Michael J. Critelli isn’t one of the business world’s high-profile CEOs. But his tenure at Pitney Bowes has lasted over 10 years, more than twice the average survival rate for Fortune 500 company heads. And those two facts, he noted during a recent Wharton Leadership Lecture, are probably not unrelated.
“I have deliberately downplayed my role as a leader,” he said in describing how he helped take the firm from “a hardware company” to a diversified technology company. “I went the route of not being out front.” Instead, he concentrated on quietly helping his employees, his shareholders and his board of directors adjust to the changes needed to keep the company growing and profitable. “People remember us as we were 30 years ago, as ‘the postage meter company’ or ‘the mailing company,’ putting marks on envelopes.”
But Pitney Bowes’ corporate reach now extends way beyond that. Its servers are used by eBay to arrange for all shipping and by Amazon.com for all overseas shipments. Its software plots the destination and departure points for Mapquest. But not the directions, Critelli hastens to add. And if you’re lucky enough to get one of those new automated “photo cop” moving violation tickets in the mail — well, guess who helped stuff the envelope. “We have become increasingly important in the new economy,” Critelli said.
Pitney Bowes has made 60 acquisitions of smaller companies in the past five years alone and gets about 25% of its revenues — a total of $1.43 billion for the third quarter of 2006 — from international operations. The company calls its core business “the mailstream” — which Critelli recently defined as “the almost infinite variety of mail, documents and packages moving through the global economy today” — and the technology and processes needed to manage it.
A big part of this business — despite predictions of assorted experts and futurologists — is conventional mail. “If you think of mail as a physical entity going away, think again,” Critelli said. Last year, some 500 billion pieces of mail were sent worldwide. The figure for the U.S. alone was 212 billion, up about one percent from the year before. Traditional letters, bills and circulars have been joined by DVDs, CDs, pharmaceuticals, credit cards and absentee ballots, to cite just a few of its forms. “What is really fueling the mailstream,” he said, “is the Internet.”
Critelli grew up in Rochester, N.Y., and got his first lessons in dealing with change from his father, a printer with the Gannett Co. “He had to upgrade his skills to keep his job,” Critelli recalled. “When he started in training and development in 1963, there were 800 people working as printers. When he retired in 1977, there were 260 and when he last returned for a visit in 1994, there were 14.”
Another lesson he learned almost as early was much more painful, and it involved dealing with customers. After graduating from law school, Critelli became a trial lawyer and failed to make partner in two firms before joining Pitney Bowes in 1979 as a company attorney. The previous year, he had spent much of his time assigned to a Chicago firm’s largest client who, at the time, was involved in complicated construction litigation. He worked diligently to collect large sums of money for the client, he recalled, while another young associate seemed to spend all his time fixing traffic tickets for the client’s family.
At the end of the year, the ticket-fixer made partner and he didn’t. When he asked the firm’s managing partner why this had happened, he got a blunt and unforgettable answer. “The owner of the company has more money than he knows how to spend,” the managing partner said. “His biggest source of aggravation is his extended family. You didn’t understand that. That’s why you’re on the way out and he (the other associate) is going to be made a partner.”
Critelli described how he translated these lessons about customer service and change into the world of Pitney Bowes. “It’s the customer who decides what delivers value,” he said. “Customers want to be treated as unique and valuable.” But he cautioned that there are tradeoffs: Customer service can be expensive and companies must measure what they can afford and for whom. For a major client like eBay, for example, Pitney Bowes sends representatives to spend weeks simply observing company operations to develop a better feel for possible innovations. The company even has two staff anthropologists who are paid to watch people work.
Critelli, who majored in communications at the University of Wisconsin, attributes much of his company’s success to looking at people who receive mail as customers even if they don’t pay anything. “Successful communication is about the needs of recipients,” he said. In Denmark, for example, business people can have mail addressed to their office delivered instead to their home on weekdays.
About half of all mail in the United States is termed “junk mail,” he said, and “we have to do a better job of targeting it” for the right audience. To illustrate just one innovation in this area, he said that Pitney Bowes is partnering with the U.S. Postal Service to insert literature from companies, such as Home Depot, in the change of address forms used by people who are moving. He said the company’s research revealed that the two weeks before a move and the four weeks after it are “major buying periods” for furnishings and other items, and that the response rate for flyers is six or seven times greater than the typical marketing piece. The company and the Postal Service split the revenue from the advertisers.
The lessons of change are subtler, Critelli suggested. In the marketplace, “Human behavior doesn’t change that rapidly. That’s why there are still 500 billion pieces of mail a year in the world.”
Basically, he said, employees’ response to change falls into three categories: “There are people, like my father, who embrace change,” others who resist it and a large group in the middle who are “anxiety-ridden about it.” The successful leader, he said, pushes people in the middle group into the top group. “There is no such thing as security,” Critelli added. “If you have security, it’s from changing and keeping ahead of the market.”
As for strategy, Pitney Bowes follows what is commonly called the “Blue Ocean Strategy,” moving into areas where there is little or no competition or where there are a lot of “small and not particularly powerful competitors. We stay away from a situation where someone can blow us completely out of the water.”
Critelli described his own management style as encouraging people to function effectively in teams: “Success comes in getting people to work together.” When he took over as CEO in 1996 — adding the chairman title a year later — “there were a lot of unrelated business units. There were no synergies. Little by little we created a ‘One Company’ philosophy,” using a lot of what he called “stealth change efforts … symbolic but important small steps.”
For example, over considerable resistance in some quarters, he changed the company’s executive compensation policy to reflect overall company performance more than the performance of particular departments or units. Some separate facilities were closed to bring more people under one roof at company headquarters in Stamford, Conn. Purchasing, IT, HR and real estate management functions were centralized. “We retired a lot of brands,” he said, and those that were retained were given a common look and feel.
Change, he added, is always easiest when a company is perceived to be in trouble. He called it a “burning platform.” “It’s more difficult when your organization is successful and you are trying to change to keep it successful. That’s what we’ve had to do for the past 10 years.”
Citing Jim Collins’ book, From Good to Great, Critelli described himself as aiming to be what Collins calls a “Level Five Leader” rather than a “Level Four Leader” or “Celebrity CEO.” “It’s much more effective … to not be a celebrity leader,” he said. When that happens, “People will not tell you the things you need to hear …. I invite (board) members to challenge me. We don’t end up with the cronyism that gets other boards into trouble.”
According to Critelli, this is one reason why executive compensation packages have spiraled out of control. “The system is broken.” He added that compensation experts and directors too close to CEOs are setting pay scales with little supporting data. At the very least, the value of stock options should be based on how the company’s stock does as against the S&P 500.
With respect to shareholders, Critelli tries to steer a middle course between those who want larger dividends, those who want more profits plowed back into the company and those who support stock repurchases in an effort to raise the share price. “I’m looking for long-term investors who are looking for a consistent return,” he said. “I want to attract those shareholders who buy the stock for their children when they are babies and take it out of the safe deposit box when the children are ready to start college. You have to decide whom you want to be owned by.”