General Motors and Merck Board Member Patricia Russo On Directorship In An Era Of Disruption

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Corporate Board Member recently had the chance to talk with Pat Russo about her experience dealing with disruptive tech, both as CEO and a director of companies in the throes of transformation.

Kodak, where you previously served as a director, is obviously sort of the stepchild of any conversation around disruption. Yet, Kodak holds more patents in the digital photography space than any other company. So it wasn’t that they didn’t see it coming, but the business model itself basically completely changed from under their feet. What went wrong there?

What I have seen time and time again is it is really hard to self-disrupt. It is really hard to disrupt a core business when it is contributing the bulk of your revenue and profits. But that is actually the time that you should start. It is just very difficult. The margins in digital photography are nothing compared to the historical margins in the film business.

What was being disrupted was the biggest and most profitable part of their business. And that is very tough. I have nothing but the greatest respect for CEOs of public companies who say, “Listen, here’s what’s happening. Here’s how much our profits are going to go down so that we can invest in the new business that’s going to disrupt our current business.”

So do you just hang on to what you have for as long as possible? Do you invest in side companies so you can monitor what’s going on and potentially participate down the road? How do established companies approach that?

I think it depends to some extent on your strategy. To sit on a depreciating asset and not look for and invest in what replaces that really suggests you are executing a harvest strategy. If you have a growth strategy, you’ve got to find a way to leverage your core assets and your core business while investing in what will be replacing that. That is not always easy.

GM concluded that transportation as a service embodied in autonomous vehicles is a place where there is a lot of future potential. I mean, people driving cars is not gonna go away, but there will certainly be some disruption. Mary Barra has very clearly said, we will disrupt ourselves. Can a board or a management team conclude that they don’t have the investment capacity to do that? Of course they can. But I would argue that then, by default, you sort of move more into a harvest strategy.

What’s the best way for companies to invest in disrupting themselves?

There are ways. Large corporations have utilized venture efforts to tap into technological developments. Companies have formed their own venture funds where they become investors in a bunch of startups, some of which will fizzle out, some of which will become something significant. And so they use that as a mirror, if you will, on what’s out there and what should we be attuned to. That’s one way to have a bit of a reality check.

Second, leadership has to create room for investment risks to be taken. Obviously, you’re prudent about it, it’s calculated. But you have to be willing to make some investments to see if you can’t create some moonshots in the newer spaces if you’ve concluded that you need and want to be there. And that may mean bringing some people in with a different perspective who don’t come from the core business. It’s a combination of elements that can lead to the creation of new businesses within these larger, more longer-standing corporations.

What has been the role of mentoring in your career and the importance with some of the companies that you lead?

It is always valuable and often necessary to seek advice and counsel from people who can help you think more broadly and test your hypotheses, the way you’re potentially attacking an issue. That is always helpful. Throughout my career, there have been people, generally people who were at a higher level in an organization than myself, who had more experience than I did, who I would talk to and get advice from. That is very helpful. It’s not always the same person. It changes with time. And sometimes it even changes with what set of issues you want to get some help thinking through. The CEO job is a lonely job. There are a lot of things you can’t just go talk to your team about.

So having a relationship with your lead independent director, the chair of your board or board members, which you can use as a sounding board is very helpful. It plays an important role. I personally do a lot of mentoring work with leaders who I’ve known over the years. It was helpful to me, and I hope it’s helpful to them.

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