The Last Best Hope

“There are no elixirs for corporate turnarounds, says Edward S. Lampert, chairman of Sears Holdings Corp., who acknowledged in an interview yesterday that he should have moved faster to revamp the troubled retailer.

“The 45-year-old hedge-fund billionaire made clear his disappointment at misreading the economy last year and says Sears will address the company's latest financial swoon...

“He concedes the five-year turnaround he envisioned at Sears three years ago will take longer than that to achieve. But he says he's never been interested in swapping long-term profit for short-term gains. He believes his new plan can reinvigorate the 121-year-old retailer in a way not otherwise possible.

“The past two years have taught him it wasn't enough to put good managers in a structure that didn't work. ‘I used to think getting all those people in a room was enough. We got collaboration, but at the end of the day, there was no one who owned the decision. That's what we're trying to drive here,’ he says...

“Mr. Lampert described the company's next CEO as a ‘mission-driven’ leader who feels comfortable balancing multiple interests. ‘I want someone who will be able to deal well with complexity, who will be able to make decisions under conditions of uncertainty, and is someone people will want to step up and work for’."


(“Lampert Admits Flubs, Sees Sears Turnaround; Chairman Says Repairing The Retailer Will Take Longer Than Expected.” Gary McWilliams and Gregory Zuckerman. Wall Street Journal: January 30, 2008. pg. B.1)

MAGIC ELIXIRS, panaceas, silver bullets sure would be nice when there appears to be little hope.

Instead, let's try accountability, balance in coping with the uncertainty of complexity, and a good dose of genuine leadership.

Well, we'll see...

The Real Economy

“It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble.

“True, retail sales fell 0.4% in December and fourth quarter real GDP probably grew at only a 1.5% annual rate. It is also true that in the past six months manufacturing production has been flat, new orders for durable goods have fallen at a 0.8% annual rate, and unemployment blipped up to 5%... Soft data for sure, but nowhere near the end of the world...

“Real GDP surged at a 4.9% annual rate in the third quarter, while retail sales jumped 1.1% in November. A one-month drop in retail sales is not unusual... Over-reacting is a mistake.

“A year ago, most economic data looked much worse than they do today. Industrial production fell 1.1% during the six months ending February 2007, while new orders for durable goods fell 3.9% at an annual rate during the six months ending in November 2006. Real GDP grew just 0.6% in the first quarter of 2007 and retail sales fell in January and again in April. But the economy came back and roared in the middle of the year -- real GDP expanded 4.4% at an annual rate between April and September.

“With housing so weak, the recent softness in production and durable goods orders is understandable. But housing is now a small share of GDP (4.5%). And it has fallen so much already that it is highly unlikely to drive the economy into recession all by itself. Exports are 12% of the economy, and are growing at a 13.6% rate. The boom in exports is overwhelming the loss from housing.

“Personal income is up 6.1% during the year ending in November, while small-business income accelerated in October and November, during the height of the credit crisis…

“The irony is almost too much to take. Yesterday everyone was worried about excessive consumer spending, a lack of saving, exploding debt levels, and federal budget deficits. Today, our government is doing just about everything in its power to help consumers borrow more at low rates, while it is running up the budget deficit to get people to spend more. This is the tyranny of the urgent in an election year…

“Warren Buffett, Wilbur Ross and Bank of America are buying.”

(“The Economy Is Fine (Really)” Brian Wesbury. Wall Street Journal: January 28, 2008. pg. A.15)


WHICH IS REAL, actions or beliefs? What drives reality, numbers or perceptions?

Of course, the answer is yes.

In a yin-yang world, what are we attending to? Why? What are the consequences of shifting our attention?

Insight

“In 1960 cars got an average of just over 14 miles per gallon and gas cost around 31 cents per gallon, making for a cost per mile driven of about 2.2 cents. Today with gas around $3 and cars getting an average of 22 miles per gallon, it costs nearly 14 cents per mile to drive. But from 1960 to 2006 consumer prices went up around seven times, which means that 2.2 cents in 1960 now equates to more than 15 cents.

“Virtually nobody talked about ‘high’ gas prices in 1960. Today, alas, that is all we hear from all too many people, even though driving is actually cheaper.”

(“Stop Moaning About Gas Prices! Have Perspective.” Richard West. Wall Street Journal: January 28, 2008. pg. A.13)


SEEING WHAT OTHERS DO NOT see either allows us to build distinctive advantage, or it leaves us lonely, frustrated and tilting at windmills.

What would it take to declare publicly, "The emperor has no clothes..."?

Simplicity, Focus, and High Touch

“Sears Holdings Corp. will reorganize into five business units, as part of a new organizational structure designed to simplify the way its business lines are managed.

“Under the new plan, the five units will be operating businesses, support, brands, online and real estate.

“Operating businesses will consist of the company's current lines of business such as home appliances, electronics, and apparel. The support unit will include functions that provide operational and administrative support to operating businesses, including marketing, store operations, customer strategy and finance. The brand units will be responsible for growing the value of Sears Holdings brand portfolio. The real estate business unit and an online business unit will focus on increasing the sales productivity of the company's physical and virtual real estate.

“The Hoffman Estates, Ill. holding company said each unit will have a designated leader and an advisory group of senior Sears Holdings executives.

“‘By creating smaller focused teams that are clearly responsible for their units, we increase autonomy and accountability, create greater ownership and enable faster, better decisions,’ said Sears Holdings Chairman Edward S. Lampert.

“Sears shares were trading Tuesday up $9.01, or 10%, at $98.44.”

(“Sears Holdings To Introduce Revised Internal Management And Organizational Structure.” Adam Edelman. Dow Jones News Service. January 22, 2008)


GET OUT of the way, and sell what the customer wants!

Socially Constructed Reality

“The fear is spreading. For months now, investors have been lured to overseas markets with the promise that surging growth and solid economic fundamentals in Asia and the Middle East would insulate them from the credit squeeze plaguing the United States market.

“But the broad international sell-off on Monday — and the prospect of a steep market decline in the United States on Tuesday — raised fresh concerns that a looming recession and the fallout from subprime mortgages could have global repercussions.

“Some analysts saw the sell-off, with leading indexes off 4 percent to 7 percent worldwide, as being driven by fear more than by fact.

“‘I don’t think it’s warranted by the fundamentals,’ said Edward Yardeni, an independent strategist. ‘The resilience of the global economy in the face of a credit crunch has been impressive.’

“Mr. Yardeni warned, however, that in a time of panic and fear, less attention is paid to fundamentals, like a fairly tight United States job market and strong growth and the extraordinary buildup of foreign exchange reserves in emerging markets. The result is panic selling and the prospect of a global recession. ‘People are creating the financial violence that they hoped to avoid,’ he said.

(“To Some, the Widening Crisis Seems Driven by Fear, Not Facts.” Landon Thomas, Jr. www.nytimes.com, January 22, 2008)

TAKE CARE -- our views, beliefs and sensibilities are the building blocks of our world of interaction. What we see, think and feel becomes what we touch.

The Pendulum of Perception

“John Mendel, American Honda Motor’s executive vice president, told reporters he expects Honda to notch U.S. sales of 1.4 million vehicles this year, up slightly from 2007 and marking a 15th consecutive year of higher sales...

“Even modest sales growth in a year that’s expected to see total U.S. vehicle sales decline 3 percent — the worst since 1998 — is commendable, but if there’s one international automaker that can afford to show a little hubris, it’s Honda.

“The automaker could be called ascendant, boasting the most fuel-efficient fleet on U.S. roads and earning top marks in reliability studies, while its Accord sedan is the nation’s fifth-most sold vehicle, not far behind Toyota’s Camry and Corolla.

“The key to Honda’s success is an abundance of caution, said Aaron Bragman, an automotive industry analyst at Global Insight.

“‘They move slowly with design, development and product growth,’ he said. ‘They are very measured and they don’t take risks, and that is why you don’t see them having the same kinds of problems that Toyota is having with its expansion’ …

“Cracks have started to appear in Toyota’s armor even as it poised to overtake General Motors to become the world’s No. 1 vehicle producer. It has seen its reputation eroded by product recalls and slippage in consumer-quality surveys. Adding to Toyota’s woes are problems with its Tundra pickup — its first foray into the profitable U.S. truck market.

“‘There’s a perception-vs-reality thing going on here,’ said Karl Brauer, editor in chief at automotive research site Edmunds.com.

“After years of top rankings, Toyota’s position in the widely followed Consumer Reports Annual Car Reliability Survey has slipped. Last year... [the] J.D. Power Initial Quality Study showed Toyota losing ground to Honda.

“‘The interesting thing about Honda vs. Toyota is [Honda has] fewer products that sell much better — it’s really hard to find a dog in their lineup,’ said Tom Appel, editor of Consumer Guide Automotive...

“As Toyota stretches itself to become a full-line automaker, Honda has pursued a more conservative strategy, avoiding trucks, for example, said Bragman.

“‘Honda is very conservative not only in the technology it employs in vehicle designs, but also in its manufacturing,’ he said. ‘There are only a few configurations of vehicles, so they’re able to manufacture these things easily. They have serious controls in their systems; it gives them serious flexibility’.”

(“Honda’s deliberate path drives sales growth: Limited vehicle line, attention to detail keys to automaker’s success.” Roland Jones. MSNBC Interactive.
http://www.msnbc.msn.com/id/22670395/ January 15, 2008)

TICK TOCK, TICK TOCK... from "Innovate or perish!" to "Control and execute," we swing to and fro from one solution to the next. In 4-5 years when this has run through its natural cycle, we will be off on the next big thing.

Although balance appears to be illusory, balancing can come as we seek center and ground.

Adding Value

“Google announced Thursday that it had come up with a plan that begins to fulfill the pledge it made to investors when it went public nearly four years ago to reserve 1 percent of its profit and equity to ‘make the world a better place.’

“The philanthropy the company has set up — Google.org, or DotOrg as Googlers call it — will spend up to $175 million in its first round of grants and investments over the next three years...

“DotOrg officials said they had decided to spend the money on five initiatives: disease and disaster prevention; improving the flow of information to hold governments accountable in community services; helping small and medium-size enterprises; developing renewable energy sources that are cheaper than coal; and investing in the commercialization of plug-in vehicles...

“Larry Brilliant, a medical doctor who took on the role of director of Google.org 18 months ago, … likened his moral quandary in figuring out how to spend Google.org’s money to that faced by a saint wandering the streets of Benares.

“‘There are 500 steps between the road and the Ganges,’ he said. ‘On every step are beggars, lepers, people who have no arms or legs, people literally starving. The saint has a couple of rupees; how does a good and honorable person make a resource allocation decision? Do you weigh a hand that’s missing more than a leg? Someone who’s starving versus a sick child? In a much less dramatic way, that’s what the last 18 months have been for us.’

“DotOrg has focused on what it can do ‘uniquely,’ said Sheryl Sandberg, vice president for global online sales and operations at Google... ‘If you do things other people could do, you’re not adding value’ …

“But for all the enthusiasm for the new organization, there are critics. ‘It’s wonderful that this company is devoting massive resources to fixing big world problems, but they are taking an engineer’s perspective to them,’ said Siva Vaidhyanathan, a cultural historian and media scholar at the University of Virginia. ‘Machines and software are not always the answer. Global problems arise from how humans have undervalued each other and miscommunicated with each other’.”


(“Google Offers a Map for Its Philanthropy.” Harriet Rubin. www.nytimes.com, January 18, 2008)

WOVEN INTO EVERY CHALLENGE, fundamental to every opportunity, are human beings. Human competence may address the fundamentals while human distinctiveness can open unlimited potential.

Simply

“The dismal Citigroup news just might make it official: The 1998 marriage of Citicorp and Travelers was a bad idea.

“That seems to be the judgment of the company's shareholders, anyway. On April 3, 1998, the equivalent of what is now Citigroup stock closed at $30.84. That was the last trading day before the blockbuster merger was announced. Investor enthusiasm over the 'financial supermarket' created by the deal… propelled the stock to nearly $60 by 2000.

“With the drubbing Citigroup has taken this year, the stock now trades at less than $27 a share. That means that, poof, those gains are all gone -- and then some...

“This leads us to the inevitable question: Is the landmark combination, which prompted sweeping changes to U.S. banking law, now a contender for a notorious designation?

“The title is a reference to ‘Deals from Hell: M&A Lessons that Rise Above the Ashes,’ a book by our friend Robert Bruner... The book examines such ill-fated deals as the 2000 combination of Internet firm AOL and media conglomerate Time Warner, judging them, in part, by the destruction of shareholder value. We have periodically asked whether other deals, such as that which created the auto maker DaimlerChrysler, also merited this status. Now we turn our attention to Citicorp-Travelers.

“What went wrong? It seems the benefits of being able to meet every financial-client need under the sun, and of balancing weak parts of the business at any given time with strong ones, have been outweighed by a factor that didn't get much ink in all the glowing reviews written when the deal was unveiled: namely, that managing a global colossus and all its attendant risks isn't easy. It is a lesson Mr. Weill's successor as Citi CEO, Charles Prince, learned the hard way.”


(“Deal Journal / Breaking Insight From WSJ.com” Wall Street Journal: January 16, 2008. pg. C.5)

GREAT CONFIDENCE in conventional wisdom may lead one to challenge the mechanics of nature, leading to a fall. Excess self-confidence may lead one to challenge the gods, certainly leading to a fall.

Teachability and knowing ourselves as we truly are lead us toward the power of simple humility.

Locus of Control

“Starbucks is now struggling with the most serious crisis in its history... Last year Starbucks' share-price fell by 42%, making it one of the worst performers on the NASDAQ exchange. In the last quarter of 2007 Starbucks recorded its first ever year-on-year decline in customer visits in America, easily its biggest market. When analysts at Bear Stearns, an investment bank, downgraded the firm's shares on January 2nd, they plunged by another 12%. This sealed the fate of Jim Donald, the chief executive since 2005. On January 7th the company said it would replace him with Mr Schultz, who stepped aside in 2000 to become chairman.

“Mr. Schultz is not trying to pass the buck. His company is in trouble, and much of it is self-inflicted. ‘I'm here to tell you that just as we created this problem, we will fix it,’ he promised. He wants to slow down the pace of expansion and improve the ‘customer experience’ in America, while accelerating expansion overseas. But he says there is no ‘silver bullet’...

“Mr. Schultz saw his firm's crisis coming. In February 2007 he warned of the ‘commoditisation’ of the brand in an internal memo to senior executives that found its way onto the internet. ‘Over the past ten years... we have had to make a series of decisions that, in retrospect, have led to the watering down of the Starbucks experience,’ he admitted. He cited the switch from hand-pulled espresso machines to the automatic variety, which helped to speed up service but diminished the spectacle of coffee-making. The result, he conceded, was that some customers found Starbucks coffee shops sterile places that no longer reflected a passion for coffee.

“Analysts and investors welcome Mr Schultz's return because it shows the company is taking action to correct its drift. The main architect of Starbucks' expansion is seen as the best person to lead a return to the firm's roots as a specialist coffee shop with a local touch.”

(“Coffee Wars.” The Economist. January 10, 2008)


SO, IN SPITE OF McDonald's, Panera Bread, Dunkin' Donuts, and in spite of soaring commodity prices, there may be hope for Starbucks if they focus clearly on their own responsibilities and actions.

When we look at the world as the source of our woes, or the source of our salvation, we consign ourselves to mediocrity and decline.