Timeless leadership

The historian David McCullough, a two-time Pulitzer Prize winner and well-known public television host, has spent his career thinking about the qualities that make a leader great. His books, including Truman, John Adams, and 1776, illustrate his conviction that even in America's darkest moments the old-fashioned virtues of optimism, hard work, and strength of character endure. In this edited conversation with HBR senior editor Bronwyn Fryer, McCullough analyzes the strengths of American leaders past and present. Of Harry Truman he says, "He wasn't afraid to have people around him who were more accomplished than he, and that's one reason why he had the best cabinet of any president since George Washington....He knew who he was." George Washington--"a natural born leader and a man of absolute integrity"--was unusually skilled at spotting talent. Washington Roebling, who built the Brooklyn Bridge, led by example: He never asked his people to do anything he wouldn't do himself, no matter how dangerous. Franklin Roosevelt had the power of persuasion in abundance. If McCullough were teaching a business school leadership course, he says, he would emphasize the importance of listening--of asking good questions but also noticing what people don't say; he would warn against "the insidious disease of greed"; he would encourage an ambition to excel; and he would urge young MBAs to have a sense that their work maters and to make their good conduct a standard for others.     

The anxiety of learning. Interview by Diane L. Coutu

Despite all the time, money, and energy that executives pour into corporate change programs, the stark reality is that few companies ever succeed in genuinely reinventing themselves. That's because the people at those companies rarely master the art of transformational learning--that is, eagerly challenging deeply held assumptions about a company's processes and, in response, altering their thoughts and actions. Instead, most people just end up doing the same old things in superficially tweaked ways. Why is transformational learning so hard to achieve? HBR senior editor Diane Coutu explores this question with psychologist and MIT professor Edgar Schein, a world-renowned expert on organizational development. In sharp contrast to the optimistic rhetoric that permeates the debate on corporate learning and change, Schein is cautious about what companies can and cannot accomplish. Corporate culture can change, he says, but this kind of learning takes time, and it isn't fun. Learning is a coercive process, Schein argues, that requires blood, sweat, tears, and a certain level of anxiety to achieve the desired effect. In this article, he describes two basic types of anxiety--learning anxiety and survival anxiety--that drive radical relearning in organizations. Schein's theories spring from his early research on how American prisoners of war in Korea had been brainwashed by their captors. He cites the parallels between the "coercive persuasion" tactics the Chinese communists used to control their prisoners (isolating powerful ones and overseeing all communications) and the corporate boot camps that American companies use to indoctrinate their managers. Indeed, heavy socialization is back in style in U.S. corporations today, Schein says, even if no one is calling it that.     

Why doesn't this HR department get any respect?

Since becoming managing partner of human resources at Loft Securities more than a year ago, Luke Robinson has tried everything he can think of to change his department's reputation as an administrative backwater. But he's swimming against the tide. Ever since the retirement of a charismatic CEO in 1995, the firm has suffered a slow bleed of good people. The new CEO doesn't have a flair for attracting and retaining talented people, and the HR department hasn't been able to pick up the slack. Robinson has done his best to turn things around. He's met with just about everyone, from senior executives to administrative assistants to external contacts. And, when he found out that recruiting wasn't Loft's only problem, he took a variety of concrete steps. Among other things, he established internal service standards and performance guarantees for his department. He created "listening posts" and implemented and "HR ambassador" program. And he drafted plans for a program to help educate all the company's employees about the role of HR--specifically, how it can contribute to creating and upholding the firm's strategy for success. But Robinson has run over some major speed bumps. Just before he joined the company, HR sullied its reputation by mishandling the investigation of a discrimination charge. And while on Robinson's watch, HR botched the issuance of year-end bonus checks for the managing directors and vice presidents. The frustrations are piling up, leading Robinson to entertain thoughts of bailing out. Five commentators on this fictional case study explain why he should avoid quitting and how he can help his department earn new respect.     

Level 5 leadership. The triumph of humility and fierce resolve

Boards of directors typically believe that transforming a company from merely good to truly great requires a larger-than-life personality--an egocentric chief to lead the corporate charge. Think "Chainsaw" Al Dunlap or Lee Iacocca. In fact, that's not the case, says author and leadership expert Jim Collins. The essential ingredient for taking a company to greatness is having a "Level 5" leader at the helm--an executive in whom extreme personal humility blends paradoxically with intense professional will. Collins paints a compelling and counter-intuitive portrait of the skills and personality traits necessary for effective leadership. He identifies the characteristics common to Level 5 leaders: humility, will, ferocious resolve, and the tendency to give credit to others while assigning blame to themselves. Collins fleshes out his Level 5 theory by telling colorful tales about 11 such leaders from recent business history. He contrasts the turnaround successes of outwardly humble, even shy, executives like Gillette's Colman M. Mockler and Kimberly-Clark's Darwin E. Smith with those of larger-than-life business leaders like Dunlap and Iacocca, who courted personal celebrity. The jury is still out on how to cultivate Level 5 leaders and whether it's even possible to do so, Collins admits. Some leaders have the Level 5 seed within; some don't. But Collins suggests using the findings from his research to strive for Level 5--for instance, getting the right people on board and creating a culture of discipline. "Our own lives and all that we touch will be better for the effort," he concludes.     

The business against case revolution. An interview with Nestlé's Peter Brabeck. Interview by Sue Wetlaufer

One of the world's most enduring companies, Nestle epitomizes everything that today's high-flying, headline-grabbing companies are not. It respects technology but doesn't consider it central to strategy. It values growth but prefers it controlled. It seeks talented professionals but wants only those who are modest in word and deed. Nestle CEO Peter Brabeck is skeptical of the relentless push for radical transformation heard from every quarter. He believes, instead, in continuous improvement through slow and steady change. Big, dramatic change is fine for a crisis, Brabeck says, but not every company is in crisis all the time. Many companies are like Nestle--performing well, growing and innovating, without frenzy, without bloodshed. While he acknowledges that every company must change in order to compete in today's turbulent marketplace, Brabeck makes the focus of his work identifying and strengthening those aspects of Nestle that should stay the same. For example, Nestle eschews the noise and energy swirling around technology. Many companies make technology the focal point of strategy, Brabeck says, but Nestle is about people, products, and brands. The company uses technology to create better products but keeps it in its right place--the background. Brabeck also talks candidly about how to fight complacency in a successful company, how to institutionalize collaboration in a decentralized organization, and how to resist pressure from analysts and money managers and focus on long-term, sustainable and profitable growth--in short, how to win the war without the revolution.     

Ideas as art. Interview by Dane Cutu

Three years ago, consultants Laurence Prusak and Thomas H. Davenport asked prominent management thinkers to name their gurus and reported the results in HBR. James G. March appeared on more lists than any other person except Peter Drucker. A professor emeritus in management, sociology, political science, and education at Stanford University, March has taught courses in subjects as diverse as organizational psychology, behavioral economics, leadership, rules for killing people, friendship, computer simulation, and statistics. He is perhaps best known for his pioneering contributions to organization and management theory. March's accomplishments in that field, and in many others, have conferred on him an almost unprecedented reputation as a rigorous scholar and a deep source of wisdom. As University of Chicago professor John Padgett wrote in the journal Contemporary Sociology, "March's influence, unlike that of any of his peers, is not limited to any possible subset of the social science disciplines; it is pervasive." March approaches thought aesthetically; he cares that ideas have "some form of elegance or grace or surprise." His poetic sensibility can be felt in the metaphors he has created over the years--the "garbage can theory" of organizational choice, for instance, and the "hot-stove effect" in learning. In this edited interview with HBR senior editor Diane Coutu, March shares his thinking on aesthetics, leadership, the role of folly, and the irrelevance of relevance when it comes to the pursuit of ideas. He also comments on the fundamental differences between academic and experiential knowledge, underscoring the need for both.     

What is science good for?

A nonbusiness discipline can provide a useful framework for thinking about old problems in new ways. People who study management, for instance, freely borrow from many fields of science to theorize about organizational behavior and business strategy. Evolutionary psychology and biology are especially popular sources of inspiration. But should they be? Evolutionary biologist Richard Dawkins has spent much of his career explaining science to the public. More than 20 years ago, his book The Selfish Gene shattered the popular belief that evolution necessarily favors altruism and self-sacrifice. In a conversation with HBR senior editor Diane Coutu, Dawkins discusses the role of science in our lives and identifies some of the more glaring public misperceptions of scientific theories. In particular, he disentangles the current notion that certain behaviors are in some way preprogrammed and explodes some contemporary myths about the Human Genome Project. Dawkins says much of the popular fear surrounding genetic manipulation is unfounded. "Humans have been practicing it for thousands of years, to no obvious ill effect," he says. Modern foot-long corncobs, the result of more than 1,000 years of artificial selection, are "quite Frankenstein-like" compared to their half-inch-long progenitors, he points out. He also touches on agriculture giant Monsanto and the media: "Part of the reason for Monsanto's troubles is that the company came up against an extraordinary amount of unfortunate, even malevolent, media hype," he says. "And people were more or less misled, by one scare story after another, into stampeding." A staunch defender of science as a haven of rational thought, Dawkins counsels businesspeople to recognize the limitations--as well as the beauty--of science.     

Back where we belong

If you were the CEO of Pitney Bowes, the postage meter maker, how would you envision the future of the business? The company has an undeniable core competence in the solutions it provides to high-volume postal service users. But with snail mail on the decline, some would say that core has about as much future as the buggy whip. In this article, Pitney Bowes chairman and CEO Michael Critelli gives us a glimpse of how he leads his company's strategy development--and how that development has supported a counterintuitive return to the company's core after decades of diversification. He and others in the company begin the process by tapping into deeply knowledgeable people and organizations to understand key trends in the business and the rate at which change is occurring. Then, it's a question of the firm reshaping the environment in which it does business, whether through R&D investments or work with regulators and policy makers who influence market forces; this is especially important in emerging markets. Focusing on a core business area enables a company to find adjacent high-margin opportunities and to offer comprehensive solutions to customers. What stands out most sharply in this account, however, is the importance of having a strategist's mind-set. Whether Critelli is reading the day's news, visiting a key account, or spending an hour with his own people working in the context of a customer mail room, he is constantly extrapolating possible long-term competitive implications from the immediate facts. Often inspired by strategic thinkers, Critelli believes that the greatest thing he can do for his organization is to shift the terms of the debate. "Rarely am I credited with sterling words or bold, symbolic actions", he writes. "Instead, I help people to see the business we are in differently and to reach a shared vision as to where we want to end up. And, little by little, things move in the right direction".     

Mastering the value chain. An interview with Mark Levin of Millennium Pharmaceuticals. Interview by David Champion.

As today's business leaders are all too aware, a new scientific or technological break-through can quickly transform an industry's competitive landscape. The upheaval is often traumatic for the companies involved, forcing them to rethink their strategies and redefine their boundaries. But an industry in flux also creates vast opportunities. To seize them, companies must see how the current upheavals will affect the future distribution of profits--and then reinvent themselves to capitalize on the new sources of value. In this interview with HBR senior editor David Champion, Mark Levin, the founder and CEO of Millennium Pharmaceuticals, describes his vision of the future of the pharmaceutical industry in the wake of the genetics revolution and new technologies that have altered the economics of drug development. No company, he argues, will create serious long-term value by staying in just one or two stages of the value of chain. That's why Millennium, which started out doing basis research into genes and proteins and selling its findings to pharmaceutical giants, has moved downstream - toward the patients who actually use and pay for the drugs. He explains why the research end has become less lucrative than the more mechanical tasks of identifying, testing, and manufacturing molecules. Levin talks about the changes Millennium has undergone since its inception in 1993-from 30 workers to more than 1,000, and from one end of the value chain to the other. He discusses the company's cultural transformations as well as the partnerships and acquisitions that have helped millennium become involved in every stage of the chain-from gene to patient. Levin's vigorous approach to balancing long-term strategy with short-term tactics offers important lessons to any executive facing an industry upheaval.     

September 11, 2001. A CEO's story

On the day of the terrorist attacks on New York's World Trade Center, 1,779 employees of Marsh & McLennan Companies had office space in the twin towers, and another 129 were visiting that day. From his office at MMC headquarters in midtown, CEO Jeffrey Greenberg watched in horror as the second plane hit. By the time the towers fell, he had gathered a team of his colleagues to begin to outline how the company would respond. In this first-person account, Greenberg relates what it was like to manage through the unimaginable. The needs of MMC's people, and the families of employees who perished, took top priority. In the midst of chaos and unforeseeable problems, Greenberg and his colleagues improvised ways of communicating and assembled a broad-based program of support. Help appeared from all sides, from people of various ranks, titles, and functional expertise within MMC as well as past chairmen, outside directors, and retired executives. An emergency communications center was immediately set up at MMC headquarters and became a centralized location for messages and information and a memorial to colleagues lost in the attacks. The company arranged for grief counselors and established a family assistance center and a Family Relationship Management Program for those who had lost MMC employees. It has also provided families with access to long-term psychological and financial counseling. At the same time, Greenberg offers lessons about leadership, company culture, and adaptability. He and his colleagues held responsibility for a business beset by operational destruction and financial losses and facing dramatically changed market conditions. Their resolve was not simply to keep it on course but to come back stronger than ever.     

How CEOs manage growth agendas

When does it make sense for companies to grow from within? When is it better to gain new capabilities or access to markets by merging with or acquiring other companies? When should you sacrifice the bottom line in order to nurture the top line? In a thought-provoking series of essays, five executives--Kenneth Freeman of Quest Diagnostics, George Nolen of Siemens USA, John Tyson of Tyson Foods, Kenneth Lewis of Bank of America, and Robert Creifeld of Nasdaq--describe how they have approached top-line growth in various leadership roles throughout their careers. They write candidly about their struggles and successes along the way, relaying growth strategies as diverse as the companies and industries they represent. The leaders' different tactics have almost everything to do with their companies' particular strengths, weaknesses, and needs. Freeman, for instance, emphasizes the importance of knowing when to put on the brakes. When he first became CEO of Quest, he froze acquisitions for a few years so the company could focus on internal processes and "earn the right to grow." But for Greifeld, it's all about innovation, which "shakes up competitive stasis and propels even mature businesses forward." The executives agree, though, that companies can grow (and can do so profitably) by distinguishing their offerings from those of other organizations. As Ranjay Gulati of Northwestern's Kellogg School of Management points out in his introduction to the essays, no matter what strategies are in play,"it's important to remember that growth comes in many forms and takes patience.... The key is to be ready to act on whatever types of opportunities arise."     

Strategic intensity: a conversation with world chess champion Garry Kasparov

It's hard to find a better exemplar for competition than chess. The image of two brilliant minds locked in a battle of skill and will-in which chance plays little or no apparent role-is compelling. Even people who have scant knowledge of the game instinctively recognize that chess is unusual in terms of its intellectual complexity and the strategic demands it places on players. Can strategists learn anything from chess players about what it takes to win? To find out, H BR senior editor Diane L. Coutu talked with Garry Kasparov, the world's number one player since 1984. Kasparov believes that success in both chess and business is very much a question of psychological advantage; the complexity of the game demands that players rely heavily on their instincts and on gamesmanship. In this wide-ranging interview, Kasparov explores the power of chess as a model for business competition; the balance that chess players strike between intuition and analysis; the significance of his loss to IBM's chess-playing computer, Deep Blue; and how his legendary rivalry with Anatoly Karpov, Kasparov's predecessor as World Chess Champion, affected his own success. Kasparov also shares his solution to what he calls the champion's dilemma, a question for all world masters, whether they are in business, sports, or chess: Where does a virtuoso go after he has accomplished everything he's ever wanted to, even beyond his wildest imagination? If you are lucky, says Kasparov, your enemies will push you to be passionate about staying at the top.     

What executives should remember

In more than 30 essays for Harvard Business Review, Peter Drucker (1909-2005) urged readers to take on the hard work of thinking--always combined, he insisted, with decisive action. He closely analyzed the phenomenon of knowledge work--the growing call for employees who use their minds rather than their hands--and explained how it challenged the conventional wisdom about the way organizations should be run. He was intrigued by employees who knew more about certain subjects than their bosses or colleagues but who still had to cooperate with others in a large organization. As the business world matured in the second half of the twentieth century, executives came to think that they knew how to run companies--and Drucker took it upon himself to poke holes in their assumptions, lest organizations become stale. But he did so sympathetically, operating from the premise that his readers were intelligent, hardworking people of goodwill. Well suited to HBR's format of practical, idea-based essays for executives, his clear-eyed, humanistic writing enriched the magazine time and again. This article is a compilation of the savviest management advice Drucker offered HBR readers over the years--in short, his greatest hits. It revisits the following insightful, influential contributions: "The Theory of the Business" (September-October 1994), "Managing for Business Effectiveness" (May-June 1963), "What Business Can Learn from Nonprofits" (July-August 1989), "The New Society of Organizations" (September-October 1992), "The Information Executives Truly Need" (January-February 1995), "Managing Oneself" (March-April 1999 republished January 2005), "They're Not Employees, They're People" (February 2002), "What Makes an Effective Executive" (June 2004).     

How to win the blame game.

At some companies, people are all too quick to point fingers, leaving employees more concerned about avoiding blame than about achieving results. Such organizations, ruled by "CYA," have given blame a bum rap. David Baldwin, a former Major League pitcher, says blame can be a powerful and constructive force. It can be an effective teaching tool that helps people avoid repeating their mistakes. When used judiciously--and sparingly--blame can also prod people to put forth their best efforts, while maintaining both their confidence and their focus on goals. Indeed, blame can have a very positive effect when it's done for the right reasons. The key, then, is the way that blame is managed, which can influence how people make decisions and perform their jobs and ultimately affect the culture and character of an organization. In the course of his research on how Major League Baseball managers make decisions, Baldwin became fascinated by the subject of blame--what functions it serves and how it's best managed. His observations led him to identify five rules of blame, which, he says, apply to any organization, whether it's the LA Dodgers, General Motors, or a small start-up. First, know when to blame--and when not to. Second, blame in private and praise in public. Third, realize that the absence of blame can be far worse than its presence. Fourth, manage misguided blame. And fifth, be aware that confidence is the first casualty of blame. Managers who follow these rules will use blame in the most positive and effective ways possible, Baldwin says. Without these rules, blame becomes an ever-more difficult balancing act: Too much erodes people's confidence, while too little hinders them from reaching their full potential.     

Almost ready: how leaders move up

Most designated CEO successors are talented, hardworking, and smart enough to go all the way--yet fail to land the top job. What they don't realize is, the qualities that helped them in their climb to the number two position aren't enough to boost them to number one. In addition to running their businesses well, the author explains, would-be CEOs must master the art of forming coalitions and winning support. They must also sharpen their self-awareness and their sensitivity to the needs of bosses and influential peers because they typically receive little performance feedback once they're on track to become CEO. Indeed, the ability to pick up on subtle cues is often an important part of the test. When succession doesn't go well--or fails altogether--many people pay the price: employees depending on a smooth handoff at the top, investors expecting continuous leadership, and families uprooted when jobs don't pan out. Among those at fault are boards that do not keep a close watch on the succession process, human resource organizations that should have the capacity to help but are not up to the task, and CEOs who do a poor job coaching potential successors. But the aspiring CEO also bears some responsibility. He can dramatically increase his chances of success by understanding his boss's point of view, knowing his own limitations, and managing what psychologist Gerry Egan has called the "shadow organization"--the political side of a company, characterized by unspoken relationships and alliances--without being labeled "political." Most of all, he must learn to conduct himself with a level of maturity and wisdom that signals he is ready--not almost ready--to be chief executive.     

Execution without excuses. Interview by Thomas A. Stewart and Louise O'Brien

The success of Dell--it provides extraordinary rewards to shareholders, it can turn on a dime, and it has demonstrated impeccable timing in entering new markets--is based on more than its famous business model. High expectations and disciplined, consistent execution are embedded in the company's DNA. "We don't tolerate businesses that don't make money," founder Michael Dell tells HBR. "We used to hear all sorts of excuses for why a business didn't make money, but to us they all sounded like 'The dog ate my homework.' We just don't accept that." In order to double its revenues in a five-year period, the company had to adapt its execution-obsessed culture to new demands. In fact, Michael Dell and CEO Kevin Rollins realized they had a crisis on their hands."We had a very visible group of employees who'd gotten rich from stock options," Rollins says. "You can't build a great company on employees who say, 'If you pay me enough, I'll stay.'" Dell and Rollins knew they had to reignite the spirit of the company. They implemented an employee survey, whose results led to the creation of the Winning Culture initiative, now a top operating priority at Dell. They also defined the Soul of Dell: Focus on the customer, be open and direct in communications, be a good global citizen, have fun in winning. It turned outto be a huge motivator. And they increased the focus on developing people within the company. "We've changed as individuals and as an organization," Rollins says. "We want the world to see not just a great financial record and operational performance but a great company. We want to have leaders that other companies covet. We want a culture that makes people stick around for reasons other than money."     

A reading list for Bill Gates--and you. A conversation with literary critic Harold Bloom. Interview by Diane L. Coutu

In today's technology-driven world, who has time to pick up a 400-page novel? Most executives don't--they have urgent e-mails to answer, training seminars to attend, meetings to lead, and trade publications to scan. But according to Harold Bloom, one of America's most influential scholars, they should make time in their hectic schedules to read great works. In a wide-ranging conversation with HBR senior editor Diane Coutu, Bloom discusses the importance of literature: every individual--regardless of profession--needs to stretch his or her mind and reflect now and again on the human condition. "By reading great imaginative literature, you can prepare yourself for surprise and even get a kind of strength that welcomes and exploits the unexpected," he says. Because there are so many great works and there is so little time, Bloom presents a reading list for busy executives. Shakespeare's King Lear can teach businesspeople about change. Ralph Waldo Emerson's essays capture the ethos of the American spirit--individualism and inventiveness. Bloom says Sigmund Freud's conceptions "form the only Western mythology that contemporary intellectuals have in common." And people will never fully understand some aspects of themselves until they read Miguel de Cervantes's Don Quixote. In short, Bloom believes the humanities have much to offer businesspeople: great books broaden their awareness and their range of sensibility, he says. But reading literature will not make businesspeople more moral, he cautions. Bloom also discusses other topics such as how to read well, the state of popular fiction, the role of irony, and the subject of change.     

Covert leadership: notes on managing professionals. Knowledge workers respond to inspiration, not supervision

The orchestra conductor is a popular metaphor for managers today--up there on the podium in complete control. But that image may be misleading, says Henry Mintzberg, who recently spent a day with Bramwell Tovey, conductor of the Winnipeg Symphony Orchestra, in order to explore the metaphor. He found that Tovey does not operate like an absolute ruler but practices instead what Mintzberg calls covert leadership. Covert leadership means managing with a sense of nuances, constraints, and limitations. When a manager like Tovey guides an organization, he leads without seeming to, without his people being fully aware of all that he is doing. That's because in this world of professionals, a leader is not completely powerless--but neither does he have absolute control over others. As knowledge work grows in importance, the way an orchestra conductor really operates may serve as a good model for managers in a wide range of businesses. For example, Mintzberg found that Tovey does a lot more hands-on work than one might expect. More like a first-line supervisor than a hands-off executive, he takes direct and personal charge of what is getting done. In dealing with his musicians, his focus is on inspiring them, not empowering them. Like other professionals, the musicians don't need to be empowered--they're already secure in what they know and can do--but they do need to be infused with energy for the tasks at hand. This is the role of the covert leader: to act quietly and unobtrusively in order to exact not obedience but inspired performance.     

Creating the most frightening company on earth. An interview with Andy Law of St. Luke's. Interview by Diane L. Coutu

Though only five years old, employee-owned St. Luke's Communications has become one of the most talked about advertising agencies in the United Kingdom, winning numerous awards--though it doesn't enter contests--and increasing its profits eightfold. Chairman and cofounder Andy Law attributes the firm's success to its determination to continuously reinvent itself in a world populated by dot-coms and mega-ad agencies. St Luke's intends to revolutionize the way business is done and provide a credible alternative to the capitalism of both the old economy and the new. To that end, it pushes its people to take enormous risks. As Law says in this candid interview, "We're fundamentally convinced that there is a connection between co-ownership, creativity, collaboration, and competitive advantage." In this interview, Law comments on topics ranging from dot-coms--he calls them old-fashioned--to the hazards of St. Luke's environment. "When I see ... paranoia," he says, "it's a sign there's been too much change." Along the way, he provides concrete examples of how St. Luke's fosters its brand of "confrontative, angry creativity" and manages an organization that is run "like a radical democracy." Safety and fear play key roles. No one has ever been fired for poor performance, so employees can feel secure about their jobs, but the firm requires people "to peel away all the levels of their personalities.... That's truly frightening." Self-knowledge, Law says, "is the DNA of a creative company in the creative age."     

Leading through rough times. An interview with Novell's Eric Schmidt. Interview by Bronwyn Fryer

Few large companies have soared as high, sunk as low, and struggled as long as the 18-year-old networking software maker Novell. For years, the company dominated the market for local area networks, but by 1997, it had faltered due to misguided acquisitions, product missteps, and large unsold inventories. That's when Eric Schmidt arrived from Sun Microsystems to take over as Novell's third CEO. He turned the company around with a deft combination of cost reductions, divestitures, and new product rollouts, and by 1998, it was back in the black. Unfortunately, the good times didn't last, and like most technology companies, Novell is once again struggling with a slowdown in demand. But Schmidt is optimistic about returning Novell to good health, and his strategies suggest ways for other organizations to handle themselves during downturns. He counsels against being overly cautious during such times. It may be necessary to eliminate excess inventory, cut costs, and reduce the size of the staff and the management team in order to stabilize a company. Working to retain those employees whom he calls the "smart people" and keeping them motivated will have long-term payoffs. Further, Schmidt says it is necessary to acknowledge and overcome a "culture of fear," the deadening environment of cynicism in which employees suppress thoughts and feelings because they're worried about layoffs. His additional advice: keep new products coming out to sustain the interest of customers and the press, pay attention to your cash position, stay focused on your desired outcomes, and take heart from other industry leaders.