“A small but growing number of companies are grading -- and paying -- top managers on their ability to hang on to employees.
“Car retailer Penske Automotive Group Inc. tied 8% of Chief Executive Roger Penske's 2007 bonus to holding employee turnover below 31%, according to a March proxy statement. Mr. Penske earned his $240,000 reward. The company, which owns 300 dealerships world-wide, posted 30.8% attrition in 2007, down from 31.2% a year earlier and more than 80% in 1999 when Penske Corp. acquired a controlling stake.
“Other companies that recently factored employee retention into executive-pay plans include Pep Boys and Extreme Networks Inc.
“A study by management consultancy Hay Group suggests that the practice is gaining popularity. In the 2007 survey of 182 organizations, 8.2% of respondents said they use turnover as a performance measure in executive-incentive plans, more than three times the 2.3% who responded similarly in 2005.
“‘It is a recognition, on the one hand, of people as a driver of business success,’ says Hay Group consultant Mark Royal…
“The attention to turnover is part of a broader trend of employers focusing on talent management, as well as financial metrics, in evaluating company leaders.
“In the 2007 Hay Group survey, 55% of respondents said they incorporate ‘employee performance’ criteria into executive-bonus plans, more than double the 23% who said so in 2005. Such criteria included turnover, workplace diversity and employee satisfaction.”
(“Theory & Practice: In Some Offices, Keeping Workers Earns a Bonus; More Firms Like Penske Tie Top Managers' Pay To Employee Retention.” Cari Tuna. Wall Street Journal: June 30, 2008. pg. B.6)
DO WE UNDERSTAND our appropriate metrics? Do we know what resources are critical for us to survive, grow, thrive and adapt?
Do we understand the drivers of those metrics, and the levers that move them?
What moves your people?
Resource Drivers and Levers
They Zag; We Zig
“Most companies play it safe in hard times, cutting expenses and scaling back growth plans. Ambition gives way to caution. But some aggressive companies are shrugging off their own challenges and, in the words of management scholar Walter Ferrier, ‘going for the jugular of weak rivals.’
“Hewlett-Packard, Southwest Airlines and FedEx all have been sharpening their claws lately. Tactics include hiring extra salespeople, storming into new markets or holding down prices in a bid to pry business away from the competition.
“There's a risky side to these measures, because they can put extra pressure on short-term profits. But executives believe the long-term results will justify their audacity. As they see it, market share is most likely to be up for grabs in a downturn -- when some competitors are too hard-pressed to defend their position vigorously. New customers won today may become profitable accounts for years to come…
“Southwest Airlines… has been exploiting a huge cost advantage it enjoys over other airlines, which are reeling from the impact of $130-a-barrel oil. Southwest is paying far less for its aviation fuel this year, thanks to its active hedging program. As a result, Southwest can profitably add flights to attractive markets, even as other carriers are forced to retrench…
“At FedEx, the company's freight business has been picking up market share at the expense of long-established trucking companies. Douglas Duncan, president of FedEx Freight, says… FedEx's recent gains in freight market share have grown out of its decision in July to reduce its diesel-fuel surcharge by 25%... Competitors generally haven't matched that price cut, and customers at first waited to see whether FedEx would stick with it, Mr. Duncan says. As it became clear that FedEx's price break was here to stay, he says, that's proven to be a powerful tool in winning new business…
“And in some high-tech markets, such as chip-making equipment, aggressive strategies are all about continuing to roll out more advanced products even when demand is weak. ‘That's how the market recovers from down cycles,’ says Michael Splinter, CEO of Applied Materials. ‘Customers want new products.’”
(“Business: In Hard Times, Some Firms 'Go for the Jugular'”. George Anders. Wall Street Journal: June 25, 2008. pg. B.2)
AUDACIOUS EXCELLENCE -- born out of care-full, thought-full preparation when times were good.
The mortgage bankers ran so fast in boom times that now they are depleted. Wise strategists pace themselves so that they can pounce when all around them slow down before getting devoured.
Warren Buffett is buying!
Eyes, Ears, Heart, Mind & Soul
“With Chrysler LLC losing money and its market share plunging in the U.S., Chief Executive Robert Nardelli is tackling what he sees as the root cause of most of the auto maker's problems: its Old Detroit mind-set…
“‘The traditional way of running the company got us where we are now,’ Mr. Nardelli said in an interview last week. ‘So we're trying to break some of the old paradigms.’ …
“Mr. Nardelli has taken charge of re-evaluating some of Chrysler's traditional ways of doing business. The campaign for cultural change is ‘a big focus for Bob,’ said Nancy Rae, Chrysler's head of human resources...
“Mr. Nardelli doesn't have much time for his new ideas to sink in. Although he says Chrysler is hitting its financial targets, he acknowledges the company is chalking up losses and burning through cash...
“Nardelli's campaign started earlier this year with detailed assessments of the company's 300 leading executives, many done by Mr. Nardelli himself...
“One possible impediment to the campaign's success is Mr. Nardelli's brusque style, which hasn't always gone over well with Chrysler employees. While some embrace his new ideas, others brush them off as consultant-speak. Others say his determination to do away with established methods rubs some people the wrong way…
“Chrysler [recently] got a reminder of how much farther it still needs to go. J.D. Power & Associates… [released] a closely watched quality survey in which the company's three brands -- Chrysler, Dodge and Jeep -- all ranked below the industry average, and Jeep was dead last.
“Just before the survey was made public, Mr. Nardelli wrote a memo reminding employees to confront the company's problems. ‘Do not let anything override the priority to satisfy the customer,’ he wrote. ‘To win in a competitive market, We need to install a mind-set of never being satisfied with good enough.’”
(“Nardelli Tries to Shift Chrysler's Culture.” Neal E. Boudette. Wall Street Journal: June 18, 2008. pg. B.1)
MORE THAN A GENERATION has passed since the world changed with the first wave of the Japanese invasion. It took forty years in the wilderness for a generation of the children of Israel to pass in preparation to enter the Promised Land.
Can we change our selves, fight off our fears, and walk with new vision? Or will we continue to cling to the old dying comforts?
What is your choice?
Supplying Demand, or Demanding Supply?
“Last year, directors of fund manager Waddell & Reed Financial Inc. looked at the roughly $70 million Chief Executive Henry Herrmann had collected in stock, pension benefits and deferred compensation over his 36-year career, and deemed it ‘sufficient’ for retirement, according to its proxy statement. The board stopped extra contributions to Mr. Herrmann's retirement fund.
“Waddell & Reed is among a growing number of companies scrutinizing how much they have paid executives over time. Nearly 15% of Fortune 500 firms said they took such ‘accumulated wealth’ into account in setting 2007 executive pay, up from 8.4% in 2006...
“The sums involved can be significant. The median CEO in Equilar's study of 338 large companies held $56.7 million in stock, outstanding stock options and accumulated retirement benefits...
“‘Compensation committees are all wrestling with the question of how much is too much,’ says Miles Meyer, vice president for human resources at Kellogg ...
“‘Intuitively, there's some point at which you'd say, Gee, that seems like enough wealth accumulated for the time being,’ says Mr. Meyer. He says the committee hasn't discussed where that point might be...
“When directors realize how much they have given executives, there are ‘eye-opening, Holy Cow moments,’ says Jesse Brill, a San Francisco lawyer…
“Many CEOs aren't happy with the idea of capping pay. Aflac Inc. Chief Executive Daniel P. Amos, who holds 9.9 million shares valued at about $650 million, says he views equity awards as a way to keep score of his performance and that he would be less motivated if his pay was cut below that of other CEOs.
“But Richard Brooks, chief executive of apparel maker Zumiez Inc., says his 3.7 million shares -- valued at about $72 million -- are adequate incentive. Mr. Brooks hasn't received stock options or equity since 1993, and when other executives accumulate sufficient equity they won't either, he says.
“‘At some point [getting more stock] doesn't change behavior,’ says Mr. Brooks. ‘So how is it going to change performance?’”
(“Firms Measure a CEO's (Net) Worth; In Vetting Pay, Companies Take Stock of Accumulated Wealth; Directors Wrestle With 'Turning Off the Hose'.” Phred Dvorak. Wall Street Journal: June 23, 2008. pg. B.1)
SIGNIFICANT, ENOUGH, TOO MUCH... what do they mean? Where might that point be?
Who is to tell? Is it the board (Are their eyes now open?), or the labor market, or the financial markets?
Do you understand the linkages among outcomes, measurement, actions, objectives, and strategies?
Once we understand linkages, then we can begin to pull the right levers to get the results we need.
Proactive Humility
“The ouster of American International Group Inc. Chief Executive Martin Sullivan is the latest casualty among new CEOs who were unable to overcome a company's troubles.
“Dozens of companies have replaced their CEOs in recent years, as shareholders and boards have grown more assertive and sentiment has turned against so-called imperial CEOs.
“But just as firing the manager rarely revives a last-place sports team, companies are finding that ousting a CEO is rarely a cure-all for corporate ills.
“Three years ago, Mr. Sullivan was promoted at AIG amid a wave of optimism that he could steer the company through the regulatory and legal hurdles left by former CEO Maurice ‘Hank’ Greenberg. Since then, AIG shares have lost nearly half their value.
“Another CEO from the class of 2005, Aylwin Lewis, who succeeded the demoted Alan J. Lacy at Sears Holdings Corp. in September that year, was himself ousted by Chairman Edward S. Lampert in January...
“A Wall Street Journal survey of 30 companies in the Standard & Poor's 500-stock index that removed CEOs between January 2005 and June 2007 reveals that the shares of those companies have declined far more often than they have increased. The decliners include Eastman Kodak Co., Newell Rubbermaid Inc., UnitedHealth Group Inc. and Home Depot...
“Recruiters, consultants and executives said the problems at a troubled company are often bigger than a single, fresh leader can repair quickly…
“Some new CEOs are big heroes. Mark Hurd has boosted revenue and profit at Hewlett-Packard Co. since succeeding Carly Fiorina in 2005; H-P shares have more than doubled. Walt Disney Co. shares have risen under Robert Iger.
“These successful successors are decisive leaders with ‘a really heightened ability to listen and interact with all of their constituencies,’ says Roger J. Brunswick, a managing partner at New York consulting firm Hayes Brunswick & Partners LLC. He said Mr. Hurd wins points for frequent meetings with customers and for being accessible and open to criticism from lower-level staffers.”
(“Corporate News: New CEO Is Rarely a Quick Fix; Too Many Problems, Too Little Time Vex AIG, Other Firms.” Joann S. Lublin. Wall Street Journal: June 17, 2008. pg. B.8)
BE QUIET; listen. Be still; listen. Be humble; listen. Be teachable; learn.
Now act.
But It's A Great Product
“The burnt orange and deep-water-blue Dodge Challengers turned heads and drew finger-pointing from motorists who rolled by the Whistle Stop diner in the Detroit suburb of Birmingham on Monday.
“Inside, Dodge Brand Director Mike Accavitti shared his personal stories of people stopping him on the street to ask about the Challenger slated to start production in late July and roll into showrooms in September.
“But it will take more than just finger-pointing and stories for Chrysler LLC to pull off a major product gamble -- marketing and launching a retro-1970s muscle car at a time when gasoline is $4 a gallon and the economic outlook is murky.
“‘There is certainly going to be an impact [from high fuel prices] but we think there is a pent-up demand for this vehicle,’ said Mr. Accavitti, who also said Chrysler already has 7,000 orders for the Challenger. ‘There is a certain segment that is indifferent to fuel prices and they will help drive sales.’ …
“Chrysler could have sold about 40,000 vehicles if it was released last year, said Rebecca Lindland, a Global Insight analyst. Now the auto maker will struggle to meet that estimate, although holding it back would have cost the auto maker more since it has been in the planning for a few years.
“‘There is nothing wrong with the vehicle. It isn't lacking and it has a fun retro look that reminds you of Daisy Duke,’ Ms. Lindland said, referring to the short-shorts-wearing waitress from the 1970s ‘Dukes of Hazzard’ TV show. ‘But this isn't a miniskirt environment.’ …
“Sales of Ford Motor Co.'s Mustang, the nearest competitor for the Challenger, dropped 45% in May and were down 32% for the first five months of the year…
“Mr. Accavitti admits that the auto maker is being realistic and a ‘steep’ decline has been factored after the first year of sales. Chrysler hasn't disclosed how many Challengers it expects to sell.
“He will also attempt to soften the Dodge brand's image to ‘strong and fun’ rather than one tied solely to power that elicits image of fuel being wasted as tires squeal, and television ads of guys screaming: ‘That thing got a Hemi?’”
(“Chrysler Gambles on Muscle Car.” Jeff Bennett. The Wall Street Journal: June 11, 2008. pg. B.7-D)
STANDING OUT is one thing, but insanity ("Doing the same thing over and over again and expecting different results." -Einstein) is entirely another.
Yes, we certainly do need to set ourselves apart from the competition. And yes, the competition is moving toward more fuel-efficient vehicles. But blindness in the face of a gale is not vision.
Zig or Zag?
“Taking cues from technology companies like Intel and Qualcomm, Disney launched its own in-house VC fund in 2000 to find emerging entrepreneurs and products in media… Now other industry players are following Disney. Last year, NBC Universal started a similar vehicle, hiking its size from $250 million to $1 billion in April…
“Steamboat operates like a traditional VC fund. John Ball… and his team scour conferences and work the phones, looking for media startups in the U.S. and China with promising products, technologies, or services into which they can plow $2 million to $15 million. Once they decide to invest, a team member will often join the company's board or make hiring suggestions...
“Although Disney executives have oversight through a six-person committee… they have yet to overrule an investment idea. ‘We decided that if we were going to get into the VC business, we had to do it in a way that looked, smelled, and behaved like a disciplined venture capitalist,’ says Ball. Translation: The team members, who get a percentage of the fund's returns, had to be free to swing for the fences without Disney second-guessing them.
“Of course, being part of Disney has its benefits. Steamboat sometimes taps Disney executives to help scout investment opportunities. It called on folks from the theme parks' retail crew to help vet Pure Digital Technologies, which makes disposable digital cameras. Disney used its hit ABC show Ugly Betty to promote the scrapbook site Scrapblog, a Steamboat investment. ‘They're really good at opening doors for you,’ says Michael Yavonditte, the former CEO of online ad company Quigo Technologies, another holding…
“So far… the hits appear to outnumber the misses. Disney says it made $37 million on an estimated $6 million investment in Quigo, which AOL bought in November. Steamboat also made money on a stake in flat-panel display maker Iridigm Display; the entire company was sold to Qualcomm for $188 million. Overall, Steamboat's first $75 million fund is expected to return at least $150 million, according to sources familiar with it. That's a middling return in the VC world but not bad for a fund started in the depths of the last bust.”
(“Disney: When You Wish Upon A Startup; Its media-oriented VC fund, Steamboat Ventures, is quietly nurturing entrepreneurs.” Ronald Grover. Business Week: June 16, 2008. pg. 85)
WHEN EVERYONE "KNOWS" that something won't work, or you just can't do that now, see if your competence really can be applied distinctively. Try a different angle at the seemingly impossible; take a different tack.
Focus on what you know best; and remember that to be outstanding, you must stand out.
Let's Stay In Touch
“Microsoft has irked consumers and corporate customers with the most recent version of its Windows operating system, which they complain requires hefty investments in PC hardware and offers a paucity of compelling new features in return. Now there are signs that companies' reluctance to install Vista is starting to weigh on Wall Street's outlook for the company's stock.
“Charles Di Bona, a senior analyst at Sanford C. Bernstein and a noted bull on Microsoft, said in a June 10 report that ‘dampening’ adoption of Vista by corporate customers will shave $395 million in revenues and 2% a share in earnings from the company's financial results for the 2009 fiscal year... According to a Bernstein Web survey… companies expect just 26% of their PCs to be running Vista by the beginning of 2011, down from an estimate of nearly 68% of computers by respondents to a similar survey a year ago.
“The new survey… also shows Vista's requirement of running on PCs crammed with lots of memory and powerful processors to be a deterrent. Companies expect to install Vista on only about 10% of the PCs they already own, compared with estimates last year that they'd be able to do so on 27% of their machines.
“‘It seems like the IT community has turned tepid to negative’ on Vista, says Di Bona... ‘There aren't any features in there they find compelling -- even ones that haven't had bad PR.’ For example, companies said in the survey that they were indifferent to Vista's Windows Presentation Foundation technology for building visually compelling programs...
“Vista… has suffered from a number of shortcomings. Besides the hardware requirements, customers have complained about clumsy new security procedures and a lack of compatibility with some companies' existing software programs. As a result, companies including General Motors are considering bypassing the system altogether and waiting for Microsoft's next operating system, code-named Windows 7…
“For Microsoft, a key challenge in its Windows business right now is to encourage companies to keep installing Vista while it trickles out information about Windows 7. At a recent conference, Microsoft Chairman Bill Gates and CEO Steve Ballmer demonstrated Windows 7's new user interface, which allows users to manipulate objects on a PC screen using their fingertips.”
(“Microsoft: What Cost the Vista Fiasco? After a survey of corporate customers, one Wall Street analyst cuts his expectations for revenue and profit growth.” Aaron Ricadela. businessweek.com, June 12, 2008)
JUST BECAUSE WE CAN DO IT certainly does not mean that we should.
Real value added comes only through relentless focus on enhancing the customer's experience as they see it.
Customers first, business sense second, technology third.
We already knew that, right?
(P.S. I keep wondering how I will enjoy and benefit from raising my hands to touch a screen of spreadsheets and documents... )
Focus on...
“Fewer projects with greater focus. That's the new direction at high-tech giant Hewlett-Packard Co.'s advanced research group, HP labs. The company says the goal of the research group's new approach is to ‘balance exploratory research with an entrepreneurial approach’ so breakthrough technology can be transferred more quickly into commercial applications for customers.
“The new HP labs consists of 23 labs across seven worldwide locations, led by Prith Banerjee. The research group will pursue 20 to 30 large research projects rather than the 150 smaller projects it had in the past.
“‘In the past, HP labs took the approach of let 1,000 flowers bloom,’ Banerjee explains on the HP Web site. ‘The trouble with that approach is that not enough resources were allocated to any particular research area.’
“Open innovation will play a greater role as well, as input from universities, partners, customers and venture capitalists gains greater significance. A review board composed of HP technologists and business executives will provide guidance to lab researchers, identifying the most promising discoveries to turn into commercial offerings and building business plans early in the research lifecycles.”
(“Focus Please.” Jill Jusko. Industry Week: June 2008. Vol. 257, Iss. 6; pg. 86)
MANAGE INNOVATION through relentless focus on adding value to the customer's experience as they see it.
Customers first, business sense second, technology third.
That's it.
What Myths Are Made Of
“Federal fraud charges unsealed Thursday against former Broadcom Corp. Chief Executive Henry T. Nicholas III for allegedly backdating stock options were overshadowed by a second federal indictment accusing the executive of distributing drugs and slipping them in business associates' drinks.
“The criminal charges are a major blow to Mr. Nicholas, a prominent Southern California technology executive who co-founded Broadcom, a maker of specialized computer chips based in Irvine, Calif…
“Prosecutors allege that the former Broadcom chief engaged in a pattern of drug use and abuse over a nearly seven-year period. The charges against him include conspiracy to distribute Ecstasy, cocaine and methamphetamine.
“Among the more sensational charges is that Mr. Nicholas spiked the drinks of Broadcom customers and others with drugs without their knowledge. Although the indictment doesn't identify any such persons by name, it cites an early 2000 incident in New Orleans at which the Broadcom chief allegedly used Ecstasy, also known as MDMA, to spike the drink of a 'technology executive.'
“Prosecutors also allege that Mr. Nicholas in 2001 directed a Broadcom employee to pay a drug courier between $5,000 and $10,000 in cash in the lobby of Broadcom's headquarters. The same year, they say, marijuana smoke aboard Mr. Nicholas's private plane was so thick during a trip to Las Vegas that the pilot had to put on an oxygen mask.”
(“Drugs Grab Spotlight in Broadcom Case.” Mark Maremont and Justin Scheck. Wall Street Journal: June 6, 2008. pg. B.1)
HIGH-FLYING EXECUTIVES are dangerous -- to their firms, to others, and to themselves.
When we become down-to-earth, we grow grounded in reality, and rooted in integrity.
"He fell in love with an insubstantial hope,
mistaking a mere shadow for a real body…
He gazed at the shape that was no true shape
with eyes that could never have their fill,
and by his own eyes he was undone."
(Ovid)
Measured News
“Good news is hard to come by at Chrysler these days. Its sales have been tanking, and industry observers regularly chatter about whether Cerberus Capital made a worse mistake buying the automaker last year at the front end of a recession than Daimler-Benz did in 1999. But the influential Harbour Report produced by consulting firm Oliver Wyman, which annually tracks factory productivity, says Chrysler's restructuring under Daimler-Benz made its factories as efficient as those of industry leader Toyota.
“Those two companies hold a marginal lead over General Motors and Ford, as well as Honda, Nissan, and Hyundai. In fact, the chief author of the study, Ron Harbour, says: ‘There is near parity among the top three American and top three Japanese automakers.’ He notes that Detroit's improvement has been staggering and stands in stark contrast to the 1990s, ‘when the Japanese beat Detroit in productivity two-to-one.’
“The year-over-year improvement by Chrysler, the best in the industry, couldn't be happening at a better time for the U.S. industry -- or Chrysler. ‘Sales are falling, and the shift to smaller cars is happening faster than the Detroit companies can adapt their manufacturing and downsize,’ says Harbour. ‘Can you imagine how much they'd be hurting if they hadn't been making these improvements?’
“Chrysler and Toyota take 30.37 human hours to produce a vehicle on average, across all manufacturing of vehicles and parts that go into them. GM takes 32.29 hours, and Ford takes 33.88 hours…
“With productivity gains tend to come increases in quality. As carmakers have focused on designing potential problems out of their vehicles from the first hour of computer-generated design and making assembly methods at factories simpler and more stress free, vehicle quality has risen.
“But there are exceptions. Harbour's top U.S. assembly plant for productivity is a Jeep plant in Toledo, Ohio, that manufactures the Jeep Wrangler. But this week, J.D. Power & Associates noted that Jeep had fallen to dead last in quality.”
(“U.S. Automakers See Surge In Efficiency.” businessweek.com. June 6, 2008)
HOW ARE WE DOING? Are we headed in the right direction? Are our strategies working? Are our executives doing a good job?
Is it stock price? profitability? sales growth? market share? productivity? reputation or image?
Yes, yes and yes; all of the above. But, who can move all the levers at once? How much can we expect from our leadership?
Balance... balancing once more and again...
