Friday, May 29, 2009
Spotted this at Starbucks, right in front of the baristas.
A picture is worth a thousand words.
Spotted this at Starbucks, right in front of the baristas.
A picture is worth a thousand words.
There’s an intriguing new book that I can’t wait to read called In Pursuit of Elegance: Why the Best Ideas Have Something Missing by Matthew E. May.
In an interview with Guy Kawasaki (find it here) I found May’s perspective refreshing. But it was a quote from Apple’s Steve Jobs which May cited that really got my attention. Jobs said, “People think focus means saying yes to the thing you’ve got to focus on. But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of many of the things we haven’t done as the things we have done.”
Loss of focus is one of the dangerous internal dynamics that When Growth Stalls exposes as so destructive to struggling companies. During tough times like these, it’s easier than ever to say “yes” to ideas that look good on the surface. In fact, no company ever lost its focus pursuing an idea that appeared unwise.
That’s the thing about loss of focus–not to mention loss of nerve, loss of consensus and inconsistency. They tend to do their damage by stealth. Only those who are aware of these issues can address (or avoid) them.
Keep your eyes open.
I had never even heard of Burt’s Bees until I stumbled upon it with my wife a few years back (when we were at a bookstore, of all places). She raved about how much she loved the brand and just had to have it. Fine, I thought–until I saw how much the little twist tube cost. Yikes!
Once I got over the shock, however, I knew I wanted to find out more about this oddly-named natural product. I’m always impressed by brands that are unafraid to charge premium prices.
Mike Indursky is chief marketing and strategic officer of Burt’s Bees. In a recent Advertising Age interview, Indursky talked about why the brand isn’t changing its pricing strategy during the recession. He says, “We’ve made a decision not to cut back. In a bad economy is when peoples’ value equations change, and it’s important for us to really make sure consumers understand the value that comes from buying Burt’s. It’s not about playing a price game.”
Indursky, who also oversees R&D; at Burt’s, hasn’t lost his nerve, a good sign for the $200 million brand. And he’s managed to continue growing market share, even as competitors are cutting prices. Not every company can charge twice as much as the competition and grow market share during a recession, but the fact that even one can should be encouraging to us all.
In its May 25 issue, BusinessWeek reported on Burger King’s recent sales woes. It seems that after multiple years of stellar growth, the company has run into some rough water. While arch-rival McDonald’s saw April sales rise 7%, BK has had a difficult couple of months.
While I respect Burger King’s discipline in focusing on its core customer of young men in recent years, I can’t endorse everything they do. (Their Sponge Bob kids meal promotion was truly a head-scratcher.) Still, I think the company will be OK.
Why? Burger King appears to be stumbling on only one of the four internal dynamics that cause problems when growth stalls. CEO John Chidsey says he remains committed to consistency in continuing to pursue young male customers, he’s showing nerve by increasing the ad budget 25 percent next year, and I don’t see any reason to believe why “tweaking his strategy to draw in more budget-conscious consumers” would cause a loss of focus. For the most part he’s making the right calls.
The only concern I have is the one wrong move Chidsey has made. He ticked off his franchisees by appropriating funds from soft drink makers that normally go to store owners. It’s not like he was doing anything untoward with the money–it was going to support the national advertising fund, which would drive even more business into the stores. But Burger King’s independent-minded franchisees don’t like someone changing the rules, especially if it means money is coming out of their pockets.
This minor rift would be a problem in any company, but with Burger King it’s more of a whopper (sorry, couldn’t resist). The company has had a particularly troubling time with the lack of consensus issue over the years (I know–I used to work for one of its ad agencies). You don’t go through nearly a dozen CEOs and half as many agencies over a twenty-year period unless something is structurally wrong.
Consensus issues aside, if Chidsey and the team at corporate keep their market focus where it should be, sales will start to recover and all will be forgiven (for a time, at least). I remain cautiously optimistic that Burger King can steer its way through these rapids.
Walmart has prospered throughout the economic downturn. The company just announced a first-quarter increase in U.S. same-store sales of 3.7 percent, and 17 percent of Walmart’s retail visits were from new customers, who spent 40 percent more in store than the average shopper. No doubt economic belt-tightening has attracted many “price sensitive affluents” (as Walmart calls them) who never thought they’d set foot in the store.
There are two reasons for Walmart’s recent success, one obvious and one less so. The obvious reason is the brand’s core value proposition of providing low, low, low prices. As much as Walmart has been a big business whipping post in recent years, nobody’s complaining about how much the company has helped strapped consumers stretch their budgets. But what many people may not know is that Walmart has also wisely and quietly increased its investment in advertising, taking advantage not only of the fact that competitors are cutting their ad budgets, but of the willingness of the struggling media to negotiate as well. Always working the price angle, that Walmart.
So what’s going to happen from here? As the economy recovers, will Walmart’s sales stagnate as consumers once again begin to trade up to higher-priced competitors? For its part, Walmart isn’t sitting still and simply hoping its fortunes don’t fall as those of the rest of the economy pick up. The company continues to invest in efficiency-building technology as well as store remodeling to make customer experiences better. Steve Bratspies, Walmart’s senior vice president of grocery, says his company will continue to focus both on “unbeatable prices” and a “cleaner, faster and friendlier” customer experience.
Every corporation makes strategic mistakes, as Walmart did a few years ago when it briefly—and painfully—lost its core focus. But the company’s current leadership now seems to be playing it smart.
Intel is a perennial member of the Fortune 500 (#8 this year) and among the more than 30 percent of corporations that saw revenues decline in 2008. But the company hasn’t lost its nerve (see “What Not To Cut“). One of the main reasons why is the confident consistency of the company’s chairman, Craig Barrett. Barrett was recently interviewed by the Wall Street Journal’s Michael S. Malone, and his comments reveal a man who has become convinced of the inviolable need for investing in innovation, regardless of external circumstances.
Barrett says, “The job of the CEO is not to reward the short-term speculator of your stock, but to do a good job long term for your shareholders, employees and customers. You don’t invest for ‘let’s have a 20% lay-off tomorrow to prop up our stock’ or ‘let’s cut R&D; to get a positive response from Wall Street.’ Thank God for Moore’s Law, because it won’t let us think like that; because if we do we get hammered.”
He learned that lesson the hard way. In When Growth Stalls I document one of the company’s rare failures to maintain its technological leadership position, and the inroads an aggressive AMD achieved against Intel’s market share. About that hiccup Barrett said, “We won’t let that happen again.”
I believe him, at least as long as the culture that Gordon Moore, Andy Grove and Barrett have nurtured over the years holds up. Barrett says that occasionally companies will be tempted to say, “What’s with the pell mell rush to improve our technology every two years? Let’s slow down to say, four years, and only have to invest half as much capital.” About that he says, “It always sounds like a cool idea, and it always ends up with that company losing market share.”
Over three-plus decades at Intel, Barrett has faced down every kind of market tectonic, sometimes with more success than others. He knows that the economy is cyclical. He understands that today’s technology is tomorrow’s artifact. And he actually appreciates competition. “It’s like athletes,” he says. “To be a great company you need great competitors. It’s what keeps you alive and keeps you honest.”
“I’m always looking for profitable growth on a sustained basis. That’s I think the hardest challenge in business–to not do it just once, but year after year.”
–Bruce Carbonari, CEO, Fortune Brands
That’s the lead quote in When Growth Stalls, and it’s fitting that it comes from the CEO of a company that’s currently stalled. Fortune Magazine’s annual Fortune 500 issue just hit newsstands, and Fortune Brands (#351 on the list and no relation to the magazine) suffered a revenue decline of more that 14 percent in 2008.
There are a number of other notable names on the stalled growth list. The top ten companies whose growth stalled in 2008 include:
#11 Bank of America
#13 Berkshire Hathaway
#16 JP Morgan Chase & Co.
#25 Home Depot
#30 Morgan Stanley
Each of these companies’ problems have been well chronicled of late. While some are facing existential threats, others are fundamentally sound but struggling to cope with the global economic crisis.
What’s truly remarkable about this year’s report is that more than 30 percent of all Fortune 500 corporations are currently stalled. That’s double the 15 percent of companies that struggle in a typical year, according to my research. Of course, this is anything but a typical year. Revenues for the Fortune 500 as a whole were up a measly 0.8 percent, while profits were down nearly 85 percent.
There’s talk that perhaps the worst is behind us and if so, next year’s report should reveal better news. That said, in many of these companies the destructive internal dynamics that rear their ugly heads when growth stalls will wreak their havoc long after the broader recovery begins. Let’s hope their leaders know how to deal with them.
I was so struck by this statement in the Wall Street Journal that I had to read it three times. The late Zhao Ziyang, a former Secretary General of China’s Communist Party who sacrificed his career based on his opposition to the government’s heavy-handed handling of the Tiananmen Square protestors, said in his soon-to-be-published memoirs:
“If a country wishes to modernize, not only should it implement a market economy, it must also adopt a parliamentary democracy as its political system.”
Wow. It’s a wonderful testimony that by being intellectually honest and willing to confront the statist propaganda with which he was raised, Zhao came to understand the power of free people and free markets. Those are principles all of us in the private and public sectors should never allow ourselves to forget, even–especially, perhaps–when growth stalls.
Yesterday I had the pleasure of visiting with Tom Keene and Ken Prewitt on Bloomberg radio about the principles in When Growth Stalls (click here to listen). During the course of the conversation, Ken brought up the loss of focus principle in the context of department stores.
My mind immediately flashed on an article that appeared Wednesday in the Wall Street Journal about how Macy’s is “picking at the bones of fallen competitors” by stocking its formal rivals’ most popular products. It’s a profitable yet potentially risky strategy.
For example, the company is expanding its selection of bridal products in the wake of New York furniture and jewelry retailer Fortunoff’s bankruptcy (and considering offering patio furniture, which Fortunoff moved by the truckload). It’s also stocking additional cosmetics in its West Coast locations following the demise of Mervyn’s, and adding premium chocolate and more “moderately priced apparel” in Pittsburgh based on products offered by retailers that have bitten the dust there. All of this in addition to the company’s “My Macy’s” initiative, which already allows local stores to customize up to 20% of their inventory to suit local tastes.
Hmmm. I smell danger. Stepping into the breach of a dynamic competitive marketplace in order to gain market share is smart. Stocking merchandise just because you can sell it is playing with “loss of focus fire,” something with which department stores naturally struggle. If Macy’s isn’t careful, its iconic brand could get burned.
Vice President for Research and Analysis
MasterCard Advisors SpendingPulse
(Good news: McNamara also said, “It’s pretty clear that things have stopped getting worse.”)