Episode 65:
Success Can Be A Barrier to Change
William Zollars, Former Chairman and CEO, YRC Worldwide
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In this episode of Fireside Chat, we sit down with William Zollars, former Chairman and CEO, YRC Worldwide and a former Kodak executive to talk about the primary reason for Kodak falling from the number three brand name in the world to bankruptcy. We also discussed key leadership lessons that William learned through his time at Kodak which impact his leading other companies.

As former Chairman and CEO of YRC Worldwide Bill Zollars led one of the largest and most recognizable global transportation service providers from 1999 to 2011. Prior to that Zollars was President of Yellow Transportation a position he accepted in 1996 as part of a major management transition for the company.

Transcription

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Bill Zollars 0:03
One of their biggest issues in terms of the fall of the company was in the era of leadership. So most people think that it was all about technology. Digital came in, replaced film, that’s the story. The reality is that Kodak had all the technology and more than most of its competitors had at the time that digital started to gain a foothold but Kodak really suffered from a lack of visionary leadership.

Gary Bisbee 0:28
That was William Zollars, former chairman and CEO YRC Worldwide and a former Kodak executive sharing his views on the primary reason Kodak fell from the number 3 brand name in the world to bankruptcy. I’m Gary Bisbee and this is Fireside Chat. Bill is an engaging storyteller and this conversation is replete with stories underlying why Kodak was one of the most successful companies in the world for its first 100 years and why the bottom fell out in the next 25. Bill dives into the reasons for Kodak’s decline including competition, technology, geography, profitability, organizational structure, and most importantly, leadership. A turning point in Kodak’s history occurred leading up to the 1984 Olympics and I’ll let Bill share that amazing story with you. Bill discusses learnings that he took from his Kodak tenure that assisted him in his post-Kodak CEO career and he shares interesting stories along the way. Bill is familiar with healthcare from his board seats on the Cigna and Cerner boards and he shares applicability to healthcare of Kodak’s experience as follows.

Bill Zollars 1:38
The Kodak story resonates across almost any industry because, you know, the whole bit about arrogance and hubris and thinking you’ve got it made and thinking things are always going to be good that translates pretty much across any industry. But healthcare is facing some fundamental strategic issues like the film to digital issue that I think probably resonates more in healthcare than any other industry.

Gary Bisbee 2:01
I’m delighted to welcome a good friend Bill Zollars to the microphone. Welcome to the podcast, Bill.

Bill Zollars 2:11
Thanks, Gary. Pleasure to be here.

Gary Bisbee 2:13
Good to have you. Bill, of course, was the former CEO at YRC Worldwide which when he was there was the largest trucking company in the world. But before that was at Kodak, senior executive at Kodak for some 20 years or so. And Kodak, of course, is a very interesting story. Think it was the number 3 brand name in the world and went to bankruptcy. Bill was there during at least part of that time and we’d love to have some lessons learned. You graduated from the University of Minnesota, how did you end up at Kodak?

Bill Zollars 2:45
Well, it was a luck of the draw kind of thing. One of the things that attracted me to Kodak was their management training program and the fact that they did a lot of moving people around to make sure they had different experiences. So I went into that management training program and as a result ended up in a bunch of different places within the company. I was in finance for a while, was in logistics, marketing, strategic planning, spent 8 years overseas, 5 in the UK, and 2 in Canada, and a year in Japan. So part of what attracted me to Kodak was the ability to do a bunch of different things throughout my career, which actually turned out to be the case.

Gary Bisbee 3:24
So what’s your analysis of, first of all, why was Kodak so successful for so many years and then what happened on the way to bankruptcy?

Bill Zollars 3:32
Kodak had the luxury of being a monopoly for 100 years. And I would suggest that anybody that goes into business would be really nice if they go into a monopoly because you don’t have the competition to worry about and it’s a lot easier. So for 100 years Kodak had a monopoly position and they had really no competition until you got into the 80s. They started the company in 1888 and didn’t really have any significant competition until 1984. So that’s kind of the background. One of their biggest issues in terms of the fall a company was in the era of leadership. So most people think that it was all about technology. Digital came in, replaced film, that’s the story. The reality is that Kodak had all the technology and more than most of its competitors had at the time that digital started to gain a foothold. But Kodak really suffered from a lack of visionary leadership. As an example, from 1888 until George Fisher took over the company in 1994, every single CEO Kodak had was a chemical engineer. So this is a classic case of when you’re a hammer, everything looks like a nail. And so they went through most of their history having the same kinds of leaders in that top position, which I think kind of limited their ability to see the whole playing field.

Gary Bisbee 4:54
That makes good sense. I think the idea is that they weren’t looking outside because they had been so successful, right?

Bill Zollars 5:03
Right.

Gary Bisbee 5:03
That was a takeaway.

Bill Zollars 5:04
I think that was one of the biggest barriers to success after digital imaging started to show up on the scene. And success can be a real barrier to change. And when you have 100 years of it and somebody comes in and says, “Well, we’re going to change the whole business model,” I think the response from most of the people at Kodak was, you know, “Thanks very much, we’re fine. Everything is good. It’s been good for 100 years, it’s going to continue to be good.” So success was one of the biggest other factors besides having a similar view from the top for all that time. And then you had other issues. The lack of familiarity with digital imaging by most of the people that were responsible for selling it. The margins on digital imaging were much different. Film margins were in the 85%, believe it or not, area, again, going back to the monopoly position, and digital imaging was a single-digit margin business. So if you gave a business unit manager a business plan and said go deliver the revenue and earnings, it would be a really tough thing to trade 85% margin 5% margin. And as a result, there were also some profitability issues that arose as a result of that difference in margin. So you had that. And then there was organizational constraints. So they gave the digital products to people that had sold film their entire careers. And so they looked at digital as some kind of voodoo thing and as a result, you had that impediment as well. So it’s a bunch of these things added up. But I would think the most important by far is the leadership issue of not being able to be able to have a view of the whole playing field, which in the end was, I think, their undoing.

Gary Bisbee 6:49
How about, thinking about leadership, how about the board of directors?

Bill Zollars 6:53
I think it starts at the top in any company. So I think the board, for the most part, was kind of asleep at the switch during much of what transpired. I personally left in 1994. And maybe just give you a sense of what the trigger event was there because I think the biggest question people always have is, “Could this have turned out differently?” And I think, absolutely, the answer is yes. So in 1994, as I mentioned earlier, George Fisher took over as the CEO of the company and at the time George was running Motorola here in Chicago. And I was living in Chicago at the same time. So I knew George just primarily working on community events and that kind of thing. So he called me one day and said, “Bill, I’m going to be your new boss.” And I said, “That’s great. We really need your expertise, experience, and perspective because the world is changing around us. And we need somebody that can manage some of the strategic issues we’ve got.” So he said, “Well, that’s great. I’d like you to come back to Rochester and help me.” And I said, “That’s really a dumb idea. And then I proceeded to give him 30 reasons why. And the reason I said that was because when I was in Kodak, I had 2 strategies. I mentioned that I had been in different locations around the world. And my first strategy was if I was outside of Rochester to stay out. And the second strategy was if I was working in Rochester was to get out. So when he asked me to come back to Rochester with him, all I could think of was sitting in the same conference room, the same people who weren’t able to deal with some of these strategic issues. And I just couldn’t see myself running out my career that way. So the call from George triggered my thinking. And 3 weeks later, he called me back and said, “I know I wasn’t gonna ask you to go to Rochester.” He said, “I’ve got to move there and my wife is not happy with me. And so if I’ve got to go, you’ve got to go.” At which point I said, “Okay, boss” and then I started looking around. And that led me to go to Ryder and start their logistics business. But I really needed that trigger event, I think.

Gary Bisbee 8:56
To move you out. So what about competition? When did that actually start coming in?

Bill Zollars 9:06
Well, that’s interesting as well. You know, as I said, until 1984, really, there wasn’t any. In 1984 you may recall that the US hosted the Olympics. And it was in LA and Peter Ueberroth was the head of the Olympic Committee for the US. And he made a statement early on in that process that he was not going to lose money as the sponsor host. And that had been an issue before. Everybody else that had hosted the Olympics had lost millions and millions of dollars.

Gary Bisbee 9:39
And since by the way.

Bill Zollars 9:40
And since. So he said, “No, we’re not going to do that. And we’re going to start asking our sponsors to really chip in more than they had traditionally spent.” Kodak had been the film sponsor of the Olympics, probably since the Greeks, I don’t know, but it goes back a long time. So I was part of the team that was sent to negotiate with Ueberroth’s team on the sponsorship. We went into that meeting, made a proposal. Peter Ueberroth’s team said, “It’s not enough.” They said, “You’ve read all the stories about how we’re not going to lose money. Those are all true. We’re not. You need to come up with more money.” So we took our team to a sidebar discussion in another conference room. And the leader of our team said, “Look, this Olympics is being held in the US. There is no way in hell they’re going to give the sponsorship to anybody other than Kodak.” So we went back to the room. We said, “That’s our best and final.” And 2 days later they gave the sponsorship to Fuji. And that was the beginning. Within about 3 years from that Olympic foothold that Fuji got, they had built a film plant and a paper plant and they were off and running in the US. So that was the beginning of real competition on the film side of the business. And then of course, later on, there was a lot of competition on the digital side. The interesting thing about that is that Kodak had all of the digital patents that they ever would have needed to compete and they had it first. So they had the first digital camera in 1975. At the end of their run, they had about $500 million worth of patents in the digital area that they sold off to various competitors to make it through to bankruptcy. So this was a situation, I think, where a company had the cards, they just didn’t know how to play the cards.

But you mentioned that the people in charge of digital had been selling film. What’s the way around that? Did they need to just take a group out and away from Kodak and let them go at it, or?

It kind of goes back to a number of things. First of all, there was no leadership from the board, asking the hard questions, talking about the strategy, and where we were headed. The management team was not asking hard questions. And then these other issues of profitability and organizational structure came in. Kodak had a tremendously powerful immune system. They could reject any outside organism. So there were people that were brought in that were really strong in the digital area and could have added a lot of value but they were immediately branded as outsiders, not part of the team, didn’t understand our business, and were marginalized in the process. So even though there was an attempt at certain points in history to bring in some people to really help us with that, those people were never fully utilized and the structure was never really changed to make sure that that part of the business grew and got resources.

Gary Bisbee 12:37
We just keep working our way back to leadership.

Bill Zollars 12:40
Right.

Gary Bisbee 12:40
Both management and the board.

Bill Zollars 12:42
Correct, correct.

Gary Bisbee 12:43
At the end of the day that seems to be the most important thing. You had talked about geography before from the standpoint of Rochester. Seems small, I think Xerox was there and moved out?

Bill Zollars 12:55
They did.

Gary Bisbee 12:55
Again, is that a solution?

Bill Zollars 12:57
They figured it out. Kodak really never did. But I think part of the issue was that Rochester was a very insulated, small, upstate New York town. And so everybody’s families belonged to the same clubs and they went to the same schools. And it was a very incestuous conversation that really didn’t have a lot of access to what was going on in the outside world. So geography played a role. Xerox figured it out, moved their headquarters to the east coast. I think Kodak would have really benefited from that.

Gary Bisbee 13:30
Well, at the end of the day, you mentioned competition, technology, geography, profitability, organization. Really seems the leadership is what we can just say that is the key issue here.

Bill Zollars 13:42
Yeah, I think that was the disappointing thing and one that I got very frustrated with. One of the potential turning points in the history of the company was when George Fisher came in because he had digital background, knowledge, had a great resume, was a great leader at Motorola and I thought, “Boy, this is really, it’s what we need.” Unfortunately, and I had kind of a going-away luncheon with George and he asked me if I could give any advice. My advice was, “Don’t let the culture pull you down because the culture is incredibly strong.” In 1997 in front of an investor group, so now I had been gone for 3 years and George had been in the job for almost 3 years. He made the comment that digital imaging will never replace film, in 1997. And I looked at that statement which was fairly widespread, and I said, “They got him.” Because if you can make a statement like that with everything else swirling around it shows that you’re not really looking at the whole playing field. And their strategy at that time was that an image will always be captured on film and then it can be digitally manipulated and printed and other things can be done with it, but that the origination will always be on film. And that was just a very flawed assumption that at the end was probably very fatal. But if you go back and you look at George and his background and you think about phones and pictures and it starts to sound a little bit like another company that’s done pretty well with phones and pictures. And at that time, we actually, in a couple of meetings talked about buying Apple. Now we would have screwed it up for sure. I mean, there’s no question we would have screwed up. But you can just tell from things like that that were going on some people were kind of thinking about this. And Apple was not doing well at the time. We were still doing pretty well and so, in the early 90s that came up. And the Apple’s history is pretty well known. But they had just brought in a guy from Pepsi to replace Jobs, stock was not doing well. So that was a real conversation. And then, for whatever reason, we moved on from that. So there were turning points. There was the George Fisher turning point potentially, there was the let’s buy a company that knows what the hell’s going on in the digital area, there was that conversation.

Gary Bisbee 16:09
Hundred years of chemical engineering leadership was just too much to overcome.

Bill Zollars 16:13
Yeah and this immune system was a big part of that. Even people that were brought in, we brought in, in 1990, when I was between jobs, they were trying to figure out what to do with me and they were having trouble. So I was back in Rochester. I had just come back from London and I was on my way to Chicago, but I was there for about a year and working for the number 3 guy at Kodak, a guy named Frank Strong. And Frank had responsibility for all of the digital imaging products in addition to a bunch of other stuff. Number 3 guy at the company. And so I went into his office one day and I said, “Hey, what do you think about getting somebody from the outside to come and help us with our strategy?” And he said, “I think that’s a good idea.” And I said, “Well, great. I’ve got a guy in mind.” There’s a fellow by the name of C.K. Prahalad who was probably the leading management consultant of his day from the University of Michigan. He came up with a core competency idea and had helped a lot of companies. So I called him and asked him if you’d be willing to come and talk to the management team. And he said, “Sure” which basically surprised me. But he said, “No, I’ve been following the company and I think I could probably help.” So he said, “Here’s what I do. I have a two-day process. Day on I come, I listen, I ask questions. Day two, we put together a plan and then I come back in six months to see how we’re doing.” I said, “Well, that sounds great.” So he comes into Rochester. We have a roomful of the top 50 management people in the company. And C.K. gets up and he explains his process to the 50 of us. “Today I’m going to listen. Today you’re going to talk about your market and your company and I’m going to ask you some questions.” And so we went through the day. And he, true to his word, did mostly listening, asked a few questions, always pretty, pretty interesting questions. And then we went to dinner. And then after dinner, I was driving him back to the hotel. And he said, “I’ve got to tell you something.” And I said, “What’s that C.K.?” He said, “I’m not coming back tomorrow.” And I said, “Well, is there a problem at home? Can we help?” And he said, “No, no, it’s nothing like that.” He said, “I just don’t think I can help the Kodak team.” And he said, “I have to worry about time. That’s the only thing I can really manage. I don’t have a lot of time, and I have to work where I think I can help.” And I said, “So why don’t you think you can help the team?” He said, “I’m not sure that they’re smart enough.” And I,…

Gary Bisbee 18:43
You’re thinking, “How do I communicate that back?”

Bill Zollars 18:45
I kind of laughed because I thought, “Well, maybe he’s kidding.” I said, “Well, what do you mean?” And he goes, “Well, I meet with a lot of management teams and I can tell after the first day who gets it and who doesn’t.” He said, “These people don’t get it.” And he said, “So, rather than waste any more of my time, I’m going back to Michigan.” Then he turned to me and said, “And I want you to deliver this message tomorrow.” And I said, “Whoa, whoa, wait a minute. There’s no way that’s going to happen.” I said, “If you really feel that strongly about it, you’re the one that needs to deliver that message.” He said, “Okay, yeah, you’re right, I probably should do that.” So next morning, after not having slept more than 10 minutes the night before, I go to pick him up hoping he’s changed his mind and here he comes out of the hotel with his luggage. And I’m going, “That’s not a good sign” So we get back to the Kodak Tower and we go into the meeting and he starts out by saying “I’m really happy that you invited me and it’s been my pleasure to be here, but I’ve got to go back to Michigan.” And my boss said the same thing I said, “Is there some kind of an issue, an emergency? Can we help?” And he said, “No, it’s nothing like that.” He said, “I just need to spend my time where I think I can help and I don’t think I can help this team.” And so my boss said, “Why not?” And he said, “Because I don’t think you guys get it.” He said, “I work with a lot of companies, lots of teams, I can tell after the first day if I can help the company get it, and I don’t think I can help you get it.” He said, “So thanks very much.” He picked up his luggage and he left and it was dead silence. A couple people laughed. And so my boss turns to me he goes, “He’s kidding, right?” And I go, “No, I don’t think he’s kidding, Frank.” He said, “Well, would you go and see if he’s in the hallway?” “I guess I’d be happy to do it but I don’t think he’s there.” So I went out, of course, he was gone. I came back and I said, “No, he’s gone.” And then, after they realized he was serious, all of the consultant bashing began, right? All the, “We’re okay.”

Gary Bisbee 20:41
“It can’t be us, must be him.”

Bill Zollars 20:43
“It’s not us. He doesn’t know our business. He’s an academic, blah, blah, blah.” And we went through about 20 minutes of denying what he had just said. And that was it. So that was another point where I thought, “Gee, maybe this thing can be turned.” But after that meeting, it was pretty obvious that there were people in the room there that we’re not going to get that done.

Gary Bisbee 21:09
I think that story encapsulates the message here. An interesting question might be, you were very successful CEO after that. What did you take away? What’s the one thing that you took away from the Kodak experience that helped you become a successful CEO?

Bill Zollars 21:25
There’s kind of a two happy endings here. One is that I went into a situation when I left and went to Ryder where we were starting a new business. So I knew how important it was to send the right message right from the beginning. And I spent a lot of time with that. The other thing I did at the time was, I had read Good to Great by Jim Collins and getting the right people on the bus was really kind of his first message. And so I was able to help find and put the right people on the bus because it was a new business. So that was, that was pretty good. Then when I went to Yellow, they were going down for the third time. And it’s a lot easier to go into a situation like that with a burning platform and try to change the culture than it is a company that’s just wildly successful. In the Ryder case, it was a new company. So I didn’t have any culture to deal with. We kind of built our own. In the company that I went to at Yellow, it was a company that had no customer metrics at all. They had only operational metrics. So their whole business was judged on how efficiently the machine ran. And my first day on the job with Yellow, I asked the marketing guy, “What do our customers think of us?” And he said, “They really liked us.” And I said, “No, I was looking for more, more detailed than that, like some data.” Well, we didn’t have any data. So to try and turn that company from an operationally driven Russian steel mill kind of culture to a customer-centric kind of culture was really what I wanted to do. So I needed help from the board and I needed to get the right people on the bus. So on what was referred to later as Black Monday, I fired two-thirds of the management team. Because I was like C.K. I said, “You know, I talked to these people, they don’t get it.” I may have overstepped there but I thought it was really important. I’ll give you one example. There was a guy in California running the West Coast for us and I was there visiting. I was doing all kinds of town hall meetings. And in the meeting with him, it was about four o’clock in the afternoon, one of his operations guys came in and said, “Listen, one of our customers needs a delivery out someplace that was quite a ways away.” And the guy running the West said to his operations guy, “Well, how far is it?” And he said, “I think it’s like 40 miles.” And he said, “Well, it’s gonna screw up our metrics so no.” So the guy left. And so I said to the California operations leader, “Is that a good customer?” He goes, “Yeah, they’re a really good customer.” And I said, “So, just so I understand, you just turned down serving a good customer because you’re worried about your operational metrics.” And he said, “Well, I wouldn’t say it that way, but yeah.” I said, “Okay, I kind of pulled a C.K. on him.” I said, “Okay. Well, thanks for having me. You’re done, clean out your desk.” And he just looked at me and started laughing. I said, “No, no, really.” I said, “This is exactly why we’re in trouble. It’s because we’re letting the wrong things drive our behavior. And if we don’t start paying attention to customers, we’re going to be done.” So then fast forward. One other quick story. C.K. Prahalad. So now it’s 2000. We’re 10 years away from when he came to Kodak and I called him up. And I say, “There’s no way you’ll remember me” and I tell him. He goes, “No, Bill, I remember you.” And he said, “You’re not a Kodak anymore. I know that,” I said, “Yeah.” I said, “Listen, I really need help. Would you be willing to come and spend time with my management team at Yellow.” And he said, “Well, you know, I’ve been following some of this stuff you’re doing.” And he said, “I’d be happy to.” So he came now to Kansas City. Day one same thing, told everybody what he was doing, didn’t really say much, asked a lot of questions, went to dinner. On the way back to the hotel, I said to him, “I’m not letting you out of this car until you tell me you’re coming back tomorrow.” And he goes, “No, I am. I’m coming back tomorrow.” So long story short, we put together a pretty good plan. We went on to have 4 years of record revenue and record earnings after that. So that’s a happy ending for the C.K. thing. Now, unfortunately, he passed away about four years ago. So that wasn’t too happy. But that just shows you that if you’re paying attention and you’re willing to ask for help and you’re willing to do some things and you can get it to start from the top. And I was really lucky, I had a really good board. They knew we had to change. And they weren’t exactly sure what the strategy was, but they were willing to invest in a change in direction strategically and so we did that and we ended up, as you said, becoming the biggest trucking company in the world. We’re about 10 billion in revenue. We had operations in China, and in Europe, and really a much more comprehensive portfolio to offer to customers and we became obsessed with customer metrics. Net performance score was built in them, all of our incentives. It was all the stuff I learned at Kodak about what not to do that helped me do some other stuff.

Gary Bisbee 26:33
One final question. It’s been terrific. Thanks for being with us. One final question. You’re not really out of healthcare, except for the last 10 plus years, you’ve been a director at Cerner, director at Cigna. So you really do know healthcare. Looking at healthcare from the standpoint of a corporate executive of a non-healthcare company, what’s your take on healthcare?

Bill Zollars 26:57
I can’t think of a more fluid environment that I’ve ever seen than what’s going on in healthcare right now. And I don’t think there’s anybody that knows where this is all gonna end up. But there are some things that I think translate pretty well from the Kodak experience. So for example, moving from fee-for-service to quality of outcome in terms of the business model, is not that unlike going from film to digital. So there are things you can take away and there are players coming into healthcare that nobody ever thought of before. And they’re companies that have deep pockets, lots of money, and they’re really smart. And so that is a similarity between Kodak and what’s going on in healthcare. So the clinic stir resonates across almost any industry because you know, the whole bit about arrogance and hubris and thinking you’ve got it made and thinking things are always going to be good. That translates pretty much across any industry. But healthcare is facing some fundamental strategic issues like the film to digital issue that I think probably resonates more in healthcare than any other industry.

Gary Bisbee 28:06
Well done. Bill, thanks so much for being with us. This has been very, very interesting and instructive.

Bill Zollars 28:12
My pleasure.

Gary Bisbee 28:14
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