Though this week was a truncated week, everyone was waiting for a relaxed weekend - primarily because of the expected heavy workload next week. Today we have two sessions - one on Leadership during a crisis - where we discussed the case of the Tylenol poisonings. The second case was on supply chain in the service industry - a new generation bank, which had a different value proposition.
Johnson & Johnson and its CEO James Burke are seen as the Gold standard in handling crisis. Since this case dates back to 1982, it is worth describing the case in more detail. J&J were the manufacturers of the popular over-the-counter painkiller called Tylenol. Tylenol's rise was one of the headiest marketing success stories of the 1970's and James Burke was regarded as the man most responsible for this success. Its market share grew from 10% in 1975 to over 35% in 1981 - which meant that Tylenol sales in 1981 was over US $400m.
On September 29, 1982 the unthinkable happened. There were four mysterious deaths in the Chicago area - the paramedics noticed a strange coincidence that in all the cases the victims had recently taken Extra-Strength Tylenol. And a quick check confirmed their worst fears - the Tylenol capsules were filled with Cyanide. Tylenol, which was supposed to be a pain-killer, was killing the people. The manner in which J&J responded to this unfortunate event, is seen as exemplary and has been a study of leadership styles and corporate responsibility.
The fundamental lesson is this: organizations cannot prepare for these kind of events. It boils down to two things - the value systems within the firm and the leadership. Here are some events that following the tragedy, each of which is a lesson in itself:
- Just after the event, there were many discussions that James Burke had with the FBI and FDA (Food and Drug Administration); both these agencies did not want J&J to recall Tylenol from all the stores;
- James Burke also quickly realized that while FBI/FDA were advising him, it was J&J's decision and he had the legal right to pull the product from the shelves. They were advising him, but the accountability was with J&J
- Incidentally, just after one more case was reported from the Los Angeles area, the FDA was keen to pull the product.
- In all such situations, you always want more data - which plant manufactured it, which batch, where it has been shipped, is it only the Tylenol capsules, what about other capsules, etc - but only sketch data is available and you need to decide quickly
- James Burke also realized that what is at stake is the "Institutional Trust" - which has been built over hundreds of years and handed over from one management to another.
After some quick investigation, it was discovered that cyanide was detected only in random capsules in the bottles of Tylenol found near the victims. The batch of Tylenol was manufactured in one plant in Pennsylvania. Still, James had to take a decision on whether to pull all Tylenol from the market completely, selective pull out or no pull out at all.
What was Burke's thought process at that time ? What was going on his mind ? Are there lessons here ? Here are some ideas, which we discussed in class:
- His primary duty to customers - is there a possibility of further deaths ? Can he be absolutely sure ?
- What is the impact on the Tylenol brand - in the short term and long term ?
- How will the public view his company and himself ? Is he responsible to his company or to the public at large ?
- At one corner of his mind, there is a lingering thought that somehow it is J&J's fault - hence we need to own up and pull the product from the shelves
- What will happen to the Trust people have in the brand ? And the company ?
- It was a defining moment in his life - does his personal value system guide him towards one decision or the other ?
Here is what J&J and James did : they distributed warnings to hospitals and distributors and halted Tylenol production and advertising. On October 5, 1982, it issued a nationwide recall of Tylenol products; an estimated 31 million bottles were in circulation, with a retail value of over US$100 million. They also advertised in the national media for individuals not to consume any products that contained acetaminophen - which is the key ingredient in Tylenol.
It is interesting to think about this: how much of J&J's response attributable to "J&J's value system" versus "James Burke's leadership" ? It is difficult to separate J&J and Burke in this case; he took charge, was visible and accessible to the media, did not hesitate to tell the truth in a transparent manner, was the face of the company on TV and was decisive in the face of uncertainty. In way, you could argue that it is a little easier when you know it is not your fault. In a TV interview, just after another death around the same time, he did not attribute blame to anyone else; but more importantly identified with the pain of the relatives of the victim and displayed a lot of empathy. In such situations it is very difficult not to be defensive, but yet one should not be defensive in such cases. There were two other interesting comments : lawyers should never lead crisis teams, and never fight emotions with facts and data.
The key takeaways are : lead from the front, live your values, inspiring leadership, being true to yourself and prepare the organization well in advance to handle such crisis's.
Many predicted that the Tylenol brand, would never recover from this sabotage. Incidentally, though there were suspects, the culprits were never caught, nor was the motive found. But just two months later, Tylenol was back in the market in a tamper proof packaging and later moved away from capsules to caplets (which were less susceptible to tampering). And regained almost all the market share it lost.
In a guest lecture to the MBA class in Harvard, Burke made three important tenets of running large businesses:
- Give freedom and independence to the business units
- Values and moral centre - core to all businesses
- Manage the firm for the long term
James Burke, worked in J&J for 40 years and for 13 years as its CEO. He retired in 1989.
However in Jan 2010, there was another issue with J&J's Tylenol Arthritis Relief product - where people had complained about the bad smell in the bottles. There was wide spread criticism of how J&J reacted to this crisis - it was slow to respond, did not notify authorities, prolonged customer exposure to the products - anything but the gold standard we talked about !
The second session was about Commerce Bank - which started with a premise that we will give better service than anyone else; they called their customers as "fans" and had a policy called "SMART" principles:
- Say "Yes" to customers
- Don't hide behind policies
- Make each customer feel special
- Be personable, pleasant and positive
- Always keep customer promises
- Take ownership and solve the problem
- Recover
- To err is human ! to recover, divine !
- Think like the customer
- Always exceed customer expectations
However, they were paying lower interests on their savings accounts; One important point to note is that it is too broad to say, " I will compete on service" - you have to articulate what aspect of service you will be good at;
In services organizations, it is too tempting to say that we will excel in everything; if we look at large successful services organizations, they articulate at the board level, what aspect of service they want to be good at; Walmart is good at low cost , not the best of ambiance; Commerce bank is good at customer service, not the best in interest rates. Of course there is a meet a minimum threshold for each aspect of service that you provide, but on some you will excel.
Saturday night was our Living Groups night out - we went to one of the best places in Boston - Grill 23 and Bar; it was a good place with great ambiance, good food, great wine list and fantastic service; Though we wanted to walk after dinner, it was quite cold and windy; And hence some of us decided to come back; We had an interesting conversation with our taxi driver - he is from Somalia, lived in many countries in Western Europe and speaks very good English. When we were discussing the issue of working hard, he made this dramatic statement, "Gentleman, In America we don't work hard, we work smart" ! What a fantastic way to end the day. Good learning. More later ...
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| From left: Christian, Tae Hyung, Gail, Kevin and Fernando |
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