Mindset: The New Psychology of Success

Then he spread the word: This company is about growth, not self-importance.

He shut down elitism—quite the opposite of our fixed-mindset leaders. One evening, Welch addressed an elite executive club at GE that was the place for movers and shakers to see and be seen. To their shock, he did not tell them how wonderfu they were. He told them, “I can’t find any value in what you’re doing.” Instead, he asked them to think of a role that made more sense for them and for the company. A month later, the president of the club came to Welch with a new idea: to turn the club into a force of community volunteers. Twenty years later that program, open to all employees, had forty-two thousand members. They were running mentoring programs in inner-city schools and building parks, playgrounds, and libraries for communities in need. They were now making a contribution to others’ growth, not to their own egos.

He got rid of brutal bosses. Iacocca tolerated and even admired brutal bosses who could make the workers produce. It served his bottom line. Welch admitted that he, too, had often looked the other way. But in the organization he now envisioned, he could not do that. In front of five hundred managers, “I explained why four corporate officers were asked to leave during the prior year—even though they delivered good financial performance.… [They] were asked to go because they didn’t practice our values.” The approved way to foster productivity was now through mentoring, not through terror.

And he rewarded teamwork rather than individual genius. For years, GE, like Enron, had rewarded the single originator of an idea, but now Welch wanted to reward the team that brought the ideas to fruition. “As a result, leaders were encouraged to share the credit for ideas with their teams rather than take full credit themselves. It made a huge difference in how we all related to one another.”

Jack Welch was not a perfect person, but he was devoted to growth. This devotion kept his ego in check, kept him connected to reality, and kept him in touch with his humanity. In the end, it made his journey prosperous and fulfilling for thousands of people.

Lou: Rooting Out the Fixed Mindset

By the late 1980s, IBM had become Enron, with one exception. The board of directors knew it was in trouble.

It had a culture of smugness and elitism. Within the company, it was the old We are royalty, but I’m more royal than you are syndrome. There was no teamwork, only turf wars. There were deals but no follow-up. There was no concern for the customer. Yet this probably wouldn’t have bothered anyone if business weren’t suffering.

In 1993, they turned to Lou Gerstner and asked him to be the new CEO. He said no. They asked him again. “You owe it to America. We’re going to have President Clinton call and tell you to take the job. Please, please, please. We want exactly the kind of strategy and culture change you created at American Express and RJR.”

In the end he caved, although he can’t remember why. But IBM now had a leader who believed in personal growth and in creating a corporate culture that would foster it. How did he produce it at IBM?

First, as Welch had done, he opened the channels of communication up and down the company. Six days after he arrived, he sent a memo to every IBM worker, telling them: “Over the next few months, I plan to visit as many of our operations and offices as I can. And whenever possible, I plan to meet with many of you to talk about how together we can strengthen the company.”

He dedicated his book to them: “This book is dedicated to the thousands of IBMers who never gave up on their company, their colleagues, and themselves. They are the real heroes of the reinvention of IBM.”

As Welch had done,he attacked the elitism. Like Enron, the whole culture was about grappling for personal status within the company. Gerstner disbanded the management committee, the ultimate power role for IBM executives, and often went outside the upper echelons for expertise. From a growth mindset, it’s not only the select few that have something to offer. “Hierarchy means very little to me. Let’s put together in meetings the people who can help solve a problem, regardless of position.”

Then came teamwork. Gerstner fired politicians, those who indulged in internal intrigue, and instead rewarded people who helped their colleagues. He stopped IBM sales divisions from putting each other down to clients to win business for themselves. He started basing executives’ bonuses more on IBM’s overall performance and less on the performance of their individual units. The message: We’re not looking to crown a few princes; we need to work as a team.

As at Enron, the deal was the glamorous thing; the rest was pedestrian. Gerstner was appalled by the endless failure to follow through on deals and decisions, and the company’s unlimited tolerance of it. He demanded and inspired better execution. Message: Genius is not enough; we need to get the job done.

Finally, Gerstner focused on the customer. IBM customers felt betrayed and angry. IBM was so into itself that it was no longer serving their computer needs. They were upset about pricing. They were frustrated by the bureaucracy at IBM. They were irritated that IBM was not helping them to integrate their systems. At a meeting of 175 chief information officers of the largest U.S. companies, Gerstner announced that IBM would now put the customer first and backed it up by announcing a drastic cut in their mainframe computer prices. Message: We are not hereditary royalty; we serve at the pleasure of our clients.

At the end of his first three arduous months, Gerstner received his report card from Wall Street: “[IBM stock] has done nothing, because he has done nothing.”

Ticked off but undaunted, Gerstner continued his anti-royalty campaign and brought IBM back from its “near-death experience.” This was the sprint. This is when Dunlap would have taken his money and run. What lay ahead was the even harder task of maintaining his policies until IBM regained industry leadership. That was the marathon. By the time he gave IBM back to the IBMers in March 2002, the stock had increased in value by 800 percent and IBM was “number one in the world in IT services, hardware, enterprise software (excluding PCs), and custom-designed, high performance computer chips.” What’s more, IBM was once again defining the future direction of the industry.

Anne: Learning, Toughness, and Compassion

Take IBM. Plunge it into debt to the tune of seventeen billion. Destroy its credit rating. Make it the target of SEC investigations. And drop its stock from $63.69 to $4.43 a share. What do you get? Xerox.

That was the Xerox Anne Mulcahy took over in 2000. Not only had the company failed to diversify, it could no longer even sell its copy machines. But three years later, Xerox had had four straight profitable quarters, and in 2004 Fortune named Mulcahy “the hottest turnaround act since Lou Gerstner.” How did she do it?

She went into an incredible learning mode, making herself into the CEO Xerox needed to survive. She and her top people, like Ursula Burns, learned the nitty-gritty of every part of the business. For example, as Fortune writer Betsy Morris explains, 20k Balance Sheet 101. She learned about debt, inventory, taxes, and currency so she could predict how each decision she made would play out on the balance sheet. Every weekend, she took home large binders and pored over them as though her final exam was on Monday. When she took the helm, people at Xerox units couldn’t give her simple answers about what they had, what they sold, or who was in charge. She became a CEO who knew those answers or knew where to get them.

She was tough. She told everyone the cold, hard truth they didn’t want to know—like how the Xerox business model was not viable or how close the company was to running out of money. She cut the employee rolls by 30 percent. But she was no Chainsaw Al. Instead, she bore the emotional brunt of her decisions, roaming the halls, hanging out with the employees, and saying “I’m sorry.” She was tough but compassionate. In fact, she’d wake up in the middle of the night worrying about what would happen to the remaining employees and retirees if the company folded.

She worried constantly about the morale and development of her people, so that even with the cuts, she refused to sacrifice the unique and wonderful parts of the Xerox culture. Xerox was known throughout the industry as the company that gave retirement parties and hosted retiree reunions. As the employees struggled side by side with her, she refused to abolish their raises and, in a morale-boosting gesture, gave them all their birthdays off. She wanted to save the company in body and spirit. And not for herself or her ego, but for all her people who were stretching themselves to the limit for the company.

After slaving away for two years, Mulcahy opened Time magazine only to see a picture of herself grouped with the notorious heads of Tyco and WorldCom, men responsible for two of the biggest