by Adam Hartung | Dec 18, 2012 | Current Affairs, Defend & Extend, Food and Drink, In the Swamp, Leadership
How would you recognize signs of a troubled business? Often the key indicator is when leadership clearly takes "more of the same" to excess.
This week McDonald's leadership began encouraging franchisees to open on Christmas Day. Their primary objective, clearly stated, was to produce more revenue and hopefully show a strong December.
I nominate McDonald's for the 2012 Dickens' Award as the most Scrooge-est business behavior this season.
"Christmas is but an excuse for workers to pick their employer's pockets every 25th December" is I believe how Charles Dickens put it in "A Christmas Carol." Poor Bob Cratchet couldn't even have 1 day off per year. And in McDonald's case the company founder actually made it corporate policy to never be open on Thanksgiving or Christmas days so employees could be with family.
Bah! Humbug!
Now, there are a lot of trends McDonald's could legitimately cite when making a case for being open on Christmas – a case that could actually shed a positive light on the company:
- The number of single people has risen over the last decade. This trend means that many more people now have a need for at least one meal not in a family setting on 25 December.
- America has a large and storied Jewish community for whom 25 December does not have a special religious meaning. For these people enjoying their habitual norms such as eating at McDonald's would indicate an open-minded company supports all faiths.
- America is a nation of immigrants. While the founders were European Christians, today America has a very diverse group of immigrants, especially from Asia and the Indian sub-continent, who follow Islam and other faiths for which 25 December has, again, no particular meaning. Offering them a place to eat on their day off could show a connection with their growing importance to America's future. An act of understanding to their impact on the country.
These are just 3, and there are likely more and better ones (please offer your thoughts in the comments section.) But truthfully, this is not why McDonald's is urging franchisees to toil on this national holiday. Instead, it is just to make a buck.
But then again, what trend has McDonald's successfully leveraged in the last… let's say 2 decades? Despite the rapid growth of high end coffee, the "McCafe" concept was a decade late, and so missed the mark that it has made no impact when competing against Caribou Coffee, Peet's or Starbucks. And it has had minimal benefit for McDonald's.
To understand the dearth of new products just go to McDonald's web site where you'll see an animated ad for the "101 reasons to eat a McRib" – that mystery meat product which is at least 30 years old and rotated on and off the menu in the guise of "something new."
McDonald's had a very rough last quarter. It's sales per store declined versus a year ago. The number of stores has stagnated, sales are stagnant, new products are non-existent. Even Ronald McDonald has aged, and apparently moved on to the nursing home. What can you think about that is exciting about McDonald's?
Desperate to do something, McDonald's fired the head of North America. But that doesn't fix the growth problem at McDonald's, it just demonstrates the company is internally fixated on blame rather understanding external market shifts and taking action. McDonald's keeps doing more of the same, year after year; such as opening more stores in emerging markets, staying open longer hours at existing locations and even opening on Thanksgiving and Christmas in the U.S.
McDonald's Ghost of Christmas past was its great strength, from its origin, of consistency. In the 1960s when people traveled away from home they could never be quite sure what a restaurant offered. McDonald's offered a consistent product, that people liked, at a consistent (and affordable) price. This success formula launched tremendous growth, and a revolution in America's restaurant industry, creating a great string of joyous past Christmases.
But the Ghost of Christmas present is far more bleak. 50 years have passed, and now people have a lot more options – and much higher expectations – regarding dining. But McDonald's really has failed to adapt. So now it is struggling to grow, struggling to meet goals, struggling to be a kind and gentle employer. Now asking its employees to work on Christmas – and ostensibly eat Big Macs.
What is the Ghost of Christmas Future for McDonald's? Not surprisingly, if it cannot adapt to changing markets things are likely to worsen. No company can hope to succeed by simply doing more of the same forever. Constantly focusing on efficiency, and beating on franchisees and employees to stay open longer, is a downward spiral. Eventually every business HAS to innovate; adapt to changing market conditions, or it will die. Just look at the tombstones – Kodak, Hostess, Circuit City, Bennigan's ….
Take time between now and 2013 to ask yourself, what is your Ghost of Christmas past upon which your business was built? How does that compare to the Ghost of Christmas present? If there's a negative gap, what should you expect your Ghost of Christmas Future to look like? Are you adapting to changing markets, or just hoping things will improve while you resist putting enough coal on the fire to keep everyone warm?
by Adam Hartung | Nov 29, 2012 | Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Web/Tech
The web lit up yesterday when people started sharing a Fortune quote from Marissa Mayer, CEO of Yahoo, "We are literally moving the company from BlackBerrys to smartphones." Why was this a big deal? Because, in just a few words, Ms. Mayer pointed out that Research In Motion is no longer relevant. The company may have created the smartphone market, but now its products are so irrelevant that it isn't even considered a market participant.
Ouch. But, more importantly, this drove home that no matter how good RIM thinks Blackberry 10 may be, nobody cares. And when nobody cares, nobody buys. And if you weren't convinced RIM was headed for lousy returns and bankruptcy before, you certainly should be now.
But wait, this is certainly a good bit of the pot being derogatory toward the kettle. Because, other than the highly personalized news about Yahoo's new CEO, very few people care about Yahoo these days as well. After being thoroughly trounced in ad placement and search by Google, it is wholly unclear how Yahoo will create its own relevancy. It may likely be soon when a major advertiser says "When placing our major internet ad program we are focused on the split between Google and Facebook," demonstrating that nobody really cares about Yahoo anymore, either.
And how long will Yahoo survive?
The slip into irrelevancy is the inflection point into failure. Very few companies ever return. Once you are no longer relevant, customer quickly stop paying attention to practically anything you do. Even if you were once great, it doesn't take long before the slide into no-growth, cost cutting and lousy financial performance happens.
Consider:
- Garmin once led the market for navigation devices. Now practically everyone uses their mobile phone for navigation. The big story is Apple's blunder with maps, while Google dominates the marketplace. You probably even forgot Garmin exists.
- Radio Shack once was a consumer electronics powerhouse. They ran superbowl ads, and had major actresses parlaying with professional sports celebrities in major network ads. When was the last time you even thought about Radio Shack, much less visited a store?
- Sears was once America's premier, #1 retailer. The place where everyone shopped for brands like Craftsman, DieHard and Kenmore. But when did you last go into a Sears? Or even consider going into one? Do you even know where one is located?
- Kodak invented amateur photography. But when that market went digital nobody cared about film any more. Now Kodak is in bankruptcy. Do you care?
- Motorola Razr phones dominated the last wave of traditional cell phones. As sales plummeted they flirted with bankruptcy, until Motorola split into 2 pieces and the money losing phone business became Google – and nobody even noticed.
- When was the last time you thought about "building your body 12 ways" with Wonder bread? Right. Nobody else did either. Now Hostess is liquidating.
Being relevant is incredibly important, because markets shift quickly today. As they shift, either you are part of the trend going forward – or you are part of the "who cares" past. If you are the former, you are focused on new products that customers want to evaluate. If you are the latter, you can disappear a whole lot faster than anyone expected as customers simply ignore you.
So now take a look at a few other easy-to-spot companies losing relevancy:
- HP headlines are dominated by write offs of its investments in services and software, causing people to doubt the viability of its CEO, Meg Whitman. Who wants to buy products from a company that would spend billions on Palm, business services and Autonomy ERP software only to decide they overspent and can never make any money on those investments? Once a great market leader, HP is rapidly becoming a company nobody cares about; except for what appears to be a bloody train wreck in the making. In tech – lose customesr and you have a short half-life.
- Similarly Dell. A leader in supply chain management, what Dell product now excites you? As you think about the money you will spend this holiday, or in 2013, on tech products you're thinking about mobile devices — and where is Dell?
- Best Buy was the big winner when Circuit City went bankrupt. But Best Guy didn't change, and now margins have cratered as people showroom Amazon while in their store to negotiate prices. How long can Best Buy survive when all TVs are the same, and price is all that matters? And you download all your music and movies?
- Wal-Mart has built a huge on-line business. Did you know that? Do you care? Regardless of Wal-mart's on-line efforts, the company is known for cheap looking stores with cheap merchandise and customers that can't maintain credit cards. When you look at trends in retailing, is Wal-Mart ever the leader – in anything – anymore? If not, Wal-mart becomes a "default" store location when all you care about is price, and you can't wait for an on-line delivery. Unless you decide to go to the even cheaper Dollar General or Aldi.
And, the best for last, is Microsoft. Steve Ballmer announced that Microsoft phone sales quadrupled! Only, at 4 million units last quarter that is about 10% of Apple or Android. Truth is, despite 3 years of development, a huge amount of pre-release PR and ad spending, nobody much cares about Win8, Surface or new Microsoft-based mobile phones. People want an iPhone or Samsung product.
After its "lost decade" when Microsoft simply missed every major technology shift, people now don't really care about Microsoft. Yes, it has a few stores – but they dwarfed in number and customers by the Apple stores. Yes, the shifting tiles and touch screen PCs are new – but nobody real talks about them; other than to say they take a lot of new training. When it comes to "game changers" that are pushing trends, nobody is putting Microsoft in that category.
So the bad news about a $6 billion write-down of aQuantive adds to the sense of "the gang that can't shoot straight" after the string of failures like Zune, Vista and early Microsoft phones and tablets. Not to mention the lack of interest in Skype, while Internet Explorer falls to #2 in browser market share behind Chrome.
Chart Courtesy Jay Yarrow, BusinessInsider.com 5-21-12
When a company is seen as never able to take the lead amidst changing
trends, investors see accquisitions like $1.2B for Yammer as a likely future write down. Customers lose interest and simply spend money elsewhere.
As investors we often hear about companies that were once great brands, but selling at low multiples, and therefore "value plays." But the truth is these are death traps that wipe out returns. Why? These companies have lost relevancy, and that puts them one short step from failure.
As company managers, where are you investing? Are you struggling to be relevant as other competitors – maybe "fringe" companies that use "voodoo solutions" you don't consider "enterprise ready" or understand – are obtaining a lot more interest and media excitment? You can work all you want to defend & extend your past glory, but as markets shift it is amazingly easy to lose relevancy. And it's a very, very tough job to play catch- up.
Just look at the money being spent trying at RIM, Microsoft, HP, Dell, Yahoo…………
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by Adam Hartung | Oct 12, 2011 | Current Affairs, Defend & Extend, eBooks, In the Rapids, In the Whirlpool, Innovation, Leadership, Lifecycle, Lock-in, Transparency, Web/Tech
Wal-Mart has had 9 consecutive quarters of declining same-store sales (Reuters.) Now that’s a serious growth stall, which should worry all investors. Unfortunately, the odds are almost non-existent that the company will reverse its situation, and like Montgomery Wards, KMart and Sears is already well on the way to retail oblivion. Faster than most people think.
After 4 decades of defending and extending its success formula, Wal-Mart is in a gladiator war against a slew of competitors. Not just Target, that is almost as low price and has better merchandise. Wal-Mart’s monolithic strategy has been an easy to identify bulls-eye, taking a lot of shots. Dollar General and Family Dollar have gone after the really low-priced shopper for general merchandise. Aldi beats Wal-Mart hands-down in groceries. Category killers like PetSmart and Best Buy offer wider merchandise selection and comparable (or lower) prices. And companies like Kohl’s and J.C. Penney offer more fashionable goods at just slightly higher prices. On all fronts, traditional retailers are chiseling away at Wal-Mart’s #1 position – and at its margins!
Yet, the company has eschewed all opportunities to shift with the market. It’s primary growth projects are designed to do more of the same, such as opening smaller stores with the same strategy in the northeast (Boston.com). Or trying to lure customers into existing stores by showing low-price deals in nearby stores on Facebook (Chicago Tribune) – sort of a Facebook as local newspaper approach to advertising. None of these extensions of the old strategy makes Wal-Mart more competitive – as shown by the last 9 quarters.
On top of this, the retail market is shifting pretty dramatically. The big trend isn’t the growth of discount retailing, which Wal-Mart rode to its great success. Now the trend is toward on-line shopping. MediaPost.com reports results from a Kanter Retail survey of shoppers the accelerating trend:
- In 2010, preparing for the holiday shopping season, 60% of shoppers planned going to Wal-Mart, 45% to Target, 40% on-line
- Today, 52% plan to go to Wal-Mart, 40% to Target and 45% on-line.
This trend has been emerging for over a decade. The “retail revolution” was reported on at the Harvard Business School website, where the case was made that traditional brick-and-mortar retail is considerably overbuilt. And that problem is worsening as the trend on-line keeps shrinking the traditional market. Several retailers are expected to fail. Entire categories of stores. As an executive from retailer REI told me recently, that chain increasingly struggles with customers using its outlets to look at merchandise, fit themselves with ideal sizes and equipment, then buying on-line where pricing is lower, options more plentiful and returns easier!
While Wal-Mart is huge, and won’t die overnight, as sure as the dinosaurs failed when the earth’s weather shifted, Wal-Mart cannot grow or increase investor returns in an intensely competitive and shifting retail environment.
The winners will be on-line retailers, who like David versus Goliath use techology to change the competition. And the clear winner at this, so far, is the one who’s identified trends and invested heavily to bring customers what they want while changing the battlefield. Increasingly it is obvious that Amazon has the leadership and organizational structure to follow trends creating growth:
- Amazon moved fairly quickly from a retailer of out-of-inventory books into best-sellers, rapidly dominating book sales bankrupting thousands of independents and retailers like B.Dalton and Borders.
- Amazon expanded into general merchandise, offering thousands of products to expand its revenues to site visitors.
- Amazon developed an on-line storefront easily usable by any retailer, allowing Amazon to expand its offerings by millions of line items without increasing inventory (and allowing many small retailers to move onto the on-line trend.)
- Amazon created an easy-to-use application for authors so they could self-publish books for print-on-demand and sell via Amazon when no other retailer would take their product.
- Amazon recognized the mobile movement early and developed a mobile interface rather than relying on its web interface for on-line customers, improving usability and expanding sales.
- Amazon built on the mobility trend when its suppliers, publishers, didn’t respond by creating Kindle – which has revolutionized book sales.
- Amazon recently launched an inexpensive, easy to use tablet (Kindle Fire) allowing customers to purchase products from Amazon while mobile. MediaPost.com called it the “Wal-Mart Slayer“
Each of these actions were directly related to identifying trends and offering new solutions. Because it did not try to remain tightly focused on its original success formula, Amazon has grown terrifically, even in the recent slow/no growth economy. Just look at sales of Kindle books:
Source: BusinessInsider.com
Unlike Wal-Mart customers, Amazon’s keep growing at double digit rates. In Q3 unique visitors rose 19% versus 2010, and September had a 26% increase. Kindle Fire sales were 100,000 first day, and 250,000 first 5 days, compared to 80,000 per day unit sales for iPad2. Kindle Fire sales are expected to reach 15million over the next 24 months, expanding the Amazon reach and easily accessible customers.
While GroupOn is the big leader in daily coupon deals, and Living Social is #2, Amazon is #3 and growing at triple digit rates as it explores this new marketplace with its embedded user base. Despite only a few month’s experience, Amazon is bigger than Google Offers, and is growing at least 20% faster.
After 1980 investors used to say that General Motors might not be run well, but it would never go broke. It was considered a safe investment. In hindsight we know management burned through company resources trying to unsuccessfully defend its old business model. Wal-Mart is an identical story, only it won’t have 3 decades of slow decline. The gladiators are whacking away at it every month, while the real winner is simply changing competition in a way that is rapidly making Wal-Mart obsolete.
Given that gladiators, at best, end up bloody – and most often dead – investing in one is not a good approach to wealth creation. However, investing in those who find ways to compete indirectly, and change the battlefield (like Apple,) make enormous returns for investors. Amazon today is a really good opportunity.
by Adam Hartung | Jul 14, 2011 | Investing, Leadership, Trends
When you go after competitors, does it more resemble a gladiator war – or a David vs. Goliath battle? The answer will likely determine your profitability. As a company, and as an investor.
After they achieve some success, most companies fall into a success formula – constantly tyring to improve execution. And if the market is growing quickly, this can work out OK. But eventually, competitors figure out how to copy your formula, and as growth slows many will catch you. Just think about how easily long distance companies caught the monopolist AT&T after deregulation. Or how quickly many competitors have been able to match Dell’s supply chain costs in PCs. Or how quickly dollar retailers – and even chains like Target – have been able to match the low prices at Wal-Mart.
These competitors end up in a gladiator war. They swing their price cuts, extended terms and other promotional weapons, leaving each other very bloody as they battle for sales and market share. Often, one or more competitors end up dead – like the old AT&T. Or Compaq. Or Circuit City. These gladiator wars are not a good thing for investors, because resources are chewed up in all the fighting, leaving no gains for higher dividends – nor any stock price appreciation. Like we’ve seen at Wal-Mart and Dell.
The old story of David and Goliath gives us a different approach. Instead of going “toe-to-toe” in battle, David came at the fight from a different direction – adopting his sling to throw stones while he remained safely out of Goliath’s reach. After enough peppering, he wore down the giant and eventually popped him in the head.
And that’s how much smarter people compete.
- When everyone was keen on retail stores to rent DVDs, Netflix avoided the gladiator war with Blockbuster by using mail delivery.
- While United, American, Continental, Delta, etc. fought each other toe-to-toe for customers in the hub-and-spoke airline wars (none making any money by the way) Southwest ferried people cheaply between smaller airports on direct flights. Southwest has made more money than all the “major” airlines combined.
- While Hertz, Avis, National, Thrifty, etc. spent billions competing for rental car customers at airports Enterprise went into the local communities with small offices, and now has twice their revenues and much higher profitability.
- When internet popularity started growing in the 1990s Netscape traded axe hits wtih Microsoft and was destroyed. Another browser pioneer, Spyglass, transitioned from PCs to avoid Microsoft, and started making browsers for mobile phones, TVs and other devices creating billions for investors.
- While GM, Ford and Chrysler were in a grinding battle for auto customers, spending billions on new models and sales programs, Honda brought to market small motorcycles and very practical, reliable small cars. Honda is now very profitable in several major markets, while the old gladiators struggle to survive.
As an investor, we should avoid buying stocks of companies, and management teams that allow themselves to be drug into gladiator wars. No matter what promises they make to succeed, their success is uncertain, and will be costly to obtain. What’s worse, they could win the gladiator war only to find themselves facing David – after they are exhausted and resources are spent!
- Research in Motion became embroiled in battles with traditional cell phone manufacturers like Nokia and Ericdson, and now is late to the smartphone app market – and with dwindling resources.
- Motorola fought the gladiator war trying to keep Razr phones competitive, only to completely miss its early lead in smartphones. Now it has limited resources to develop its Android smart phone line.
- Is it smart for Google to take on a gladiator war in social media against Facebook, when it doesn’t seem to have any special tool for the battle? What will this cost, while it simultaneously fights Apple in Android wars and Microsoft for Chrome sales?
On the other hand, it’s smart to invest in companies that enter growth markets, but have a new approach to drive customer conversion. For example, Zip Car rents autos by the hour for urban users. Most cars are very high mileage, which appeals to customers, but they also are pretty inexpensive to buy. Their approach doesn’t take-on the traditional car rental company, but is growing quite handily.
This same logic applies to internal company investments as well. Far too often the corporate reource allocation process is designed to fight a gladiator war. Constantly spending to do more of the same. Projects become over-funded to fight battles considered “necessity,” while new projects are unfunded despite having the opportunity for much higher rates of return.
In 2000, Apple could have chosen to keep pouring money into the Mac. Instead it radically cut spending, reduced Mac platforms, and started looking for new markets where it could bring in new solutions. IPods, iTunes, IPhones, iPads and iCloud are now driving growth for the company – all new approaches that avoided gladiator battles with old market competitors. Very profitable growth. Apple has enough cash on hand to buy every phone maker, except Samsung – or Apple could buy Dell – if it wanted to. Apple’s market cap is worth more than Microsoft and Intel combined.
If you want to make more money, it’s best to avoid gladiator wars. They are great spectator events – but terrible places to be a participant. Instead, set your organization to find new ways of competing, and invest where you are doing what competitors are not. That will earn the greatest rate of return.
by Adam Hartung | Dec 17, 2010 | Current Affairs, Defend & Extend, In the Rapids, In the Swamp, Leadership, Web/Tech
Summary:
- Many people think it is OK for large companies to grow slowly
- Many people admire caretaker CEOs
- In dynamic markets, low-growth companies fail
- It is harder to generate $1B of new revenue, than grow a $100B company by $10B
- Large companies have vastly more resources, but they squander them badly
- We allow large company CEOs too much room for mediocrity and failure
- Good CEOs never lose a growth agenda, and everyone wins!
“I may just be your little rent collector Mr. Potter, but that George Bailey is making quite a bit happen in that new development of his. If he keeps going it may just be time for this smart young man to go asking George Bailey for a job.” From “It’s a Wonderful Life“ an employee of the biggest employer in mythical Beford Falls talks about the growth of a smaller competitor.
My last post gathered a lot of reads, and a lot of feedback. Most of it centered on how GE should not be compared to Facebook, largely because of size differences, and therefore how it was ridiculous to compare Jeff Immelt with Mark Zuckerberg. Many readers felt that I overstated the good qualities of Mr. Zuckerberg, while not giving Mr. Immelt enough credit for his skills managing “lower growth businesses” in a “tough economy.” Many viewed Mr. Immelt’s task as incomparably more difficult than that of managing a high growth, smaller tech company from nothing to several billion revenue in a few years. One frequent claim was that it is enough to maintain revenue in a giant company, growth was less important.
Why do so many people give the CEOs of big companies a break? Given that they make huge salaries and bonuses, have fantastic perquesites (private jets, etc.), phenominal benefits and pensions, and receive remarkable payouts whether they succeed or fail I would think we’d have very high standards for these leaders – and be incensed when their performance is sub-par.
Facebook started with almost no resources (as did Twitter and Groupon). Most leaders of start-ups fail. It is remarkably difficult to marshal resources – both enough of them and productively – to grow a company at double digit rates, produce higher revenue, generate cash flow (or loans) and keep employees happy. Growing to a billion dollars revenue from nothing is inexplicably harder than adding $10B to a $100B company. Compared to Facebook, GE has massive resources. Mr. Immelt entered the millenium with huge cash flow, huge revenues, and an army of very smart employees. Mr. Zuckerberg had to come out of the blocks from a standing start and create ALL his company’s momentum, while comparatively Mr. Immelt took on his job riding a bullet out of a gun! GE had huge momentum, a low cost of capital, and enough resources to do anything it wanted.
Yet somehow we should think that we don’t have as high expectations from Mr. Immelt as we do Mr. Zuckerberg? That would seem, at the least, distorted.
In business school I read the story of how American steel manufacturers were eclipsed by the Japanese. Ending WWII America had almost all the steel capacity. Manufacturers raked in the profits. Japanese and German companies that were destroyed had to rebuild, which they progressively did with more efficient assets. By the 1960s American companies were no longer competitive. Were we to believe that having their industrial capacity destroyed somehow was a good thing for the foreign competitors? That if you want to improve your competitiveness (say in autos) you should drop a nuclear bomb on the facilities (some may like that idea – but not many who live in Detroit I dare say.) In reality the American leaders simply refused to invest in new technologies and growth markets, allowing competitors to end-run them. The American leaders were busy acting as caretakers, and bragging about their success, instead of paying attention to market shifts and keeping their companies successful!
Big companies, like GE, are highly advantaged. They not only have brand, and market position, but cash, assets, employees and vendors in position to help them be even more successful! A smart CEO uses those resources to take the company into growth markets where it can grow revenues, and profits, faster than the marketplace. For example Steve Jobs at Apple, and Eric Schmidt at Google have found new markets, revenues and cash flow beyond their original “core” markets. That’s what Mr. Welch did as predecessor to Mr. Immelt. He didn’t so much take advantage of a growth economy as help create it! Unfortunately, far too many large company CEOs squander their resources on low rate of return projects, trying to defend their existing business rather than push forward.
Most big companies over-invest in known markets, or technologies, that have low growth rates, rather than invest in growth markets, or technologies they don’t know as well. Think about how Motorola invented the smart phone technology, but kept investing in traditional cellular phones. Or Sears, the inventor of “at home shopping” with catalogues closed that division to chase real-estate based retail, allowing Amazon to take industry leadership and market growth. Circuit City ended up investing in its approach to retail until it went bankrupt in 2010 – even though it was a darling of “Good to Great.” Or Microsoft, which launched a tablet and a smart phone, under leader Ballmer re-focused on its “core” operating system and office automation markets letting Apple grab the growth markets with R&D investments 1/8th of Microsoft’s. These management decisions are not something we should accept as “natural.” Leaders of big companies have the ability to maintain, even accelerate, growth. Or not.
Why give leaders in big companies a break just because their historical markets have slower growth? Singer’s leadership realized women weren’t going to sew at home much longer, and converted the company into a defense contractor to maintain growth. Netflix converted from a physical product company (DVDs) into a streaming download company in order to remain vital and grow while Blockbuster filed bankruptcy. Apple transformed from a PC company into a multi-media company to create explosive growth generating enough cash to buy Dell outright – although who wants a distributor of yesterday’s technology (remember Circuit City.) Any company can move forward to be anything it wants to be. Excusing low growth due to industry, or economic, weakness merely gives the incumbent a pass. Good CEOs don’t sit in a foxhole waiting to see if they survive, blaming a tough battleground, they develop strategies to change the battle and win, taking on new ground while the competition is making excuses.
GM was the world’s largest auto company when it went broke. So how did size benefit GM? In the 1980s Roger Smith moved GM into aerospace by acquiring Hughes electronics, and IT services by purchasing EDS – two remarkable growth businesses. He “greenfielded” a new approach to auto manufucturing by opening the wildly successful Saturn division. For his foresight, he was widely chastised. But “caretaker” leadership sold off Hughes and EDS, then forced Saturn to “conform” to GM practices gutting the upstart division of its value. Where one leader recognized the need to advance the company, followers drove GM to bankruptcy by selling out of growth businesses to re-invest in “core” but highly unprofitable traditional auto manufacturing and sales. Meanwhile, as the giant failed, much smaller Kia, Tesla and Tata are reshaping the auto industry in ways most likely to make sure GM’s comeback is short-lived.
CEOs of big companies are paid a lot of money. A LOT of money. Much more than Mr. Zuckerberg at Facebook, or the leaders of Groupon and Netflix (for example). So shouldn’t we expect more from them? (Marketwatch.com “Top CEO Bonuses of 2010“) They control vast piles of cash and other resources, shouldn’t we expect them to be aggressively investing those resources in order to keep their companies growing, rather than blaming tax strategies for their unwillingness to invest? (Wall Street Journal “Obama Pushes CEOs on Job Creation“) It’s precisely because they are so large that we should have high expectations of big companies investing in growth – because they can afford to, and need to!
At the end of the day, everyone wins when CEOs push for growth. Investors obtain higher valuation (Apple is worth more than Microsoft, and almost more than 10x larger Exxon!,) employees receive more pay (see Google’s recent 10% across the board pay raise,) employees have more advancement opportunities as well as personal growth, suppliers have the opportunity to earn profits and bring forward new innovation – creating more jobs and their own growth – rather than constantly cutting price. Answering the Economist in “Why Do Firms Exist?” it is to deliver to people what they want. When companies do that, they grow. When they start looking inward, and try being caretakers of historical assets, products and markets then their value declines.
Can Mr. Zuckerberg run GE? Probably. I’d sure rather have him at the helm of GM, Chrysler, Kraft, Sara Lee, Motorola, AT&T or any of a host of other large companies that are going nowhere the caretaker CEOs currently making excuses for their lousy performance. Think what the world would be like if the aggressive leaders in those smaller companies were in such positions? Why, it might just be like having all of American business run the way Steve Jobs, Jeff Bezos and John Chambers have led their big companies. I struggle to see how that would be a bad thing.
