstream business. So that’s an independent group, with dedicated funding.

You can also use experts to find those early warnings. Doug Smith is a dear colleague and an expert on how companies can go awfully wrong after being stunningly successful (his excellent book about Xerox, Fumbling the Future, is a classic).⁷ I asked him what he would do to break through to those who have decision-making rights in a company facing eroding advantage. He thoughtfully suggested that companies have specific conversations with experts about how sustainable the sources of advantage are. As he said, “Perhaps I would start a new management process in our company—the ‘sustainable advantage review’ process. I would call it out and separate it from the others. It needs a special light.” He then suggested sponsoring a conference in which experts were invited in and paid to explain exactly how the company’s existing advantages could be undermined.

Another way to unlock vital information is to work with internal networks. Tom Roy, an American, at one point held a remarkable position as the senior executive human resource director for French company Michelin. His approach to getting the word out can only be described as “stealth.” He’s relentless. As he said, “When the guy at the top blocked me, I went to the next level. I would find the two guys out of five who would listen. Together, we developed a war-game process. It was a one-day brainwashing session of role playing to get them to see that other people had strategies that were killing them.” Eventually, the virtual reality of the war-gaming experience got the executives to stop denying there were potential problems and instead to focus on what they were going to do about them.

In my own work with companies, I’ve used a variant of all of these approaches. One of the more interesting was working with Adrienne Johnson Guider of AXA Equitable. We created a senior team off-site in which we role-played how nontraditional competitors could attack the core business. Out of that off-site meeting came several ideas for new forms of collaboration and a greater awareness of the early warnings that all might not be well. The value of this sort of thing, as one executive told me, was that “It wasn’t so much that we had the insight that wasn’t clear to start with, for those who thought about it. No, the value was that a large set of people who needed to buy in came away with a shared understanding of what we need to be doing.”

The role of time in a context of temporary arenas is huge. Without the assumption that an advantage will be long-lived, the urgency of an organization to move quickly increases. Slow decision making can be extremely costly. MacMillan and I once did a thought experiment to demonstrate. He’s developed a spreadsheet tool called a “BareBones” NPV calculator, which essentially asks people to put numbers around the wave of competitive advantage. Key inputs are how much for launch and for ramp-up, how much return to exploitation, and how long the advantage will last. We then experimented with a new venture one of our clients was attempting to get approved. We found that the six-month delay senior management was proposing for making the decision about whether to go forward dropped total project value by $1.2 million over the life cycle of the project. That’s a lot of lost value for management indecision.

The need for speed runs smack into a challenge for corporate governance. Boards of most large organizations are not, by definition, fast-moving creatures. Bill Klepper, one of my colleagues at Columbia, studies boards of directors.⁸ I asked him about the timing of board oversight and intervention. He said he thought that if companies were to ask for board intervention more frequently than three times per year, it would dramatically reduce people’s willingness to serve on boards. This raises a serious problem: if the competitive rhythm of the marketplace is moving much faster than the rhythm of an organization’s governance, then the resulting encumbrance threatens to slow significant decisions to a crawl.

Competing in more granular arenas implies that the right to make strategic decisions needs to be spread much more widely throughout the organization. Action on the front lines is moving so fast that there simply isn’t time to get enough rich information back and forth to senior-level decision makers before the opportunity vanishes. This, of course, is what the “emergent and learning” rather than “planning” school of strategy has been saying for years. The dilemma is how one creates strategic coherence when strategy is increasingly distributed across multiple arenas, each of which might have competitive advantages created in somewhat different ways.

My research, and that of many others, suggests that this is where the role of common values and corporate culture comes into play.⁹ If one has a common point of view about the right and the wrong things to do, it is much less likely that you will ride off the ranch. Here is the dilemma: The need to build a common culture and framework calls for a sustained interaction between an organization and its people (and other assets). Increasingly, these bonds are becoming frayed. If you believe that strategy making and executing and the capabilities of companies will be identified increasingly with particular individuals, then keeping those people involved and engaged has got to be a huge part of strategy.

Eric Ries, a successful entrepreneur and author of a smart book called The Lean Startup, suggests that you can tell prospective winners from losers not by the quality of their ideas or even by their execution, but rather by their ability to fast-adapt their activities.¹⁰ The secret, he suggests, is a practice he calls “continuous deployment,” in which organizations move really fast to uncover the things that aren’t working so that they can more quickly get to those things that might. Ryan Jacoby, recently head of the New York studio for IDEO, is a huge proponent of a similar process. “Prototypes,” said Ryan in a recent visit to my class, “are made to be broken. The faster you can break it, the more quickly you’ll get to a better answer.”

The fundamental problem is that when you are trying something new, it isn’t typically clear right away which exact configuration of elements is going to be a winner. This suggests that experimentation, trial-and-error learning, and discovery are the key practices. What firms unfortunately often do, however, is try to plan their new businesses as though they were operating with a lot more certainty than they actually are. My colleagues and I have written extensively about this problem in our work on discovery-driven thinking, but it’s worth mentioning here: be prepared for a fair amount of iteration at this stage in the process, rather than thinking you can project and anticipate what is going to happen.¹¹ Ban words such as “projection,” “estimate,” and “target” from your vocabulary. Replace them with the concepts of “assumption,” “feedback,” and “checkpoints” or “milestones.” You want to make as many inexpensive, intelligent mistakes as fast as possible while you are still refining the market concept.

Good entrepreneurs typically operate this way. In describing the design of Dr. John’s Products’ iconic SpinBrush—a toothbrush priced similarly to a manual toothbrush but with the features of far more expensive electric toothbrushes—founder John Osher discusses the fits and starts of the adaptive process, describing how the product went from concept to a bread-board model to a prototype to something that could be tested. Discovering that the bristles on the brush pointed sideways after two weeks of use led him to design them to oscillate rather than rotate—that is the kind of discovery you simply can’t make without having a prototype.¹²

Only when you have convinced yourself that you have a winner that the market really wants should you be considering bringing the business up to scale. When that wonderful moment arrives, it makes sense to think about how the offer will evolve in the face of competitive response and user adoption. At Apple, for instance, young designers are expected to mock up how their designs might evolve in a second or third generation. Rather than innovating for a moment, they have a pipeline of innovation ready for subsequent ramp-ups. Luggage maker Tumi follows a similar developmental trajectory, continually refreshing the points of value its products offer by anticipating what business travelers are going to need next. The idea is that having gone to the trouble of developing deep customer insight, you might want to utilize it in developing a series of innovations.

All of this has significant implications for how leaders are identified, trained, developed, and deployed in future organizations. For starters, companies should no longer promote leaders who have only demonstrated capabilities in exploitation situations. Although not everyone will be equally talented at every stage, it is vital that there is enough familiarity with what is needed at each stage to allow the organization to respond effectively at key transition points. Leaders also need to be trained to be constructively paranoid—always looking for evidence of change in their markets and in the state of their advantages, rather than seeking comforting, but misleading, information that makes things look better than they are.

Kris Gopalakrishnan’s concept of “learnability,” which we introduced in chapter 2, shifts the emphasis in a company’s human resources mix from hiring primarily for existing skills to hiring for the ability to acquire new skills. In a world of transient advantage, it isn’t always possible to know what kind of people you are going to need, so being able to reconfigure the people that you have can be very helpful.

The scalability of a firm’s leadership is likely to be a significant driver of its ability to move from advantage to advantage. This suggests that a significant investment in leadership development will be needed, particularly if organizations seek to retain talented people. In our outlier firms, we clearly saw tremendous investments in making sure that leaders were prepared ahead of the need. The development they receive also helps to reinforce the values that provide strategic coherence even as conditions change. At Infosys, for instance, the philosophy of leadership development is “The company is the campus, business is the curriculum, and leaders teach.” Each senior executive regards teaching the next generation of leaders as a personal responsibility.

Part of the reality of the transient-advantage context is that even if they get most of the new strategy playbook right, in an unpredictable and volatile world, companies will sometimes falter. The transition from an old advantage to a new one can be extremely difficult, and firms will often struggle to get it right. The implications are that we should stop judging leaders on whether they had a problem or mistake or not, but rather judge them on how they helped their firms to metaphorically pick themselves up and reignite the next phase of competitive advantage. As I mentioned earlier with respect to CEMEX, it is very frustrating that many of the things a company gets right are overwhelmed in the popular imagination whenever a company has a problem. It’s useful, therefore, to see how a firm facing a drastic drop in its core business managed to right itself.

Klaus Kleinfeld is a charismatic (and exhausting) dynamo of a man. I first met him at the Microsoft CEO Summit when he was running the Americas for the German industrial giant Siemens. He and Siemens ended up parting ways, and he landed at aluminum giant Alcoa as president and chief operating officer. He was elected CEO and president the following year, in May of 2008. Who knew what would be waiting for him just a few short months later?

Let’s be clear: Alcoa was by no means a slouch in the management department at the time Kleinfeld arrived. CEO Alain Belda was a deeply respected leader, and the CEO who preceded him, Paul O’Neill, has been described as “legendary.”¹³ The company was on many “best managed” lists and was widely admired for innovations in areas such as safety. Indeed, even when you go into its beautiful Lever House New York offices, about as far from a gritty bauxite mine as you can imagine, you are tagged with a safety tag and shown how to safely navigate the space.

Kleinfeld did not have long to settle into a routine as a newly minted CEO. The global economic downturn sent the price of aluminum into a free-fall practically overnight. He recalled: “When the downturn happened, it was horrible. The price of aluminum on the global exchange dropped more than 50 percent and our customers were canceling orders as demand for their products fell off. The metal price in the summer of 2008 was around $3,200. It dropped to $1,100 by January. In a situation like that it’s as if the bottom falls out of your business. There is no way you can adjust your costs fast enough in that kind of time frame. We felt we were really in trouble.”

In retrospect, he concluded that the company had been “cruising along with a high price for aluminum” for some time. Kleinfeld saw the precipitous drop as a call to action. He convened his business leaders in a closed-door, two-day emergency session at Alcoa’s offices in New York. The first day was dedicated to evaluating the state of the business. And it was not fun. Presentation after presentation detailed the grim facts of customers who were shutting down operations, others who were having difficulties paying their bills, and still others whose growth was at a standstill or reversed in many of Alcoa’s end-markets. And, of course, the brutal aluminum price free-fall was sucking all the cash out of Alcoa’s operations. Finally, physically and emotionally exhausted, the team called it a night. As Kleinfeld recalls, “People thought we were totally against the wall.”

On day two, the stress level was so high that most people could not remain seated in their chairs. Amid a palpable atmosphere of trepidation and anxiety, Kleinfeld describes how he “rolled a white copy board in, closed the doors, and said, ‘We’re not going to leave until we’ve worked out a way to survive this cash crisis.’” The team dug in by first figuring out how much cash was needed to get the business through the crisis. Then Kleinfeld, standing in front of the room, marker in hand, moved the discussion from problems to solutions. Ideas began to flow as he wrote all possible cash levers on the board. There could be divestitures. There could be changes made to the way the company worked with suppliers and procured materials. There could be overhead cuts, pay freezes, and curtailments of smelters. Every option was on the table.

Gradually, a way forward began to emerge. By late that evening, the team had identified seven key levers that they would use to restructure and redesign how Alcoa operated. Accountability was key. As Kleinfeld said, “We decided that every member of the leadership team would have an additional role. They have their ‘day job,’ but in this crisis we can’t afford having our top people with just one role. We asked each one to take on a specific lever in what became known as our Cash Sustainability Program. We also assigned emerging leaders to each lever, to give them added opportunities to shine.” Somewhat counterintuitively, instead of feeling overwhelmed by the magnitude of what they were up against, the team was “super motivated,” according to Kleinfeld. They were energized at the thought that Alcoa had a chance to use the crisis to motivate dramatic change and permanent improvements, to come out stronger than before.

As if this story weren’t dramatic enough, there was an unexpected plot twist. To get the last flight home, Kevin Anton, CFO of Alcoa’s largest business unit, Global Primary Products, at the time, left the meeting and headed for the airport for a US Airways flight to Charlotte, North Carolina. Three minutes into what had been a perfectly normal flight, the plane stalled after hitting a flock of birds and made what has subsequently been described as a “miracle” landing on the Hudson River thanks to pilot Chesley B. “Sully” Sullenberger, saving the lives of all 155 people aboard. Back at the Alcoa meeting room, the group remaining in the discussion were looking out at the early-setting winter sun when they suddenly got the news that the plane had gone down in the freezing water. As Klaus described it later, “We were all in shock, rushing out of the room, trying to get the news.” With the news on the television, Anton phoned in to say that he was OK. The company arranged a plane for him to get back that night to his wife and two boys, who were understandably distraught. Interestingly, Anton later reported that the first thing he thought as the plane descended is that 85 percent of all planes are made of Alcoa aluminum. “I’m really lucky that it is of such high quality!” he observed later.

Nine months later, Anton was finally reunited with his briefcase, which had been left aboard the sinking plane. In the bag was the original copy of the team’s handwriting on the white board, stained by water marks from its sojourn in the Hudson. He had it framed, and it decorates the Alcoa offices to this day.

Back at work, the teams revisited ideas that had been previously rejected as too difficult or too radical. For example, one of the essential raw materials used in the electrolysis process to make aluminum in Alcoa’s smelting plants is calcined coke. The company had been buying certain high-grade coke, which the suppliers were charging substantially more for than lower grades. Earlier efforts to use lower-grade coke had failed miserably and led to serious instabilities in the production, which the smelter operators had already predicted and then proven. They made their point clear: “Procurement and the technical experts had no idea about the pot room realities.”

The crisis forged a new, unlikely, alliance between the field staff and the technical experts with the very real possibility that if the company couldn’t get over this crisis, smelters would be shut down. As Kleinfeld says, “This was received by the pot room operators as a very theoretical idea of the procurement team and the so-called technical experts. At the same time they knew that this ‘odd idea’—if it really worked—would reduce costs massively and save the plant from curtailments. So under this threat, they embraced it, worked with the experts, and turned it into a big success, setting a new lower cost standard for the operations worldwide.” This time the smelter operators demanded to work with the procurement and technical teams and made it happen. Once the first pilot had been successful, Kleinfeld praised the joint team’s achievements in his quarterly letter to all 59,000 employees around the world, encouraging all employees to question existing practices, to apply innovations from the company’s tech center, and to work in teams to apply those innovations to drive down costs and preserve cash.

The emotional dimension of struggling through devastating setbacks falls heaviest on the CEO. Although every executive will eventually confront dark days, even in the most discouraging times a CEO cannot afford the luxury of showing a lack of confidence. For Kleinfeld, the test came when he realized that he needed to raise cash through an equity offer in the worst period of the economic crisis, when nobody had the guts to raise money. Meeting more than two hundred investors in two grueling days of back-to-back meetings, he admitted, “It was exhausting and a little discouraging because the investors were telling me over and over again that ‘We’ve heard promises from your predecessors before, why should we believe you now?’ So when I described the seven levers of the Cash Sustainability Program, I showed our confidence by using their very words, calling them ‘Seven Promises’ to the company’s stakeholders. The result was that we raised $1.4 billion, beating our $1 billion target at a substantially lower cost. With that cash we bought the breathing space that gave us the time to put our programs into effect.”

The ultimate success of the Cash Sustainability Program gave the company a lasting advantage over slower and less liquid competitors. As Kleinfeld observes, if you have cash in a downturn, you can take advantage of opportunities that simply don’t exist in more stable periods. It also proved to be the catalyst for sweeping, positive changes in how Alcoa manages its business. As of today, the program has exceeded its targets, having saved $2.6 billion in procurement and $509 million in overhead costs; decreased requirements for capital investment; and reduced the amount of money Alcoa has tied up in working capital. After the divestments of low-growth businesses, more than 90 percent of Alcoa’s remaining businesses were first or second in their markets.

Clearly, the challenges of fast-moving advantages suggest a different set of organizational assumptions and leadership mind-set than might be appropriate in more stable times. The ability and willingness to seek out actual information, confront bad news, and design appropriate responses is critical. Unlike Kodak, the leaders at firms such as Berlitz and Alcoa recognized that even great, long-lived companies need to change their models if they are to thrive. The learnability principle emphasizes continual investment in people, even if one doesn’t know exactly what they will be doing. And combating the tendency to seek only positive news that confirms existing assumptions is critical.

For most of this book, I’ve focused on how organizations can be competitive and remain healthy even when particular advantages are transient. A huge, and to my mind still unresolved, set of issues concerns the human impact of all this competition. Our social and economic systems—from the way we allocate health care and retirement obligations to the way we educate people and prepare them for careers—are all imbued with the assumption that organizations are likely to be long-lived and their advantages sustainable. With the advent of a transient-advantage economy, these assumptions will need to be rethought completely. In the next chapter, we’ll take a look at what transient advantage means for people.