by Adam Hartung | May 31, 2015 | Current Affairs, Defend & Extend, In the Whirlpool, Leadership, Web/Tech
Information technology (IT) services company Computer Sciences Corporation (CSC) recently announced it is splitting into two separate companies. One will “focus” on commercial markets, the other will “focus” on government contracts. Ostensibly, as we’ve heard before, leadership would like investors, employees and customers to believe this is the answer for a company that has incurred a number of high profile failed contracts, a turnover in leadership, vast losses and declining revenue.
Oh boy.
After years of poor performance, and an investigation by the UK parliament into a failed contract for the National Health Services, in 2012 CSC brought in a new CEO. Like most new CEOs, his first action was to announce a massive cost-cutting program. That primarily meant vast layoffs. So out the door went thousands of people in order to hopefully improve the P&L.
Only a services company doesn’t have any hard assets. The CSC business requires convincing companies, or government agencies, to let them take over their data centers, or PC deployment, or help desk, or IT development, or application implementation – in other words to outsource some part (or all) of the IT work that could be done internally. Winning this work has been an effort to demonstrate you can hire better people, that are more productive, at lower cost than the potential client.
So when CSC undertook a massive layoff, service levels declined. It was unavoidable. Where before CSC had 10 people doing something (or 1,000) now they have 7 (or 700). It’s not hard to imagine what happens next. Morale declines as layoffs ensue, and the overworked remaining employees feel (and perhaps really are) overworked. People leave for better jobs with higher pay and less stress. Yet, the contract requirements remain, so clients often start complaining about performance, leading to more pressure on the remaining employees. A vicious whirlpool of destruction starts, as things just keep getting worse.
Immediately after taking the CEO job in 2012 Mike Lawrie declared a massive $4.3B loss. This allowed him to “bring forward” anticipated costs of the anticipated layoffs, cancelled contracts, etc. Most importantly, it allowed him to “cost shift” future costs into his first year in the job – the year in which he would not be fired, regardless how much he wrote off. This is a classic financial machination applied by “turnaround CEOs” in order to blame the last guy for not being truthful about how badly things were, while guaranteeing the end of the new guy’s first year would show a profit due to the huge cost shift.
True to expectations, after one year with Lawrie as CEO, CSC declared a $1B profit for fyscal 2013 (about 20% of the previous write-off.) But then fyscal 2014 returned to the previous norm, as profits shrunk to just $674M on about $12B revenues (~5% net margin.) For 4th quarter of fyscal 2015 revenues dropped another 12.6% – not hard to imagine given the layoffs and ensuing customer dissatisfaction. Most troubling, the commercial part of CSC, which represents 75% of revenue, saw all parts of the business decline between 15-20%, while the federal contracting (much harder to cancel) remained flat. This is not the trajectory of a turnaround.
CEO Lawrie blames the deteriorating performance on execution missteps. And he has promised to keep his eyes carefully on the numbers. Although he has admitted that he doesn’t really know when, or if, CSC will return to any sort of growth.
No wonder that for more than a year prior to this split CSC was unable to sell itself. Despite a lot of hard effort, no banker was able to put together a deal for CSC to be purchased by a competitor or a private banking (hedge fund) operation.
If none of the professionals in making splits and turnarounds were willing to take on this deal, why should individual investors? In this case, watching people walk away should be a clear indicator of how bad things are, and how clueless leadership is regarding a fix for the problems.
The real problem at CSC isn’t “execution.” The real problem is that the market has shifted substantially. For decades CSC’s outsourcing business was the norm. But today companies don’t need a lot of what CSC outsources. They are closing down those costly operations and replacing them with cloud services, cloud application development and implementation, mobile deployments and significant big data analytics. Or looking for new services to solve problems like cybersecurity threats. CSC quite simply hasn’t done anything in those markets, and it is far, far behind. It is a big dinosaur rapidly being overtaken by competitors moving more quickly to new solutions.
One of CSC’s biggest competitors is IBM, which itself has had a series of woes. However, IBM has very publicly set up a partnership with Apple and is moving rapidly to develop industry-specific software as a service (SaaS) offerings that are mobile and operate in the cloud. These targeted enterprise solutions in health care, finance and other industries are designed to make the services offered by CSC obsolete.
Although it may have had a huge client base of 1,000 customers. And CSC brags that 175 of the Fortune 500 buy some services from it, exactly what does CSC bring to the table to keep these customers? Years of cost cutting means the company has not invested in the kinds of solutions being offered by IBM and competitors such as Accenture, HP and Dell domestically – and WiPro, TCS (Tata Consulting Services,) Infosys and Cognizant offshore. Not to mention dozens of up-and-coming small competiters who are right on the market for targeted solutions with the latest technology such as 6D Gobal Technologies. CSC is still stuck in its 1980s consulting model, and skill set, in a world that is vastly different today.
CSC has no idea how to “focus” on clients. That would mean investing in modern solutions to rapidly changing client needs. CSC failed to do that 15 years ago when most outsourcing involved heavy use of offshore resources. And CSC has never caught up. Leadership overly relied on selling old services, and discounting. It’s model caused it to underbid projects, until the UK government almost shut the company down for its inability to deliver, and constantly hiding actual results.
Now CSC lacks any of the capabilities, people or skills to offer clients what they want. Its diffuse customer base is more a liability than a benefit, because these customers are “end of life” for the services CSC offers. Years of declining revenues demonstrate that as value declines, contracts are either allowed to go to very cheap offshore providers, lapse completely or cancelled early in order to shift client resources to more important projects where CSC cannot compete.
This split is just an admission that leadership has no idea what to do next. Customers are leaving, and revenues are declining. Margins, at 5%, are terrible and there is no money to invest in anything new. Some of the world’s best investors have looked at CSC deeply and chosen to walk away. For employees and individual investors it is time to admit that CSC has a limited future, and it is time to find far greener pastures.
by Adam Hartung | Aug 20, 2014 | Current Affairs, Ethics, Leadership, Travel
Have you taken a summer vacation? It’s almost Labor Day.
Peak vacation time is Memorial Day to Labor Day. Almost since the Industrial Revolution began, removing people from farms, the family vacation – away from work and other grinds – has been a much desired, and remembered, treasure.
If you haven’t taken all your days off, you were far from alone. Americans are increasingly skipping vacations. According to a Glassdoor survey, half of all Americans no longer use all their company agreed-to vacation time. Heck, 15% don’t take any vacation at all.
If you did take vacation, was your mobile device, and/or laptop, used for work? Or did you take the job with you? 20% say they talked to “the boss” while on vacation. 1 in 4 talked to a colleague.
According to a study by GfK Public Affairs and Communications, people suffer from feeling like their employer really doesn’t want them to take time off. In order to increase their sense of employment security, employees are trying harder every year to make themselves “indispensable.” This leads us to believe we really can’t be gone, or there will be a huge mountain of work facing us (and countless unpaid overtime hours spent digging out) when we return from a break. Or worse, the job won’t be there when we come back.
The study creators call this the “work martyr complex.” No matter how much we love family, we are martyrs to employers in order to keep that incredibly necessary, and fleeting paycheck. After all, we have no job assurance in America. Almost no white collar workers, other than C-level execs, have an employment agreement. And union membership has dropped to lows predating WWII due to a lack of unionization of white collar and service employees.
Where Europeans and other countries have multiple worker protection laws for everyone, Americans are – by and large – “employees at will.” Meaning an employer can fire you for just about any reason drummed up. Even anger created because something happened while you were on vacation. After 2 decades of CEOs who lead by “operational improvements,” causing round after round of cost cuts and layoffs, employees have learned that the day they take off could be the day their budget is slashed, or their job eliminated.
We cannot underestimate the role of leaders in this situation. Nobody can be productive 24x7x365. Everyone needs time off. And the more important the role, the more critical the decisions, the more time off is necessary. Just look at commercial airline pilots – would you want them doubling their flying time? A 7X7 pilot may make only a handful of important decisions every year, yet we want that cockpit filled with crews that are rested, alert and ready to make good decisions.
Why isn’t this true for a plant manager? Compliance manager? Sales manager? Audit manager? Communications manager? Is their role no less critical to the operation of the corporate “aircraft” and the safety of all the corporate employee “passengers?”
Yet, far too many leaders allow the combination of mobile technology and employees’ embedded fear of losing their jobs to breed an environment where vacation goes unused. No company tracks how often a boss calls, texts, emails or phones a subordinate when on a holiday. No company tracks how often a boss requires a subordinate to “check in” with the office while gone. Nobody pays any attention to how many hours an employee on vacation uses their mobile device or PC for company business while, ostensibly, “vacating” their work in order to relax and recharge. In fact, that is considered “dedication.”
All companies track how much time every employee takes off. Take too many days and employees are docked pay. Take even more days and that employee could well lose his job. But even though 95% of senior leaders espouse support for employees taking their vacations, have you ever heard of a company disciplining an employee for not taking a vacation? If half the company’s paid time off days go unused, the employer simply takes advantage of the possible cost savings and additional productivity. Usually saying it was the employee’s responsibility to figure out how to leave the job for several days without creating any problems.
In a quintessential example of the all-too-often real senior leader view of vacations, fifteen years ago I heard the President of Computer Sciences Corporation’s Commercial Division brag to the CEO, and a group of large clients, that only about 25% of the division’s allocated days off were ever used. He personally took credit that via his “disciplined leadership” employees showed up for work even when they could take days off. He even bragged about people working on major holidays like Easter, Thanksgiving and Christmas. He wanted everyone to know that he did not support a “lethargic” organization.
Chronic focus on the short term always has negative long-term implications. That division of CSC lost 80% of its revenue, and employees, as burn-out drove people away. Over and again we ovbserve that employees see themselves as not valued when they work in fear. Unused vacation days is a simple metric of a company culture that values short-term benefits over long-term performance, and a culture that supports fear over results.
If you didn’t use all your vacation, it’s really not your fault. It is the culture of your organization, the messages sent by leaders, and the metrics used by Human Resources. When employees matter, and the company wants long-term performance, then people know they are valued and they are comfortable taking days off. If you’re not taking all your vacation days it may well be a sign of problems in your company, and perhaps it is a good thing to use some of those days to find a different place to work. If you lead a company where employees don’t take allotted time off, perhaps you should re-assess your leadership and procedures, before it’s too late.
by Adam Hartung | Jul 28, 2011 | Books, Current Affairs, Defend & Extend, eBooks, In the Rapids, Innovation, Leadership, Television, Web/Tech
“It’s easier to succeed in the Amazon than on the polar tundra” Bruce Henderson, famed founder of The Boston Consulting Group, once told me. “In the arctic resources are few, and there aren’t many ways to compete. You are constantly depleting resources in life-or-death struggles with competitors. Contrarily, in the Amazon there are multiple opportunities to grow, and multiple ways to compete, dramatically increasing your chances for success. You don’t have to fight a battle of survival every day, so you can really grow.”
Today, Amazon(.com) is the place to be. As the financial markets droop, fearful about the economy and America’s debt ceiling “crisis,” Amazon is achieving its highest valuation ever. While the economy, and most companies, struggle to grow, Amazon is hitting record growth:
Source: BusinessInsider.com
Sales are up 50% versus last year! The result of this impressive sales growth has been a remarkable valuation increase – comparable to Apple!
- Since 2009, valuation is up 5.5x
- Over 5 years valuation is up 8x
- Over the last decade Amazon’s value has risen 15x
How did Amazon do this? Not by “sticking to its knitting” or being very careful to manage its “core.” In 2001 Amazon was still largely an on-line book seller.
The company’s impressive growth has come by moving far from its “core” into new markets and new businesses – most far removed from its expertise. Despite its “roots” and “DNA” being in U.S. books and retailing, the company has pioneered off-shore businesses and high-tech products that help customers take advantage of big trends.
Amazon’s earnings release provided insight to its fantastic growth. Almost 50% of revenues lie outside the U.S. Traditional retailers such as WalMart, Target, Kohl’s, Sears, etc. have struggled in foreign markets, and blamed poor performance on weak infrastructure and complex legal/tax issues. But where competitors have seen obstacles, Amazon created opportunity to change the way customers buy, and change the industry using its game-changing technology and capabilities. For its next move, according to Silicon Alley Insider, “Amazon is About to Invade India,” a huge retail market, in an economy growing at over 7%/year, with rising affluence and spendable income – but almost universally overlooked by most retailers due to weak infrastructure and complex distribution.
Amazon’s remarkable growth has occurred even though its “core” business of books has been declining – rather dramatically – the last decade. Book readership declines have driven most independents, and large chains such as B. Dalton and more recently Borders, out of business. But rather than use this as an excuse for weak results, Amazon invested heavily in the trends toward digitization and mobility to launch the wildly successful Kindle e-Reader. Today about half of all Amazon book sales are digital, creating growth where most competitors (hell-bent on trying to defend the old business) have dealt with stagnation and decline.
Amazon did this without a background as a technology company, an electronics company, or a consumer goods company. Additionally, Amazon invested in Kindle – and is now developing a tablet – even as these products cannibalized the historically “core” paper-based book sales. And Amazon has pursued these market shifts, even though these new products create a significant threat to Amazon’s largest traditional suppliers – book publishers.
Rather than trying to defend its old core business, Amazon has invested heavily in trends – even when these investments were in areas where Amazon had no history, capability or expertise!
Amazon has now followed the trends into a leading position delivering profitable “cloud” services. Amazon Web Services (AWS) generated $500M revenue last year, is reportedly up 50% to $750M this year, and will likely hit $1B or more before next year. In addition to simple data storage Amazon offers cloud-based Oracle database services, and even ERP (enterprise resource planning) solutions from SAP. In cloud computing services Amazon now leads historically dominant IT services companies like Accenture, CSC, HP and Dell. By offering solutions that fulfill the emerging trends, rather than competing head-to-head in traditional service areas, Amazon is growing dramatically and avoiding a gladiator war. And capturing big sales and profits as the marketplace explodes.
Amazon created 5,300 U.S. jobs last quarter. Organic revenue growth was 44%. Cash flow increased 25%. All because the company continued expanding into new markets, including not only new retail markets, and digital publishing, but video downloads and television streaming – including making a deal to deliver CBS shows and archive.
Amazon’s willingness to go beyond conventional wisdom has been critical to its success. GeekWire.com gives insight into how Amazon makes these critical resource decisions in “Jeff Bezos on Innovation” (taken from comments at a shareholder meeting June 7, 2011):
- “you just have to place a bet. If you place enough of those bets, and if you place them early enough, none of them are ever betting the company”
- “By the time you are betting the company, it means you haven’t invented for too long”
- “If you invent frequently and are willing to fail, then you never get to the point where you really need to bet the whole company”
- “We are planting more seeds…everything we do will not work…I am never concerned about that”
- “my mind never lets me get in a place where I think we can’t afford to take these bets”
- “A big piece of the story we tell ourselves about who we are, is that we are willing to invent”
If you want to succeed, there are ample lessons at Amazon. Be willing to enter new markets, be willing to experiment and learn, don’t play “bet the company” by waiting too long, and be willing to invest in trends – especially when existing competitors (and suppliers) are hesitant.
by Adam Hartung | Dec 23, 2010 | Defend & Extend, General, In the Rapids, Innovation, Leadership, Openness
“Goodbye 2010, the Year of Austerity” is the headline from Mediapost.com‘s Marketing Daily. And that could be the mantra for many, many companies. Nobody is winning today by trying to save their way to prosperity! As we move into this decade, it is important business leaders realize that the only way to create a strong bottom line (profit) is to develop a strong top line (revenue.) Recommendations:
- Never be desperate. Go to where the growth is, and where you can make money. Don’t chase any business, chase the business where you can profitably growth. Be somewhat selective.
- Focus efforts on markets you know best. I add that it’s important you understand not to do just what you like, but learn to do what customers VALUE.
- Let go of crap, traditions and “playing it safe” actions. Growth is all about learning to do what the market wants, not trying to protect the past – whether processes, products or even customers.
- More lemonade making. You can’t grow unless you’re willing to learn from everything around you. We constantly find ourselves holding lemons, but those who prosper don’t give up – they look for how to turn those into desirable lemonade. What is your willingness to learn from the market?
- Austerity measures are counterproductive 99% of the time. Efficiency is the biggest obstacle to innovation. You don’t have to be a spendthrift to succeed, but you can’t be a miser investing in only the things you know, and have done before.
- Communicate, communicate, communicate. We don’t learn if we don’t share. Developing insight from the environment happens when all inputs are shared, and lots of people contribute to the process.
- Get off the downbeat buss. There’s more to success than the power of positive thinking, but it is very hard to gain insight and push innovation when you’re a pessimist. Growth is an opportunity to learn, and do exciting things. That should be a positive for everybody – except the status quo police.
Realizing that you can’t beat the cost-cutting horse forever (in fact, most are about ready for the proverbial glue factory), it’s time to realize that businesses have been under-investing in innovation for the last decade. While GM, Circuit City, Blockbuster, Silicon Graphics and Sun Microsystems have been failing, Apple, Google, Cisco, Netflix, Facebook and Twitter have maintained double-digit growth! Those who keep innovating realize that markets aren’t dead, they’re just shifting! Growth is there for businesses who are willing to innovate new solutions that attract customers and their dollars! For every dead DVD store there’s somebody making money streaming downloads. Businesses simply have to work harder at innovating.
Fast Company gives us “Five Innovative New Year’s Resolutions:”
- Associate. Work harder at trying to “connect the dots.” Pick up on weak signals, before others, and build scenarios to help understand the impact of these signals as they become stronger. For example, 24x7WallStreet.com clues us in that greater use of mobile devices will wipe out some businesses in “The Ten Businesses The Smartphone Has Destroyed.” But for each of these (and hundreds others over the next few years) there will be a large number of new business opportunities emerging. Just look at the efforts of Foursquare and Groupon and the direction those growth businesses are headed.
- Observe. Pay attention to what’s happening in the world, and think about what it means for your (and every other) business. $100/barrel oil has an impact; what opportunity does it create? Declining network TV watching has an impact – how will you leverage this shift? Don’t just wander through the market, and reacting. Figure out what’s happening and learn to recognize the signs of growth opportunities. Use market events to drive being proactive.
- Experiment. If you don’t have White Space teams trying figure out new business models, how will you be a future winner? Nobody “lucks” into a growth market. It takes lots of trial and learning – and that means the willingness to experiment. A lot. Plan on experimenting. Invest in it. And then plan on the positive results.
- Question. Keep asking “why” until the market participants are so tired they throw you out of the room. Then, invent scenarios and ask “why not” until they throw you out again. Markets won’t tell you what the next big thing is, but if you ask a lot of questions your scenarios about the future will be a whole lot better – and your experimentation will be significantly more productive.
- Network. You can’t cast your net too wide in the effort to obtain multiple points of view. Nothing is narrower than our own convictions. Only by actively soliciting input from wide-ranging sources can you develop alternative solutions that have higher value. We become so comfortable talking to the same people, inside our companies and outside, that we don’t realize how we start hearing only reinforcement for our biases. Develop, and expand, your network as fast as possible. Oil and water may be hard to mix, but it blending inputs creates a good salad dressing.
ChiefExecutive.net headlined “2010 CEO Wealth Creation Index Shows a Few Surprises.” Who creates wealth? Included in thte Top 10 list are the CEOs of Priceline.com, Apple, Amazon, Colgate-Palmolive and DeVry. These CEOs are driving industry innovation, and through that growth. This has produced above-average cash flow, and higher valuations for their shareholders. As well as more, and better quality jobs for employees. Meanwhile suppliers are in a position to offer their own insights for ways to grow, rather than constantly battling price discussions.
Who destroys wealth? In the Top 10 list are the CEOs of Dean Foods, Kraft, Computer Sciences (CSC) and Washington Post. These companies have long eschewed innovation. None have introduced any important innovations for over a decade. Their efforts to defend & extend old practices has hurt revenue growth, providing ample opportunity for competitors to enter their markets and drive down margins through price wars. Penny-pinching has not improved returns as revenues faltered, and investors have watched value languish. Employees are constantly in turmoil, wondering what future opportunities may ever exist. Suppliers never discuss anything but price. These are not fun companies to work in, or with, and have not produced jobs to grow our economy.
Any company can grow in 2011. Will you? If you choose to keep doing what you’ve always done – well you shouldn’t plan on improved performance. On the other hand, embracing market shifts and creating an adaptive organization that identifies and launches innovation could well make you into a big winner. Next holiday season when you look at performance results for 2011 they will have more to do with management’s decisions about how to manage than any other factor. Any company can grow, if it does the right things.
