The Management Mythbuster

Executive wisdom (or not?)

After the ultimate schmooze fest at Davos last week, I decided to ponder what the world's top executives (political and commerical) thinking.  Let's start with Russia's President, Dmitry Medvedev (he's clearly not the CEO!)   who commented at Davos that, "Our task is to turn Russia into a more attractive place for the best minds in the world."  A laudable goal that is not really supported by current actions.

An old quote from Hosni Mubarek caught my attention in light of the current situation in Egypt: "We are meeting here to put an end to this cycle (of violence), to put things in order and to put the wjeel of peace on the right track."  I guess its time for him to practice what you preach!

As the world slowly heals from the financial crisis, Morgan Stanley CEO, commented in today's Wall Street Journal (31 Jan) on the differences between now and 2007, "We're very focused on making sure that whatever happens, whatever scenario, we have a fortress-type operation. I don't think that was the mindset in the mid-2000's anywhere on the Street"  The only possible response to that is, "You don't say!"

Hindsight is clearly 20/20 as Bob Stoffel, SVP at UPS described in Fortune (12/27/2010), "...as part of our strategy, we do scenario planning, and we did a plan called Oil 200. It played out exactly like the recession. The same things we expected to see in the Oil 200 world, we saw with the global recession." Well that's comforting to now isn't it?  Of course Oil $200 is a bit out there, after all UPS' own forecast have it pegged at $78 barrel (today's price $88).

To end let's look at two of GM's leaders, one from the Golden Age and one from the Government Age.  First, Dan Akerson who seems to be doing an ok job as Mayor of Detroit, sorry CEO of GM.  However I was a little concerned by a report in the WSJ (Jan8-9, 2011) that at a 2009 board meeting before his elevation, he commented on GM commercials that promoted fuel effiiciency thus, "Nobody cares about fuel economy. When its empty, you fill it, period.  Why are we advertising something nobody cares about?"  Good to see he's in touch with his customers!

I leave the final word to the great Alfred P Sloan who in a memo to his managers dated May 10, 1926 said, "It is always pleasing, of course, to do better than one stated and it is well to be conservative in all these things but the arbitrary changing of figures simply to show a better result than forecast...discredit(s) the whole process which has contributed so much to our welfare."  Its a shame his successors didn''t follow his advice.

More to come - watch this space!

25 years on - why New Coke is still a great management lesson

Today we are overrun by analytics - it appears that analytics can solve everything including world hunger!

Don't get me wrong I am great fan of analysis - I like nothing more than curling up with a warm spreadsheet. However its important to remember that even sound analysis can be fatally flawed; this is where the story of New Coke comes in.  Read on...

The battle for supremacy in the cola wars has been going on for decades as Coca-Cola and PepsiCo have slugged it out for every point of market share. This was a heavyweight fight that made the “Rumble in the Jungle” seem like a little local skirmish. By 1985, Coca-Cola, while still the overall market leader, had seen its market share decline for fifteen straight years. Pepsi had taken the lead in supermarket sales in the 1970s and was closing the gap in overall sales. If Pepsi could persuade one large customer, such as McDonald’s, to switch to its products, it would take the top spot.

Pepsi’s success came on the back of an aggressive marketing program that positioned Pepsi as the more youthful and cooler product for “The Pepsi Generation.” Integral to the marketing campaign was The Pepsi Challenge, a blind taste test that consistently demonstrated that customers preferred the taste of Pepsi to that of Coke. Obviously, Coca-Cola had a problem, but CEO Robert Goizueta had a solution—a new formula for Coke. A series of taste tests in twenty markets showed the new formula soundly beating Pepsi with the 99-year-old original Coke in last place. The potential market share gains from the new formula were estimated to be worth $760 million in additional sales. The data was convincing so the decision was made—New Coke would launch on April 23, 1985, replacing the iconic original.

As news of the launch leaked, Pepsi responded by taking out full-page newspaper advertisements with the mocking headline, “The Other Guy Just Blinked.”

Coke pressed on, but a backlash was building. Just weeks after the launch, the company had received 400,000 negative letters; call volume on Coke’s customer service hotline rose from 400 a day to 1,500 a day, and one angry customer formed a group called Old Cola Drinkers of America to campaign for the return of the original formula. In the face of mounting pressure and lackluster sales, the company announced on July 10 that the original formula would be brought back—only 79 days after New Coke’s launch. Coke admitted it was wrong; one of America’s most successful companies led by one of its most admired CEOs had the courage to admit that one of the biggest bets in consumer marketing history had spectacularly failed.

Rather than a marketing disaster as many have concluded, the story of New Coke illustrates two points:

1.  1. Sound analysis does not always lead to the correct decision.  All the data supported the assertion that Coke was losing the cola wars to Pepsi and all the pre-launch data showed that consumers preferred New Coke to both Pepsi and Old Coke.

2.  2. Managers need to have the courage to admit that they made the wrong decision and take corrective action rapidly.  Coke did this and by the end of 1985 original Coke was outselling Pepsi again, a position it has maintained ever since.



The Management Mythbuster - Review

A wonderful review of the Management Mythbuster - thank you. Check out the full details at Amazon.

"It's as if he has been following me around for much of my career, transcribing surreal conversations and documenting odd thought processes which ultimately keep me motivated to always have an up to date resume. Seriously, Axson clearly has been there and heard that.  His book alternates between telling the fictitious story of a company as its managers absurdly act out every management fad of the past several generations, followed with a good dose of sage advice and observations on how to avoid those pitfalls.  It's frequently humorous and often funny in a very uncomfortable way, as it hits close to home for those of us who have lived through such experiences.
Many readers will no doubt agree with Axson's assertion that "all sense of perspective has disappeared from the practice of management. Common sense has been subjugated by nonsense.

Even as I write this review, I am engaged in activities of questionable value involving consultants, forecasting, strategic planning, etc., so the book serves as a cautionary tale and reminder for the need to step away from the kool-aid and smell the coffee so to speak. Most business books ultimately disappoint me, but The Management Mythbuster is an excellent read, providing a bit of catharsis for anyone who may have become just a little cynical over the years, even though you know in your heart that you are your employer's most valuable asset."

Happening in a meeting room near you - right now!

Across the corporate world, managers are working furiously to finalize their budgets for 2011; many no doubt praying that this year's effort will prove more accurate than in previous years.  Unfortunately, their best efforts are likely to be thwarted on two counts:  first their crystal simply isn't good enough to get much right when looking long into the future (and 30 days is a long time now!); second, all their work is likely being undone at this very moment.  Picture the scene:

Location: A windowless conference room on the executive floor of Hype Inc

The CFO, Henry, opens the meeting: “Well, the third iteration of the budget is a lot better, but we still have a $15 million gap. Steve (the CEO) has to present to the Board next week, so we have decided to take a few decisions to close the gap. Marketing, you need to cut $2 million from your advertising budget in both Q3 and Q4. Sales, you should delay the hiring of the Indian sales team from Q1 to Q3 and cut the travel budget by 10 percent. Purcashing , we just cannot do the purchasing system next year so that’s out, and Candice (the CIO), you will have to go back to MegaOffshore and get them to take their monthly fees down by $250K.”

Sales asks, “What about the sales targets?” Henry looks at her and replies, “Steve will not reduce the sales targets. Both he and I are convinced there’s plenty of fat left in the operating budgets, so these decisions simply cut that out. My team will send out revised budgets to each of you later this afternoon. Each of you needs to make sure your team updates their individual budgets to reflect these changes and submit by the end of the week. Thanks, we are done here.”

Good luck and Happy Holidays

The Management Mythbuster

Portraits from the Executive Suite -- The Target Tango

Forget Dancing with the Stars, the fanciest footwork is not to be found on primetime television but in conference rooms across the corporate world especially at this time of year, as executives are mired in planning for 2011.  Given the economic debacle of the last three years its a tense time as maangers seek to negotiate performance targets for 2011 with senior executives bent on driving up the stock price.  Its a game of creative expression, obfuscation, bribery, blackmail and deceit.  The end result is a compromise of which no one can be proud.  Picture the typical scene:

James, a regional sales director, walks into Sarah’s office (his boss) to discuss next year’s plan. Sarah opens the discussion by congratulating him on last year’s results and comments that it provides a sound foundation for further growth next year. James accepts the congratulations but cautions Sarah on the one-time factors that helped his team succeed. The discussion progresses and Sarah goes on to outline the bonus program for next year. As in prior years, the majority of James’ bonus will be driven by his team’s performance relative to the agreed plan with a small percentage determined by the performance of the company as a whole. Sarah asks James to take a couple of weeks and work up some preliminary numbers for their next meeting. She re-enforces the overall company targets of sales growth in the range of 8–10 percent and earnings growth in the 13–15 percent range.

Over the next two weeks, James works hard with his team developing a range of different scenarios. Toward the end of the process he gathers his managers together and they discuss the probability that they can achieve the target under each scenario. Two are immediately discounted, one because it will never fly with Sarah and the other because it exceeds the target range Sarah provided and would need execution to be flawless. After all why commit to a target higher than needed? The debate centers on three scenarios, the first of which delivers performance at the top of the target range. The consensus is that this is the one the team feels is most likely based upon their current understanding. The second scenario is what the team calls the “slam-dunk” case. If they can get this one agreed, they can start spending next year’s bonus immediately. The third scenario sits between the two and offers what James’ describes as the “Well if you insist, we think we can get there if we pull out all the stops” scenario. All agree that this is the most likely end result of the target negotiation. The decision is unanimous: James will present the slam-dunk case to Sarah, and if she pushes back, he will reluctantly propose the middle case, all the time stressing that this is really a stretch.

At his next meeting with Sarah, James presents his plan. Sarah appears a little disappointed. While the numbers are within the target range, she had expected more based upon “the momentum we have going into next year.” James cautiously agrees and promises to “review the numbers with a sharp pencil” and get back to her in a couple of days. He reconvenes his team and triumphantly reports that while Sarah was not happy with the “slam dunk case,” he is sure she will buy the middle option. A few days later, he presents this to Sarah, who readily agrees. Come year-end the team easily beat the target. Sarah is delighted and James and his team all receive nice bonuses. Cruciant’s sales growth for the year reaches 8 percent, but the markets are disappointed because all their major competitors had logged double-digit gains. James is unconcerned; his new Porsche should be delivered at the end of the month.

If this sounds familiar you need to read my new book The Management Mythbuster and learn how to fix the planning process.

Next up:  How to destroy your 2011 budget before the year even starts!

Management Mythbuster podcast at StrategyDriven.com

Just completed an interview with Nathan Ives at StrategyDriven on the Management Mythbuster and the implications for today's managers. We discuss why many of today's common practices are no longer relevant, the dubious value of mission and vision statements, how to balance short and long term incentives, and much more! Listen to the full interview here.

The Decline of Dell -- a lesson for Google?

The decline of Dell is a fascinating study in corporate life-cycles.  In a few short years, the company has gone from poster child for tech-success, dominating markets and vanquishing competitors (remember Compaq, Gateway, and IBM who got out of the business by selling its PC business to Lenovo) to a reactive corporate dinosaur that looks increasingly irrelevant. 

Its latest black-eye is losing the bidding war for 3Par to HP.  In the short term this may not be a bad thing as the company gets a $72 million breakup fee but it shows a company that looks increasingly desperate in the search for a new strategy now that its core business has become a low-cost commodity and Dell's vaunted business model no longer offers a distinct advantage. In recent years, Michael Dell's successor as CEO was fired, accounting errors resulted in a $100 million settlement with SEC. Dell has tried lots of stuff - consumer electronics, outsourcing (buying Perot Systems after HP bought EDS) and phones as it seeks to broaden its base but nothing has stuck yet. For a company that led a charmed life for years its been humbling and the competition is not making it any easier. It's a very different competitive world - Dell must compete with a broad array of tech players who have more to offer - IBM, HP, Cisco, and Oracle - and convince buyers that it is a serious player. 

Does Dell have a second act? It will be interesting to see if they can reinvent themselves or whether they will follow in the footsteps of Wang, Digital Equipment, Netscape, AmericaOnline and Compaq as organizations that went from market leadership to irrelevance in less than a decade.  Next up on the road to irrelevance: can anyone say Google?

Double Standards?

Excellent editorial in yesterday's Wall Street Journal contrasting the ethics scandals of Rangel and Waters to that of former HP CEO, Mark Hurd.  It simply confirms that politicians, the very people we elect to uphold the constitution and develop legislation that is theoretically in our best interests, are often held to lower ethical and moral standards than many of the people they seek to regulate.  If you mess with shareholders or investors you can get serious jail time (Ebbers, Skilling, Scrushy, Kozlowski, Madoff).  Of course, you may get out early or get your appeal heard in the Supreme Court but second acts are difficult.

Abuse the trust of the public or engage in serial questionable behavior in the political arena and you may get your hand slapped, some token jail time or at worst your own talk show (see Eliot Spitzer)!

On a more serious note, the lack of judgment shown by so many politicians and business leaders in their personal lives raises troubling questions about their professional judgment yet rarely are the two linked in any meaningful way. In both politics and business long term success breeds a culture of entitlement - the jets, the limo's, the security, the dinners, the fawning associates, the large expense accounts.  By the time you achieve real power (CEO, committee chair) all semblance of reality has been lost. 

What is surprising is that the incidence of bad behavior seems the same for middle-aged politicians and business leaders as it is for twenty-something athletes who at least have the excuse of being young and stupid. 

So what's the fix? Accountability helps but ultimately the real test is a person's character - after all most of us transgress thinking we won't get caught!

Is Strategic Planning Still Relevant?

In March 2010, Fast Company ran a piece entitled “Strategic Planning is Dead, Long Live Strategy Execution,” a few weeks earlier the Wall Street Journal declared that “Strategic Plans Lose Favor.” So is strategic planning another victim of the economic tsunami that has washed over the world?

It is easy to jump on the bandwagon and declare that in today’s volatile and uncertain world strategic planning is irrelevant. Amidst all the talk of flexibility, agility, speed and responsiveness, strategic planning seems oddly out of place. After all how useful can a long-term view of future be when our predictive ability is so poor?

Read the full article at StrategyDriven.com

The Apple Store -- overwhelmed but still delivering great service

Monday morning 11am.  I walk into a NE Ohio Apple store and the place is rocking. Apple's so called "geniuses" are helping grandma organize her photos while the grandkids quickly master the iPad--assorted iProducts are flying off the shelves. 

My needs are more mundane.  Having bought my new iPhone 4 just over a week ago I have already succeeded in destroying it.  Well it wasn't me exactly but the new lie-flat bed on Continental flight 98 from Hong Kong to Newark last Thursday. 

So what happened? Well, I was testing the functionality of the new bed during the 14 hour flights when somehow my iPhone slipped out of my pocket and became lodged in the complicated mechanism that powers this airborne deckchair.  At least I think that's what happened.  A few hours after reclining I returned to upright mode only to be greeted by a nasty crunching sound.  I suspected the worst but needed the assistance of a thin-limbed stewardess to confirm the damage.  She delicately extracted the remnants of my phone which now resembled a shattered mirror than a high-tech marvel--it is made of glass--hence my trip to the Apple store.

My Apple genius was a cute brunette although I barely noticed. She empathized with my plight but gently informed me that accidental damage was not covered by the warranty.  I asked if idiot damage was covered which at least elicited a smile. Still all was not lost.  She offered to speak to her boss and presently the manager arrived.  After hearing my tale of woe she too empathized and offered a $100 credit on my replacement phone!  Maybe it was my sexy English accent or maybe that's just the way Apple does things but I was impressed.  I in no way expected (or deserved) any relief for my carelessness but Mr Jobs now has yet another loyal customer and vocal advocate.  That's what great service really means, going above and beyond when it is not required. Does your organization do that?