Five steps to reclaiming America's economic leadership.

Five steps to reclaiming America's economic leadership

True leaders can help U.S. companies contend again for the top spot in world economics. A CEO outlines his schema for reviving the once undisputed competitive edge of American business. There's no shortage of evidence that the United States has surrendered much of its leadership in world commerce. The country is a net importer of high-technology products, as opposed to a $27 billion net exporter as recently as 1981. Foreign funds financed 22 percent of the gross investments (in tools, housing, commercial construction, and so forth) in this country in 1987. And, while the amount of money that Americans had invested in savings bonds roughly doubled from 1960 through 1986, to a level of $93 billion, our national level of consumer credit debt increased 11 times, to a level of $723 billion.

Are we headed in the right direction? Or do you agree with Paul Kennedy, the author of The Rise and Fall of the Great Powers, who believes "the American sense of economic security has given way to a feeling of having lost (our) bearings ... not knowing where to compete or how to compete"?

Indeed, with the figures before us, the situation appears bad enough to warrant real concern. We've gotten flabby as competitors. Too much of our political debate is mandated by the pollsters. And too many of our hopes and plans and appetites are far too short-term. But I am not ready to say that the cycle of American economic and diplomatic decline that Kennedy describes is inevitable. With leadership, the cycle can be redirected, I believe, and the future can be affected by us rather than foisted upon us.

To manage or to lead?

It has been said that management does things right, while leadership does the right things. But the distinction between management and leadership is more fundamental. The two are not mutually exclusive. In fact, they're complementary. But they're definitely distinct, one from the other.

Borrowing in part from John Kotter at Harvard, I suggest that management has to do with all the disciplines of planning, budgeting, organizing, staffing, controlling, and problem-solving. I don't diminish it by any means. It's highly significant work and, if it's done well, it produces consistent and generally predictable results.

Leadership, on the other hand, concerns itself with creating a clear sense of direction, with communicating that vision, and with energizing and inspiring. It challenges people to question the status quo. It forces results. It surmounts or removes bureaucratic obstacles. The fundamental nature of leadership is to produce valuable change.

One keenly developed sense that leaders always seem to have is the sense of priority. They're acutely aware of what needs to be done and what needs not to be done. There's some notion among business people in our country today that troubled companies will figure out which way to go just as soon as someone tells us what the tax policy is going to be or what sort of investment incentives will be in place or how much trade protection we can expect to have. I suppose we could wait until all those answers are available, but not if we want to call ourselves leaders.

Leadership does not happen by association, either. The Business Roundtable, the Commercial Club, and similar groups all have valid reasons for existence. But, remember, organizations like these move only as fast as consensus will allow them to move.

Furthermore, leadership will never mean recouping some set of past glories. Remember that this is not the same country that won World War II. It's not the same world, either. The rules have changed. The players have changed. We have to change as well.

Reclaiming the lead--the five steps

There are five specific steps that I suggest the business leaders of America take to reclaim the position of world leadership we once enjoyed. Step one is to refocus our vision. The one thing that is indispensable to leadership is the quality of vision, and I believe we need a new vision for the economic future of this nation.

We won't turn the clock back to 1947. We won't be all things to all people. We won't dictate to the rest of the world. But recognizing the realities of today, we can focus clearly on what we do best. And there are some things we do very well--for example, look at the aircraft, medical technology, agriculture, chemicals, and office equipment industries.

This refocusing is a step that every company needs to take with some regularity. My own company has been engaged for the past three years in pinpointing and organizing around our unique strengths in a changing healthcare market. We're doing that with some very conscious designs on leadership.

But I'm not just talking about concepts and nations and corporations. I challenge the finance profession--or any other business profession, for that matter--to make sure its own vision is clear and accurate. Are you and those around you focusing on what's truly important? Are you applying your professional expertise to the real advancement of your company? Are you concentrating on those things that build competitiveness? Or are you coasting? Step two is to develop a much greater appetite for risk and long-term investment. We keep saying we'll start tomorrow. But, if we don't start right now, I think we can be all but certain that Paul Kennedy's "cycle" will carry us to a plane of pure mediocrity.

The remedy? Take more risks. There isn't a CEO anywhere, at least not a candid one, who wouldn't appreciate added help from his financial executives in judging the steps we have to take today in order to insure the viability of our companies tomorrow. The ability to take the right risks as a company is built on the willingness of managers at all levels to determine what's right and then act confidently on those convictions. Step three is to significantly increase our growth in productivity. In the 1970s, people bemoaned the drops in U.S. productivity. By comparison, our modest year-to-year improvements today may look fairly good. But other countries are doing much better, and we have to pick up the pace. It's a function of choosing carefully and acting forcefully on our priorities.

Luckily, we have the potential to do much better. The economic trends over the past decade or so have made the U.S. the low-cost producer in many industries. The wage differentials that in previous years we cited as the reason for Japan's and Germany's competitive edge are now actually headed our way. We must not fail to act on the advantages at our command. They're ours, to keep or to lose.

For instance, some significant productivity gains in business can be achieved just by cutting out the unnecessary bean-counting, computing, and analysis. I'm among the first to say that managers need to ensure that decisions are grounded on facts and not hopes or wishes. But, once we have the facts, let's not forget to move. Beware the manager who confuses action with analysis. Step four is to put the undisputed top priority on quality. This goes far beyond things like fit-and-finish on the production line or accurate financial reports, as important as those matters are in a competitive world. What we really have to do is a better job of understanding and specifying customer requirements and then meeting those requirements every single time.

In one specific sense, this means we have to stop investing in acquisitions selected because they'll create a quick fix in our quarterly operating results. We ought to be investing our resources much more heavily in the long-term ability to compete and the long-term ability to meet customer needs.

When it comes to international trade, the U.S. has a long way to go in understanding customer requirements. We're far too insular. I ran Baxter's international business, so I've seen the needs firsthand. We have to do a much better job of learning other people's languages, appreciating their cultures, and studying their techniques to understand all of their requirements.

The area of quality also happens to be one where financial executives can have an important effect. In my own company and others, I've seen many cases where the financial people help other managers clarify requirements, and then help move the company closer to meeting the requirements. They ask the right questions: what are the right units of measurement--the ones that really matter? What are the right standards? Where should we set our balances for cost versus quality versus what the customer is really asking of us?

Regardless of the business you're in, one thing is certain: the standards today are global. We all need management information systems that recognize that reality and help give quality the top priority. Step five may underscore all the others: we must ensure that we have a committed and capable workforce. How often have U.S. businesspeople said that employees were their most valuable asset? But how often have companies acted as if employees were their most dispensable asset?

This is not a moralistic point. It's purely practical. If you hold every other variable equal but give one company a capable, committed work-force while you give another company a group of ill-trained, ill-treated, and discontented people, who wins in the long run?

We have to start at the beginning, too. Business can look to government all it wants for a solid base of primary education. But if it's not happening, we'd better see what we can do about it.

Remember, too, that our employees tomorrow will need to be more capable, not less, and better educated, not worse. Do we want to wait for someone else to wake up to that fact, or do we want to act on our own behalf?

Of all the steps I've mentioned, this is the one where individual managers can have the most lasting impact. Do your people have the skills they need today? How about tomorrow? Do you see that it's in your own, enlightened self-interest to be developing and growing the people who staff your department today and will be running the place tomorrow?

High stakes 

I don't think we disagree on the stakes that are involved in what I'll go so far as to call a leadership crisis. The U.S. cannot go back to the 1950s or the 1890s or any other glorious past era. The world won't stand idle while we try to turn back the clock. But who says we're not capable of achievements as great, or even greater, in the future?

I certainly don't doubt that we are capable of such an accomplishment. What we have to ask is whether we have the will to do it.

Mr. Loucks is chairman and CEO of Baxter International, headquartered in Deerfield, Illinois. This article is based on a talk given by Mr. Loucks to FEI's Chicago chapter.