When a Company Goes Astray



Jim Champy
10/09/2018

In one of my first columns for the Management Matters Network, “How Ralph Fell off His Horse”, I reflected on why the Ralph Lauren Corporation had fallen on hard times. My thesis was that Lauren had lost its focus: was it a high end fashion house or a discount clothier? The Company was also experiencing significant operating problems.

 

Yesterday, I bought a Polo Ralph Lauren T-shirt, originally priced at $39,95, discounted twice to 10 bucks. So I was thinking little had changed. When I first wrote about the Company, its iconic founder, Ralph Lauren, had just hired a new CEO. That person didn’t last very long, not uncommon for a founder who does not want to let go.

 

So I was surprised when I looked at the Company’s performance for the first quarter of its fiscal year: a dramatic improvement over a year ago. The Company had hired another new CEO and, this time, Ralph and the new CEO seem to be working well together. A multi-pronged plan is in place, focused on a “new generation of consumers”, with a heavy dose of “digital” and operating discipline.

 

It’s a good example of the breadth of initiatives it takes to fix a company in trouble - and good fortune in finding the right people to do it. It may be too early to declare success, but the direction is encouraging.

 

But No Fix Is Easy

When a public company gets in trouble today, its investors waste no time in pressing for change. As I am writing this column, an activist investor is moving to replace the whole Board of Campbell Soup, arguing that the Board has not been aggressive enough in driving change inside the company.

Activist investors often have an agenda to change a company’s management or to sell off parts of the company.  When I see this behavior from outside investors, I often think they have no appreciation for the real change required and what it will take.

 

Just Look at GE

I had always been an admirer of GE, the great industrial giant. It paid lots of attention over the years to the development of executives, but even they couldn’t get the Company out of trouble,

 

It’s immediate past CEO, Jeff Immelt, first moved to withdraw from the financial services business. Although GE Capital had been a significant source of GE’s profits for years, after 2008, the regulatory environment had become too oppressive. So the Company decided to sell off or close the financial services business.

 

Next came a focus of digitization - trying to make the Company’s industrial products more intelligent. GE got a lot of attention for both moves, but not much improvement in performance. Eventually, its investors lost faith.

 

Was GE Asking the Right Questions

Peter Drucker always stressed that, when trying to solve a problem, it’s important to start by asking the right questions. When trying to fix a company like GE, it’s hard to know where to start.

 

In my consulting days, when trying to figure out why a company was failing, we would perform an assessment of the organization. Did the company have the right strategy, structure, systems, culture, and skills and were they all working well together? This was the management approach promoted by Peters and Waterman in their book, “In Search of Excellence”.

 

Today, that approach to fixing a company is just too ponderous. When a company goes astray, no one has the time to be that analytical.

Competitors move too quickly and investors have no patience.  

 

There are just four questions I would ask.

 

Does the Company’s Management Team Have the Skills and Appetite for Change?

Change is a tops-down driven process. The right leadership is required. Ideally, a company’s top management team - and it does require a team - sees the need for change and has the appetite to make it happen. If that appetite is missing, changes at the top are required. Hopefully, there are others in the enterprise who can assume the mantle of leadership.

 

But required change may be so extreme that it demands very different top management perspectives and skills. When that happens, a company must go outside to find new leadership. This can be a high risk move - finding new people who can understand the business and see where change is required. A company may have no choice.

 

How Well do the Company’s Products or Services Respond to Market Needs?

I often ask this question of “early stage” companies. A new company may have a great technology but will not have found the market for its product. Hopefully, the company will find a market before money runs out.

 

Large, “established” companies also need to ask this question, with technology now quickly advancing. Do its products fit the market?

 

Automotive companies are a classic example: how long will their combustion engine vehicles be in demand? I know my next vehicle will be electric. If an automotive company does not have a strategy to compete with Tesla, it’s already in trouble.  

 

Has the Company Gone Far Enough with Digital?

Not all companies need to be as digitized as Uber and AirBnB. These are “digital natives”. They were born that way, and their business models are based on completely digitized processes.

 

But with advances in information technology and the ubiquity of technology that the internet enables, every company should be asking whether it has gone far enough with digitizing its processes. The objectives of digitization should be two-fold: to achieve extreme operational efficiencies and create an extraordinary customer experience.  

 

How Operationally Sound is the Company?

Sometimes, a company’s leadership lacks an appreciation for efficient and effective operations. The executive team may be brilliant strategists, but have no taste for operations. I have also argued with strategists who believe a company cannot compete on the basis of high quality operations.

 

Operations can be copied, they argue. I say not so easily: great operational sensibilities are behavioral, not easily copied.

 

A great strategy is worthless without great execution.

 

There is lots of work required to get any company - large or small - out of trouble. The answers to these four questions might provide a path to redemption.