Can you believe it has been only 12 years since Apple introduced the iPod? Since then Apple’s value has risen from about $11 (January, 2001) to over $500 (today) – an astounding 45X increase.
With all that success it is easy to forget that it was not a “gimme” that the iPod would succeed. At that time Sony dominated the personal music world with its Walkman hardware products and massive distribution through consumer electronics chains such as Best Buy, and broad-line retailers like Wal-Mart. Additionally, Sony had its own CD label, from its acquisition of Columbia Records (renamed CBS Records,) producing music. Sony’s leadership looked impenetrable.
But, despite all the data pointing to Sony’s inevitable long-term domination, Apple launched the iPod. Derided as lacking CD quality, due to MP3’s compression algorithms, industry leaders felt that nobody wanted MP3 products. Sony said it tried MP3, but customers didn’t want it.
All the iPod had going for it was a trend. Millions of people had downloaded MP3 songs from Napster. Napster was illegal, and users knew it. Some heavy users were even prosecuted. But, worse, the site was riddled with viruses creating havoc with all users as they downloaded hundreds of millions of songs.
Eventually Napster was closed by the government for widespread copyright infreingement. Sony, et.al., felt the threat of low-priced MP3 music was gone, as people would keep buying $20 CDs. But Apple’s new iPod provided mobility in a way that was previously unattainable. Combined with legal downloads, including the emerging Apple Store, meant people could buy music at lower prices, buy only what they wanted and literally listen to it anywhere, remarkably conveniently.
The forecasted “numbers” did not predict Apple’s iPod success. If anything, good analysis led experts to expect the iPod to be a limited success, or possibly failure. (Interestingly, all predictions by experts such as IDC and Gartner for iPhone and iPad sales dramatically underestimated their success, as well – more later.) It was leadership at Apple (led by the returned Steve Jobs) that recognized the trend toward mobility was more important than historical sales analysis, and the new product would not only sell well but change the game on historical leaders.
Which takes us to the mistake Intel made by focusing on “the numbers” when given the opportunity to build chips for the iPhone. Intel was a very successful company, making key components for all Microsoft PCs (the famous WinTel [for Windows+Intel] platform) as well as the Macintosh. So when Apple asked Intel to make new processors for its mobile iPhone, Intel’s leaders looked at the history of what it cost to make chips, and the most likely future volumes. When told Apple’s price target, Intel’s leaders decided they would pass. “The numbers” said it didn’t make sense.
Uh oh. The cost and volume estimates were wrong. Intel made its assessments expecting PCs to remain strong indefinitely, and its costs and prices to remain consistent based on historical trends. Intel used hard, engineering and MBA-style analysis to build forecasts based on models of the past. Intel’s leaders did not anticipate that the new mobile trend, which had decimated Sony’s profits in music as the iPod took off, would have the same impact on future sales of new phones (and eventually tablets) running very thin apps.
Harvard innovation guru Clayton Christensen tells audiences that we have complete knowledge about the past. And absolutely no knowledge about the future. Those who love numbers and analysis can wallow in reams and reams of historical information. Today we love the “Big Data” movement which uses the world’s most powerful computers to rip through unbelievable quantities of historical data to look for links in an effort to more accurately predict the future. We take comfort in thinking the future will look like the past, and if we just study the past hard enough we can have a very predictible future.
But that isn’t the way the business world works. Business markets are incredibly dynamic, subject to multiple variables all changing simultaneously. Chaos Theory lecturers love telling us how a butterfly flapping its wings in China can cause severe thunderstorms in America’s midwest. In business, small trends can suddenly blossom, becoming major trends; trends which are easily missed, or overlooked, possibly as “rounding errors” by planners fixated on past markets and historical trends.
Markets shift – and do so much, much faster than we anticipate. Old winners can drop remarkably fast, while new competitors that adopt the trends become “game changers” that capture the market growth.
In 2000 Apple was the “Mac” company. Pretty much a one-product company in a niche market. And Apple could easily have kept trying to defend & extend that niche, with ever more problems as Wintel products improved.
But by understanding the emerging mobility trend leadership changed Apple’s investment portfolio to capture the new trend. First was the iPod, a product wholly outside the “core strengths” of Apple and requiring new engineering, new distribution and new branding. And a product few people wanted, and industry leaders rejected.
Then Apple’s leaders showed this talent again, by launching the iPhone in a market where it had no history, and was dominated by Motorola and RIMM/BlackBerry. Where, again, analysts and industry leaders felt the product was unlikely to succeed because it lacked a keyboard interface, was priced too high and had no “enterprise” resources. The incumbents focused on their past success to predict the future, rather than understanding trends and how they can change a market.
Then Apple did it again. Years after Microsoft attempted to launch a tablet, and gave up, Apple built on the mobility trend to launch the iPad. Analysts again said the product would have limited acceptance. Looking at history, market leaders claimed the iPad was a product lacking usability due to insufficient office productivity software and enterprise integration. The numbers just did not support the notion of investing in a tablet.
Anyone can analyze numbers. And today, we have more numbers than ever. But, numbers analysis without insight can be devastating. Understanding the past, in grave detail, and with insight as to what used to work, can lead to incredibly bad decisions. Because what really matters is vision. Vision to understand how trends – even small trends – can make an enormous difference leading to major market shifts — often before there is much, if any, data.
Steve Ballmer announced he would be retiring as CEO of Microsoft within the next 12 months. This extended timing, rather than immediately, shows clear the Board is ready for him to go but there is nobody ready to replace him.
The big question is, who would want Ballmer's job? It will be very tough to make Microsoft an industry leader again. What would his replacement propose to do? The fuse for a turnaround is short, and the options faint.
Microsoft has been on a downhill trajectory for at least 4 years. Although the company has introduced innovations in gaming (xBox and Kinect) as well as on-line (games and Bing), those divisions perpetually lose money. Stiff competitors Sony, Nintendo and Google have made these forays intellectually interesting, but of no value for investors or customers. The end-game for Microsoft has remained Windows – and as PC sales decline that's very bad news.
Microsoft viability has been firmly tied to Windows and Office sales. Historically these have been unassailable products, creating over 100% of the profits at Microsoft (covering losses in other divisions.) But, these products have lost growth, and relevancy. Windows 8 and Office 365 are product nobody really cares about, while they keep looking for updates from Apple, Google, Amazon and Samsung.
The market started going mobile 10 years ago. As Apple and Google promoted increased mobility, Microsoft tried to defend & extend its PC stronghold. It was a classic business inflection point in the making. Everyone knew at some point mobile devices would be more important than PCs. But most industry insiders (including Microsoft) kept thinking it would be later rather than sooner.
They were wrong. The shift came a lot faster than expected. Like in sailboat racing, suddenly the wind was taken out of Microsoft's sails as competitors shot to the lead in customer interest. While people were excited for new smartphones and tablets, Microsoft tried to re-engineer its historical product as an extension into the new market.
Windows 8 tablets and Surface tablets were ill-fated from the beginning. They did not appeal to the huge installed base of Windows customers, because changes like touch screens and tiles simply were too expensive and too behaviorally different. And they offered no advantage for people to switch that had already started buying iOS and Android products. Not to mention an app availability about 10% of the market leaders. Simply put, investing in Windows 8 and its own tablet was like adding bricks to a downhill runaway truck (end-of-life for PCs) – it sped up the time to an inevitable crash.
And spending money on poorly thought out investments like the Barnes & Noble Nook merely demonstrated Microsoft had money to burn, rather than a strategy for competing. Skype cost some $8B, but how has that helped Microsoft become more competive? It's not just an overspending on internal projects that failed to achieve any market success, but a series of wasted investments in bad acquisitions that showed Microsoft had no idea how it was going to regain industry leadership in a changing marketplace going more mobile and into the cloud every month.
Now the situation is pretty dire, and now is the time for Microsoft to give up on its defend and extend strategy for Windows/Office. Customers are openly uninterested in new laptops running Windows 8. And Win 8.1 will not change this lackadaisical attitude. Nobody is interested in Windows 8 phones, or tablets. This has left companies in the Microsoft ecosystem like HP, Dell and Nokia gasping for air as sales tumble, profits evaporate and customers flock to new solutions from Apple and Samsung. Instead of seeking out an update to Office for a new PC, people are using much lighter (and cheaper) cloud services from Amazon and office solutions like Google docs. And most of those old add-on product sales, like printers and servers, are disappearing into the cloud and mobile displays.
So now, after being forced to write off Surface and report a horrible quarter, the Board has pushed Ballmer out the door. Pretty remarkable. But, incredibly late. Just like the leaders at RIM stayed too long, leaving the company with no future options as Blackberry sales plummeted, Ballmer is taking leave as sales, profits and cash flow are taking a turn for the worst. And only months after a reorganization that simply made the whole situation a lot more confusing for not only investors, but internal managers and employees.
Microsoft has a big cash hoard, but how long will that last? As its distribution system falters, and sales drop, the costs will rapidly catch up with cash flow. Big layoffs are a certainty; think half the workforce in 2 years. Equally certain are sales of divisions (who can buy xBox market share and turn it competitively profitable?) or shut-downs (how long will Bing stay alive when it is utterly unnecessary and expensive to maintain?)
But, there is a better option. Without the cash from
Windows/Office, you can't keep much of the rest of Microsoft walking. So
now is the time to cut investments in Windows/Office and put money into the
best things Microsoft has going – primarily Kinect and cloud services. A radical restructuring of its spending and investments.
Kinect is an incredible product. It has found multiple applications Microsoft fails to capitalize upon. Kinect has the possibility of becoming the centerpiece for managing how we connect to data, how we store data, how we find data. It can bring together our smartphone, tablet and historical laptop worlds – and possibly even connect this to traditional TV and radio. It can be the centerpiece for two-way communications (think telephone or skype via all your devices.) Coupled with the right hardware, it can leapfrog iTV (which we still are waiting to see) and Cisco simultaneously.
In cloud services it will take a lot to compete with leaders Amazon, IBM, Apple and Google. They have made big investments, and are far in front. But, this is the bread-and-butter market for Microsoft. Millions of small businesses that want easy to use BYOD (bring your own device) environment, and easy access to data, documents and functionality for IT, like guaranteed data back-up and uptime, and user functionality like all those apps. These customers have relied on Microsoft for these kind of services for years, and would enjoy a services provider with an off-the-shelf product they can implement easily and cheaply that supports all their needs. Expensive to develop, but a growing market where Microsoft has a chance to leapfrog competitors.
As for Bing, give it to Yahoo – if Marissa Mayer will take it. Stop the bloodletting and get out of a market where Microsoft has never succeeded. Bing is core to Yahoo's business. If you can trade for some Yahoo stock, go for it. Let Yahoo figure out how to sell content and ads, while Microsoft refocuses on the new platform for 2017; from the user to the infrastructure services.
Strong leaders have their benefits. But, when they don't understand market shifts, and spend far too long trying to defend & extend past markets, they can put their organizations in terrible jeopardy of total failure. Ballmer leaves no with clear replacement, nor with any vision in place for leapfrogging competitors and revitalizing Microsoft.
So it is imperative the new leader provide this kind of new thinking. There are trends developing that create future scenarios where Microsoft can once again be a market leader. And it will be the role of the new CEO to identify that vision and point Microsoft's investments in the right direction to regain viability by changing the game on the current winners.
Microsoft needed a great Christmas season. After years of product stagnation, and a big market shift toward mobile devices from PCs, Microsoft's future relied on the company seeing customers demonstrate they were ready to jump in heavily for Windows8 products – including the new Surface tablet.
Looking deeper, for the 4th quarter PC sales declined by almost 5% according to Gartner research, and by almost 6.5% according to IDC. Both groups no longer expect a rebound in PC shipments, as they believe homes will no longer have more than 1 PC due to the mobile device penetration – the market where Surface and Win8 phones have failed to make any significant impact or move beyond a tiny market share. Users increasingly see the complexity of shifting to Win8 as not worth the effort; and if a switch is to be made consumer and businesses now favor iOS and Android.
These trends mean nothing short of the ruin of Microsoft. Microsoft makes more than 75% of its profits from Windows and Office. Less than 25% comes from its vaunted servers and tools. And Microsoft makes nothing from its xBox/Kinect entertainment division, while losing vast sums on-line (negative $350M-$750M/quarter). No matter how much anyone likes the non-Windows Microsoft products, without the historical Windows/Office sales and profits Microsoft is not sustainable.
So what can we expect at Microsoft:
Ballmer has committed to fight to the death in his effort to defend & extend Windows. So expect death as resources are poured into the unwinnable battle to convert users from iOS and Android.
As resources are poured out of the company in the Quixotic effort to prolong Windows/Office, any hope of future dividends falls to zero.
Expect enormous layoffs over the next 3 years. Something like 50-60%, or more, of employees will go away.
Expect closure of the long-suffering on-line division in order to conserve resources.
The entertainment division will be spun off, sold to someone like Sony or even Barnes & Noble, or dramatically reduced in size. Unable to make a profit it will increasingly be seen as a distraction to the battle for saving Windows – and Microsoft leadership has long shown they have no idea how to profitably grow this business unit.
As more and more of the market shifts to competitive cloud businesses Apple, Amazon and others will grow significantly. Microsoft, losing its user base, will demonstrate its inability to build a new business in the cloud, mimicking its historical experiences with Zune (mobile music) and Microsoft mobile phones. Microsoft server and tool sales will suffer, creating a much more difficult profit environment for the sole remaining profitable division.
Missing the market shift to mobile has already forever tarnished the Microsoft brand. No longer is Microsoft seen as a leader, and instead it is rapidly losing market relevancy as people look to Apple, Google, Amazon, Samsung, Facebook and others for leadership. The declining sales, and lack of customer interest will lead to a tailspin at Microsoft not unlike what happened to RIM. Cash will be burned in what Microsoft will consider an "epic" struggle to save the "core of the company."
But failure is already inevitable. At this stage, not even a new CEO can save Microsoft. Steve Ballmer played "Bet the Company" on the long-delayed release of Win8, losing the chance to refocus Microsoft on other growing divisions with greater chance of success. Unfortunately, the other players already had enough chips to simply bid Microsoft out of the mobile game – and Microsoft's ante is now long gone – without holding a hand even remotely able to turn around the product situation.
Game over. Ballmer loses. And if you keep your money invested in Microsoft it will disappear along with the company.
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.
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…………
We've become so used to reading about reorganizations, layoffs and cost cutting that most people just accept such leadership decisions as "best practice." No matter the company, or industry, it has become conventional wisdom to believe cost cutting is a good thing.
As a reporter recently asked me regarding about layoffs at Yahoo, "Isn't it always smart to cut heads when your profits fall?" Of course not. Have the layoffs at Yahoo in any way made it a better, more successful company able to compete with Google, Microsoft, Facebook and Apple? Given the radical need for innovation, layoffs have only hurt Yahoo more – and made it more likely to end up like RIM (Research in Motion.)
But like believing in a flat world, blood letting to cure disease and that meteorites are spit up out of the ground – this is just another conventional wisdom that is untrue; and desperately needs to be challenged. Cost reductions are killing most companies, not helping them.
Take for example Sara Lee. Sara Lee was once a great, growing company. Its consumer brands were well known, considered premium products and commanded a price premium at retail.
The death spiral at Sara Lee began in 2006. "Professional managers" from top-ranked MBA schools started "improving earnings" with an ongoing program of reorganizations and cost reductions. Largely under the leadership of the much-vaunted Brenda Barnes, none of these cost reductions improved revenues. And the stock price went nowhere.
With each passing year Sara Lee sold parts of the business, such as Hanes, under the disguise of "seeking focus." With each sale a one-time gain was booked, and more people were laid off as the reorganizations continued. Profits remained OK, but the company was actually shrinking – rather than growing.
To prop up the stock price all avaiable cash was used to buy back stock, which helped maximize executive compensation but really did nothing for investors. R&D was eliminated, as was new product development and any new product launches. Instead Sara Lee kept selling more businesses, reorganizing, cutting costs — and buying its own shares. Until finally, after Ms. Barnes left due to an unfortunate stroke, Sara Lee was so small it had nothing left to sell.
So the company decided to split into two parts! Magically, it's like pushing the reset button. What was Sara Lee is now an even smaller Hillshire Brands. All that poor track record of sales, profits and equity value goes POOF as the symbol SLE disappears, and investors are left following HSH – which has only traded for about 2 days! No more looking at that long history of bad performance, it isn't on Bloomberg or Marketwatch or Yahoo. Like the name Sara Lee, the history vanishes.
Well, "if you can't dazzle 'em with brilliance you baffle 'em with bull**it" W.C. Fields once said.
Cost cuts don't work because they don't compound. If I lay off the head of Brand Marketing this year I promise to save $300,000 and improve the Profit & Loss Statement (P&L) by that amount. So a one time improvement. Now – ignoring the fact that the head of branding probably did a number of things to grow revenue – the problem becomes, what do you do the next year? You can't lay off the Brand V.P. again to save that $300,000 twice. Further, if you want to improve the P&L by $450,000 this time you actually have to find 2 Directors to lay off!
Shooting your own troops in order to manage a smaller army rarely wins battles.
Cost cuts are one-time, and are impossible to duplicate. Following this route leads any company toward being much smaller. Like Sara Lee. From a once great company with revenues in the $10s of billions, the new Hillshire Brands isn't even an S&P 500 company (it was replaced by Monster Beverage.) And how can any investor obtain a great return on investment from a company that's shrinking?
What does create a great company? Growth! Unlike cost cutting, if a company launches a new product it can sell $300,000 the first year. If it meets unmet needs, and is a more effective solution, then the product can attract new customers and sell $600,000 the second year. And then $900,000 or maybe $1.2M the third year. (And even add jobs!)
If you are very good at creating and launching products that meet needs, you can create billions of dollars in new revenue. Like Apple with the iPhone and iPad. Or Facebook. Or Groupon. These companies are growing revenues extremely fast because they have products that meet needs. They aren't trying to "save the P&L."
And revenue growth creates "compound returns." Unlike the cost savings which are one time, each dollar of revenue produces cash flow which can be invested in more sales and delivery which can generate even more cash flow. So if growth is 20% and you invest $1,000 in year one, that can become $1,200 in year two, then $1,440 in year three, $1,728 in year four and $2,070 in year five. Each year you receive 20% not only on the $1,000 you invested, but on returns from the previous years!
By compounding year after year, at20% investor money doubles in 5 years. That's why the most important term for investing is CAGR – Compound Annual Growth Rate. Even a small improvement in this number, from say 9% to 11%, has very important meaning. Because it "compounds" year after year. You don't have to add to your investment – merely allowing it to support growth produces very, very handsome returns. The higher the CAGR the better.
Something no cost cutting program can possibly due. Ever.
So, what is the future of Hillshire Brands? According to the CEO, interviewed Sunday for the Chicago Tribune, the company's historically poor performance could be blamed on —– wait —– insufficient focus. Alas, Sara Lee's problem was obviously too much sales! Well, good thing they've been solving that problem.
Of course, having too many brands led to too much lateral thinking and not enough really deep focus on meat. So now that all they need to think about is meat, he expects innovation will be much improved. Right. Now that HSH is a "meat focused meals" company, and the objective is to add innovation to meat, they are considering such radical dietary improvements for our fat-laden, overcaloried American society as adding curry powder to the frozen meatloaf.
Not exactly the iPhone.
To create future growth the first act the new CEO took to push growth was —- wait —– cutting staff by $100million over the next 3 years. Really. He will solve the "analysis paralysis" which seems to concern him as head of this much smaller company because there won't be anyone around to do the analysis, nor to discuss it and certainly not to disagree with the CEO's decisions. Perhaps meat loaf egg rolls will be next.
All reorganizations and cost reductions point to leadership's failure to create growth. Every time. Staff reductions say to investors, employees, suppliers and customers "I have no idea how to add profitable revenue to this company. I really have no clue how to put these people to work productively – even if they are really good people. I have no choice but to cut these jobs, because we desperately need to make the profits look better in order to prop up the stock price short term; even if it kills our chances of developing new products, creating new markets and making superior rates of return for investors long term."
Hillshire's CEO may do very well for himself, and his fellow executives. Assuredly they have compensation plans tied to stock price, and golden parachutes if they leave. HSH is now so small that it is a likely purchase by a more successful company. By further gutting the organization Hillshire's CEO can reduce staff to a minimum, making the acquisition appear easier for a large company. This would allow a premium payment upon acquisition, providing millions to the executives as options pay out and golden parachutes enact.
And it might give a return to the shareholders. If the ongoing slaughter finds a buyer. Otherwise investors will see the stock crater as it heads to bankruptcy. Like RIM and Yahoo. So flip a coin. But that's called gambling, not investing.
What investors need is CAGR. Not cost cutting and reorganizations. And as I've said since 2006 – you don't want to own Sara Lee; even if it's now called Hillshire Brands.
