Executive Interviews: Interview with Christian Stadler on Staying on Top, Always
October 2009 - By Dr. Nagendra V Chowdary

Christian Stadler
visiting scholar at Tuck School of Business at Dartmouth.

• The second principle of enduring success advocates diversifying business portfolios. “Which is why great companies are as suspicious of focusing too narrowly as they are careful about diversifying”, you have concluded. Can you highlight the strategic implications of this principle? Should companies adopt related diversification or unrelated diversification?
  The implications are straight forward. Companies should diversify into related areas. This allows them to exploit their capabilities in new businesses. Focusing too narrowly could leave a company stuck in a business where no adequate returns are possible. Diversifying into unrelated businesses is usually a disaster as management is likely to take decisions which work well in one segment but not in the other. They simply lack the expertise and insights to lead so many different businesses.

• “…what really separates the great from good is that the great companies also remember their mistakes”, the third principle (Remember Your Mistakes) states. Don’t you think too much of rooting in past mistakes impedes companies’ ability to be risk takers and accordingly might deter them from investing in innovations for the fear of replicating mistakes?
  Absolutely not. I would never advice a company to stop innovating or taking risks because they failed once. What I would suggest is to look at the past failure and learn what exactly went wrong to reorganize your R&D department in a way that makes failure less likely.

• While distilling the fourth principle, (Be Conservative About Change), you have observed, “… they (great companies) go through radical change only at very selective moments in their history. Jumping onto every new management wave is not for them.” How to identify those momentous times that require change and those that do not require companies to change? Is there any test/checklist thatmight just guide the companies either to embrace change or skip the change?
  That’s a very tricky question. I don’t think that there is a checklist but there are two useful guidelines: the culture of an organization and the developments of the competitive environment of a firm. To gain a better understanding of both, leaders can use a whole list of tools such as employee surveys to assess culture. Once the leadership of a company understands both culture and environment it can take appropriate measures. So for example when Shell was consistently behind Exxon in terms of Return on Average Capital Employed (ROACE)(a key performance indicator in the oil industry) in the 1990s the leadership understood that it was time for some drastic changes. They also understood that their culture would not allow radical changes straight away and therefore started with some training and behavioral changes. Once the oil price fell below $10 a barrel and the whole industry started to panic they used this opportunity to push through more radical changes. The important thing is that your organization and your business environment set the agenda not a fancy new book or a flashy presentation by a consultant.

• You have classified all the finalists into gold medalists and silver medalists. Can you tell us what distinguishes gold medalists from silver medalists?
  Their performance. Gold medalists on an average beat the market by the factor 62 over a period of 50 years. Silver medalists beat the market by a factor of 10. Some of the silver medalists did not survive.

• For the last few years, Fortune 500 (Global) list is dominated by American companies and the share of European companies seems to be increasingly decreasing while the share of Asian companies seems to be increasing? What does this trend illustrate about the power of European companies? When are they going to rebound convincingly?
  I think it is wonderful that many Asian companies are gaining clout. This is a reflection of the overall economic growth in Asia and I would be very surprised if this trend changes any time soon. I do not think that European companies as a whole will rebound convincingly. In fact I hope that Africa and South America will also be able to take a more prominent role on the Global Fortune 500 list as it would indicate growing influence and prosperity of these two continents.