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Before a strategy becomes a success story, it's a judgement call.
Now in its second season, Founder's Mentality: The CEO Sessions gets inside the decisions that defined some of the world's greatest leaders - a bet the market couldn't yet see, a crisis that put the organisation's purpose to the test, and the courage to keep showing up even when you don't have the answer.
How do you stay close to the frontline as the organisation scales?
What does AI mean for the thing you have spent years building?
How do you transform the company without breaking what makes it great?
Hosted by Jimmy Allen, Advisory Partner at Bain & Company, bestselling author and leader of Bain's Global CEO Forum, each episode is a candid, in-depth conversation with leaders from Mars, The Economist Group, Khan Academy, and more.
Each episode is built around one real story, one defining moment, and the lessons that come from living through it. Dense with insight and designed for leaders who listen with a pen in hand, the series explores the outer game of markets, technology and growth, and the inner game of energy, humility and courage, and what it takes to master both.
The question this season isn't just what the CEO should do.
It's who does the CEO need to become?
Join the Conversation:
https://www.bain.com/founders-mentality/
https://www.bain.com/insights/topics/ceo-agenda
Links:
Bain & Company LinkedIn (https://www.linkedin.com/company/bain-and-company/)
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About the Host:
Jimmy Allen is an Advisory Partner at Bain & Company with over 35 years’ experience advising leading organizations. He’s the author of multiple best-selling books on growth and leadership and the host and founder of Bain’s Global CEO Community Forum. Jimmy is a regular speaker at global business events, including the World Economic Forum, and serves on the Botswana Economic Advisory Council. Outside of consulting, Jimmy started his own record label (Abubilla Music) in 2008 and supports Singing Wells, a project dedicated to preserving Kenyan village music.
Bain & Company:
Founder’s Mentality: The CEO Sessions is brought to you by Bain & Company, a global consultancy trusted by the world’s most influential business leaders. With decades of experience guiding organizations through growth, transformation, and leadership development, Bain’s executive insights offer what it takes to lead at scale.
- If we're right, this
is an asymmetric upside.
Rarely do you get a
chance to change a market
and that first mover advantage
is gonna be significant.
We will be right for a
decade if we're right.
- Sometimes, the biggest decisions
just don't happen at the right time.
They happen before you've
built a track record,
before you're known, before you're trusted
and you don't have any data
because you're the first.
And yet, every now and then a leader
has to decide anyway to act.
Not because they're comfortable
with what might happen if they're wrong,
but because they're so confident
about what could happen if they're right.
(upbeat music)
I'm Jimmy Allen
and this is Founder's
Mentality: The CEO Sessions.
(upbeat music)
Kevin Lobo is chair and CEO of Stryker,
one of the leading medical
technology companies.
He was born in Mumbai, raised in Montreal,
and he's from a family
where getting a college
degree wasn't the norm.
He spent his career
moving through industries
he didn't grow up in,
asking questions other
people weren't asking
and taking decisions other
people weren't ready for.
Kevin joined Stryker in 2011
and became CEO within a year.
And almost immediately he did something
that surprised his board,
upset some of his customers,
went against the advice
of industry experts
and sent the stock down 4% in a day.
He was right, but it
wasn't clear right away,
which makes for a pretty
uncomfortable ride.
(gentle music)
- People felt that robotics wasn't needed
in orthopedic surgery.
Surgeons would be trained
on a certain implant
and they would use that implant
for their entire career.
Prior to being CEO, I saw
that Mako had made progress
with robotic assistance for partial knee
as well as hip replacement.
Then I became CEO
and I decided that this is
a deal I wanted to pursue.
It was highly risky
because it was a publicly traded company,
about a hundred million
dollars of revenue,
loss making, partial knee is
only 4% of the knee procedures.
It was a small portion of the market,
but they were making great progress
and I felt that the
total knee application,
which was going to come in the years ahead
was gonna be the killer application.
The cost for this
acquisition was 1.6 billion,
which seemed gigantic at the time
given it was a hundred million
dollars company losing money.
But I really felt it was
going to be a game changer.
But I would tell you it
was extremely unpopular.
- Kevin, take us back to you
recommending that decision.
I imagine you fairly new
CEO walking into your board
with customers opposed with
your advisory council, opposed,
bring us into that room.
- So when we walked into the board,
the pitch to boil it down
simply we have a chance
to transform the orthopedic industry
and to differentiate our company
from all the other orthopedic companies.
Historically, market share
never moved in orthopedics.
Whatever they were trained with
is what they ended up retiring with.
We will be able to move
massive market share.
We will improve the satisfaction
of total knee replacement
through the use of
robotic assisted surgery.
We will be less invasive to the patient.
We will be more precise, more
accurate, more consistent,
and Stryker will become
the number one company
in hips and knees.
- What was that like for you?
And now that you've probably looked back,
what the hell was that
like for your board?
- The board ultimately supported the deal,
but it was difficult.
They pushed back and frankly
it was understandable
that they would push back.
The first area of pushback
was why should we do this deal now?
It's a publicly traded
company, they're not for sale
and you're a brand new CEO,
why do you want to take such
a big risk at this time?
And there were two major reasons
why I wanted to move at that time,
this total knee application was going
to happen a year before we did the deal.
The stock was at $44.
It had dropped all the way down to $16.
And I felt that once they announced
they had a total knee application,
the stock was gonna jump.
The second reason was one
of our major competitors
was going through a very
tricky, difficult integration
of a different acquisition
and I knew that they would have
interest in this technology
and they had deep pockets
so they could afford
to spend 1.6 billion.
If we moved quickly, we would be able
to take the asset out.
And then of course the
second question was,
"Well, what happens if you're wrong?"
You believe this is gonna
be a value creating deal?
What happens if we're wrong?
And so what I said at the
time was that if we're wrong,
it's not gonna kill the company.
We have such a strong balance sheet,
we could afford to make
a $1.6 billion bet.
At the time we were a roughly
$7 billion sales company.
We're now 25 billion.
But back then it was a
sizable deal for our company.
We had not done very many acquisitions,
certainly not of that size,
but I felt that wouldn't kill the company.
And if we were wrong, it would be a niche
like navigated surgery and we'd write off
about a billion dollars of goodwill.
And so I said that and a couple
of directors reacted a
little bit anxiously with,
"We've never had a write off of any size,
let alone a billion dollar write off."
But I said, "That's if
we're wrong, if we're right,
this has an asymmetric
upside, we will be right
for a decade if we're right
and that first mover advantage
is gonna be significant."
So I leaned in hard and I felt
that it was the right
decision for the company.
On a personal level,
I knew that I was betting my job on this.
Many CEOs have gotten fired
because they've missed on acquisitions,
but usually they're larger
transformational deals.
In this case, I really
wasn't betting the company
when I was pitching this.
Some of the board members
were totally with me.
Some of the board members were
totally shocked and surprised
and some were doubtful.
But eventually they backed me.
They could feel my conviction.
They knew I was willing
to bet my job on this,
that it really was a risk worth taking.
(upbeat music)
- Most leadership stories end right there.
The pitch, the room, the
moment the board was convinced
by the CEO to go from no to yes.
But Kevin would tell you that was the easy part
because then he had to live
with the decision to buy.
Kevin was changing an industry.
This acquisition was a smart one
only if he changed the market,
changed the behavior of surgeons,
changed the way his customers bought
and his salesforce sold.
But behavioral change takes time.
And Kevin knew this.
He could measure the market moving
and the behaviors changing
by how many robots he sold.
So he told analysts and he told the board
to focus on that single metric.
- Kevin, you answered one of my questions,
which is while the company could survive,
you were fairly certain
that you might not
survive if you were wrong.
During those two years,
was there any point during that
2013 to 16 that you thought,
oh my goodness, maybe
this was the wrong bet?
- No, I really didn't know
until we launched the
Total Knee Application.
And as we developed and
had surgeons involved,
some of them started to feel,
"Okay, this does make sense."
So I think I got enough positive
signs over the three years.
Believe me, they weren't all sunny days.
The first quarter after we did the deal,
we only sold one robot.
(ominous music)
I told Wall Street
'cause I told them I'd
communicate how many robots.
So I said, "We've had
challenges with integration
and we only sold one
robot in the quarter."
It was a bit embarrassing
to say the least.
Even at the time we did the deal,
They said, "When are we gonna
know if it's a good deal?"
The investors?
I said, "You have to wait till we launch
the Total Knee and give us 18 months
after and you'll see market share move
in a very significant way,
hundreds of basis
points of market share.
To which they said
that's never been done
in orthopedics before.
And I said, "Well actually
Mako with Partial Knee
didn't move market share very
significantly over four years
and they're not even
an orthopedic company."
And so I had conviction throughout,
well there were some rocky
days during that couple years.
I just was patient and investors actually
surprisingly stayed with us.
- Often the way these things are described
after the fact is, you know,
you made a tough decision.
You were right and then went on.
But what people don't talk
a lot about is the time lag.
You made a tough decision
and then that decision looked
pretty tough for two years
during that time were you still able
to make other tough decisions
while kind of waiting for that
first big one to be right.
- First of all, just related to Mako,
we had to win over our own employees.
That was very difficult.
And honestly we didn't
really understand robotics.
We thought we did, we didn't really,
we understood orthopedics.
It was very humbling for the team.
They had very difficult two years.
Their bonuses were not good in
their first couple of years.
And we realized that
if we don't get our sales forces behind,
this is gonna be a problem.
But the other thing we did
is we started doing other
tuck-in acquisitions.
We're now known as a serial
acquirer of companies,
which had not been the case before,
but this was the first deal.
The other deals became more normal,
just standard small product tuck-ins
that fit inside our existing business.
And those started creating value
and that started to earn
credibility with investors...
is that we were doing smart deals,
they weren't all swinging for the fences.
There were some write-ups that, you know,
this new CEO is crazy or he is
making these wild decisions.
And so I think during
the intervening period
before the Total Knee,
we did a series of other smaller deals
that made a lot more logical sense
to people and delivered
value very quickly.
And through that process I reached outside
for help on acquisitions to get advice
and one of the people I
reached out to was Larry Culp,
who I'd never met
but who was, you know,
legendary leader of Danaher
and had been a great serial acquirer.
And so I cold called him
and he actually took a lunch with me.
He was excellent, he was
very gracious with his time.
And then I asked him to come and speak
to my total global leadership team.
And we talked about acquisitions
as well as integrations.
And what we learned
is that we were not great at integrating.
We didn't move swiftly enough
to bring them into the
Stryker way of working.
And Larry provided a lot of advice
and I reached out to other people as well.
And then we started to
build our own playbook.
So what I'd like to say now is
that every time we do a deal,
we do make mistakes
but they tend to be new mistakes,
not the same mistakes we
made from prior acquisitions.
We now have an integration
team that works on these deals
and we have a best practice playbook.
But I think that during
that intervening period,
doing well with other deals,
bought grace with the board,
with Wall Street and we also started
to raise our growth profile.
So we were growing roughly
4% organically back in 2013.
And in the last three years at Stryker
we've grown double digits
and acquisitions has
been a big part of that
'cause if you buy a company
that's growing faster
than you are after one year,
it rolls into your organic growth.
And all of our acquisitions
we've done over 60
in the last decade are all growing faster
than Stryker's growth rate.
And so they've raised our growth profile,
but we've done a much
better job integrating
and frankly learning
being humbled by some of the
deals that didn't go as well.
- You know, one thing I've
heard from CEOs is they often
don't know what their
company's way of working are
until they need to begin
to explain it to some
of the M&A targets that they've done.
How much has your integration been?
We had an existing way of working
and we teach the new group.
How much has been, we
actually learned what our way
of working was through these acquisitions.
And how much did your
way of working change
because of these acquisitions?
- You know, our way of working
was pretty well understood.
We operate in a very
decentralized operating model
where each of our 22 business units
has direct control over
their sales marketing R&D.
So when we do a tuck-in acquisition,
it's really not being bought
by Stryker, it's being bought
by Stryker Endoscopy or
Stryker Neurovascular.
It's really being bought by that business
and it tends to be very
intimate with the customer.
At least for tuck-ins
that's been the case.
Larger deals, which
happened later in my tenure,
like our Wright Medical,
which was about a billion
dollars of revenue,
when we did that acquisition,
we actually took our shoulder business
and moved it into their shoulder business
and we had their leaders
leading foot and ankle
and shoulder for the total company.
So that was different
where we realized they had practices
in many cases that were
better than our own.
And we started adopting
some of their practices
and made those Stryker wide practices.
In the early days, we knew
the way we were operating,
we tucked them into our business.
The problem was with
some of the adjacencies.
If I think about Sage, which
was standalone business,
we left it alone too
long didn't migrate it
into our quality system quickly enough.
And those are the kind of
things we started to do faster,
not leave those alone,
but the tuck-ins were
actually not as difficult,
very good return on investment
because we have great sales forces
and those are frankly pretty easy for us
to implement the integrations
that were more tricky
with the adjacencies or the larger deals.
- Yeah, yeah.
I'm looking up in my shelves right now.
You know, one of the very
first books on strategy
I read was about what
is corporate strategy?
And the question was always,
are we the right parent?
It's not is the company good or bad
that we're trying to acquire,
but are we the right parent?
And I'm tying the two things together.
You know, you said we are scalers,
but I think part of that is
because you ask the question,
what if we're right?
One of the things that I've seen
so often in corporations
is they don't actually play
to the asymmetric risk.
They'll take all the downside,
but they'll leave so much
of the upside on the table
because they don't shift
resources to the winners,
they don't back 'em all the way.
And it feels like that's one
of the main lessons of Mako
is it forced you to ask the question,
what if we're right?
- Absolutely.
I mean the other thing I
didn't mention with Mako
is it was dilutive to
earnings for two years.
And, you know, shareholders
don't love dilution to earnings.
So it was a long-term bet.
And the write-ups, I still
keep some of the clippings
because they were pretty
negative, to say the least.
Again, most of the deals we do
have really limited
upside, limited downside,
they're tuck-in deals,
they're range bound,
they're not asymmetric.
This is one of those asymmetric ones.
And you do want to take
swings every once in a while.
The other thing I didn't mention
was that our two
competitors were coming out
with their own new knees and
we did not have a new knee
being designed at all.
So I felt pressured to
do something different
to differentiate ourselves.
One of the biggest risks
wasn't just doing Mako
was not doing a new knee
because all the implants were really good.
And by doing Mako, we didn't
have to do a new knee,
which would've been a
$400 million investment
and we never did.
Right now our knee design
is the oldest on the market
and we have the fastest growing knee,
which had never happened
in orthopedic history
over 50 years.
There was a series of risks
building upon each other.
There was a big, big bet.
(upbeat music)
- So here's what Kevin
built in those two years
while he and the board were waiting.
Wasn't just credibility, it was a machine,
a repeatable model for buying companies,
60 plus acquisitions, 22 business units,
double digit growth, which
would've been, in his words,
unheard of over the last
50 years in his industry.
From the outside, that looks like a hell
of a lot of complexity.
But from the inside, Kevin would
tell you it's the simplest,
repeatable model in the world.
We are scalers, we know
what we're great at,
and we only buy companies
that we can grow faster
than anyone else could.
And that's it.
That's the whole thesis.
And here's what I love
about Kevin's story.
He remained humble, he remained curious.
Mid crisis stock down one
robot sold, he calls Larry Culp,
Former CEO of Danaher,
one of the great serial
acquirers in history,
someone he's never met
and he asked him to lunch
and asked for advice.
He changed the question
from what if we're wrong
to what if we're right?
That's conviction.
Conviction isn't arrogance,
it's not a misplaced confidence
that you know it all or can do it alone.
It demands curiosity, it
demands you ask for help
so you can turn your
journey into a playbook
and then a repeatable model.
(upbeat music)
And by the way, if you want a masterclass
on repeatable models,
go to episode five of
season one where we talk
to Sunny Verghese at Olam.
Kevin built a well-oiled machine,
which actually then surfaced
a very different question,
what happens when the model
starts working too well?
And that's the inner game and
that's where we're going next.
(upbeat music)
One of the themes
that's come up in the CEO
discussions is the distinguishing
between the outer and
inner game of strategy.
And what I mean by that is on one hand,
CEOs talk about acquisitions.
We change the rules of the
game with Mako to do X and Y,
an unprecedented change in
market share differences
within knee replacement that
had never happened before.
We are taking share here.
We have this growth rate
that's kind of outer game.
Inner game is growth, creates complexity
and that complexity kills our growth.
And so how do we manage almost
the unintended consequences
of our success?
If you take a moment and
you take 22 business units,
60 tuck-in acquisitions,
double digit growth,
all those dimensions scream complexity.
How have you kept the culture,
kept simple leadership principles,
kept the magic of Stryker
when all of this success,
and I'm putting quotations around it,
"Has the seeds of your own destruction
with the complexity that might come."
How have you played the inner game?
- It's a bit of an art
to be honest with you.
What we've decided is
that certain functions
and responsibilities of
our business unit leaders
and presidents are kind of sacred.
So sales marketing, R&D,
business development,
solid line finance, solid line HR.
And those business leaders
feel like they're running
their own business.
They can pay their people
whatever they want.
I had an HR person come from
another company and say to me,
do you realize
we have 400 different sales
compensation programs?
I said, "Yeah, that's interesting
why you're telling me this?"
Well, she said, "Shouldn't we have less?"
I said, "No, they're creative.
You're selling a bed is very different
than selling a neurovascular coil
that's put in someone's brain."
They have the freedom,
they have the authority,
they can pay them whatever they want.
If they wanna pay more
to their salespeople,
they still have to hit their
numbers so they're gonna have
to cut money from somewhere else.
And we've maintained that autonomy.
But to your point, we have
decided and evolved over the time
to create some what I'll
call shared services.
So for example, robotics.
So the joint replacement
division developed Mako
for hip and knee replacement.
We have a different business,
upper extremities for shoulder
that wanted a shoulder
application with Mako.
It would make no sense
to create a new R&D
team within the shoulders
to do a robotic application.
We have a shared service for that.
We have a shared service for 3D printing.
So we did have to evolve our org structure
to create some of these shared services.
Now that's not easy in
a company that likes
to have control over
everything as business leaders.
So what had to change?
We used to be fiercely decentralized
and almost competitive
between our business units.
Now we are much more collaborative.
We're also starting to move
people more between divisions,
which we didn't do before.
So, we have evolved as an organization.
But the concept of you're
running a business,
you're an entrepreneur, you
have freedom to make decisions,
to pitch acquisitions, that type of thing
we've given them tremendous autonomy
and we fought against like
having these corporate functions
sort of overrun them.
It's challenging because
corporate functions
have good intentions,
but they do have to sort
of keep their hands out
as it relates to the decisions around R&D,
the decisions around investments
and let them make their decisions.
And we live with the decisions
that those leaders make.
So we managed to maintain
the right balance
but it's not easy.
Your point's a very good one
'cause complexity can be a silent killer,
but there's also good complexity.
I think the 400 different sales comp plans
is good complexity, but
there's a lot of bad complexity
that can be created as well.
And I wrestle with that a
lot, which is how do you keep
that special sauce but
also not do dumb things
and induce complexity
that you then choke on as an organization.
It is constant struggle,
honestly very challenging
not to become bureaucratic,
not to slow down with good intentions.
People will put practices in place
that can then slow down
the business units.
And I would say defang, the
leaders of the business.
- With a CEO who is working so hard
to actually create 22
entrepreneurial CEOs.
My question was gonna be then
"Kevin, what's your job?"
And in many ways I think you answered it,
which is I'm the guy that
is trying to create trust,
collaboration and avoid the
false synergy of bureaucrats.
You know, someone from the
corporate center that says,
I've got the solution that's better
than all 22 of you.
Is that your job?
- The first part of the
job is strategy, right?
So where are we gonna play?
Where are we not gonna play?
So a big part of the job is
deciding on new adjacencies
that are not in those 22
business units for sure.
The mission, the values common
brand which we've created.
So what are the things
that are not negotiable
that everybody has to adopt?
So there's all these other areas
that those people aren't
managing day to day
that I spend a lot of my time overseeing
and making sure that they
work for our organization
and that I do spend time in
reviews with these leaders
poking and prodding.
The job is not really
to give people answers,
it's to ask them questions
to make sure they're thinking more fully.
And, you know, what about this deal?
What about that company?
What about, so I'm all
constantly meeting startups
and listening and it's just
creating the provocation
and the push for growth
and the push for ambition.
I think part of my job is to
try to shrink the company,
"Hey, I saw this division
do this really well."
Maybe that can be helpful to you
to be a connector across the organization.
And obviously telling
the story to investors,
managing the board, the
standard CEO responsibilities.
But it is different in
a decentralized company
because honestly I'm the coach,
I'm not the player, I'm not on the field.
That distance, you know, some
people would find challenging.
I quite enjoy it.
Enabling these leaders to
make their own decisions
and to push their business forward.
But having this mindset
of growth orientation,
playing for growth, betting on them,
coaching them on leadership
principles and things like that.
That's really the job.
- Can we just pause here,
Kevin speaking about a very classic
corporate strategy question.
What is the role of center?
He creates entrepreneurs?
So he runs a decentralized model
empowering his business units
to compete and then he says,
and so we have a lean
corporate center focusing
on a few shared services.
And when he said this,
I kind of expected the next words to be,
you know, legal, IT, HR
'cause that's what most of us think
when we hear the word shared services.
But Kevin then said
robotics and 3D printing.
Of course he did because
this was the thesis
of the original deal.
Used technology to transform markets,
shift competitive advantage.
The lesson of Kevin isn't this,
be brave and take tough
decisions against all advice.
The lesson is ask the
question, what if we're right?
Because if we're right,
we've changed the basis
of competition and we've
created a repeatable model
of M&A and post-merger integration
because we know something others don't.
Because if we're right,
we create 22 business unit presidents.
Each of whom feels like a
founder of their own business
and they have a few shared technologies
and a CEO who's mastered
the science of poking
and prodding. The outer
game, redefine markets,
the inner game.
Act like an insurgent,
bring founders mentality
into every business unit.
Leverage scale advantages
where you can while shrinking the company,
the inner game, and the outer game.
And underneath it all, this
is a story of conviction.
It's knowing the solution
is right for the customer.
It's having the courage to
wait until behaviors change.
It's about asking for help
to create a repeatable model
that 22 founders can use
to redefine their markets.
You know, most organizations
ask what if we're wrong?
Kevin asks a very different question.
(upbeat music)
Everything from today's episode
and every episode is at
bain.com/founders-mentality.
And we'll be back in
two weeks, stay curious.
Next time on Founder's
Mentality: The CEO Sessions.
- This is gonna sound funny, Jacqueline,
but we actually had a debate about Acumen
and specifically about you
that if you got to a crisis
and you had to choose between
the poor and your LPs,
people thought you would choose the poor.
And I said, "Are we really
having this conversation?"
(upbeat music)