The Simplest Management Basics

Last week I phoned Tom Forster, one of the executives who runs Skywalker Properties for the Lucasfilm company. I hadn’t spoken to Tom for ten years, and now that one of my pre-teens is a Star Wars fanatic, I was delighted to locate Tom from an old business card. As we made plans to revisit, he mentioned that he still keeps some of my ancient, 1990’s magazine columns around. Despite the convulsive changes in both the entertainment and real estate businesses over the past decade—he straddles both—he told me that in one article in particular, a few simple points I raised remain so germane that he still shares them with colleagues.I was intrigued. What could I have written that was so prescient and inspiring way back in the early 1990’s? Well, Tom sent me a document in which he had condensed my article into a kind of “executive summary”, and as I read it, my reaction was: “Oh, so simple, so innocent, yet so damnably difficult to execute.” I had written about why groups (teams, functions, business units, etc.) are often dysfunctional in morale and suboptimal in performance. Here is how Tom so ably summarized my comments: Four Most Common Causes of Group Problems1. Insufficient clarity and consistency among top management regarding the organization philosophy, mission, direction, and strategy. Employees are unclear as to what the organization stands for, strives for, or prioritizes. Ambiguity and inconsistency regarding these key issues lead to lower morale and teamwork, inconsistent and contradictory actions, delays or avoidance in problem solving, and a lack of common focus in decision-making. 2. Insufficient coaching and performance feedback by top management. This should involve training, teaching, and developing. This needs to be done in person by a member of senior management vs. through a memo, e-mail, etc.3. Insufficient recognition, reward, and celebration for individual and team performance. The spirit, enthusiasm, sincerity, and frequency of rewards are more important than the actual thing that is being given. Problems develop when employees are not rewarded for high performance (quality, service, goal attainment), nor are they rewarded for loyalty, personal initiative, or innovation. The rewards and recognition MUST be linked to desired criteria like high performance, loyalty, initiative, and innovation. If not, the resulting ambiguity, inconsistency, and a sense of cynicism as to what the organization stands for will result. Also, management will be perceived as "not walking the talk."4. Insufficient sense among employees of being part of an organization wide team. This is usually evidenced by any "us vs. them" feelings or behaviors. It can be overcome through organization wide communication, recognition, and celebration.You’d think that by now we’d have all this stuff solved. But we know that’s not the case. As we leaders frenetically obsess about “big things” like investor relations, global market penetration, technology transfer, supply chain management, and creative M & A, we’d be wise to revisit these few simple management basics from time to time.

Me, My Wife, and Howard Schultz

Starbucks chairman Howard Schultz is returning to his old CEO job after firing Jim Donald. I think that’s a good thing. Margins are being squeezed, the stock is down, and same-store sales have suffered. One reason is that my wife and I stopped going to our local Starbucks. It used to be a cool place, or should I say, a warm, inviting place. It was a place that beckoned us with easy familiarity, a place we could hang out in comfort. No longer. The couches and sofa have been removed. A few small tables and wooden chairs remain, pushed to the edges of the room. The baristas no longer seem to know the customers. The whole vibe of the place reeks “fast food”. Get people in, pump them for multiple sales, take their order, get ‘em out. This is not an isolated situation. It’s a predictable consequence of Starbucks’ strategic obsession over the past few years—which has been all about unbridled growth. Launch more stores in more places, full speed ahead! Four new stores per day in 2007, as it turned out, with an intermediate goal of 40,000 stores (from the current 15,000) worldwide I’m all in favor of growth as a strategic priority, but when it becomes the strategic obsession, there’s a real danger that a company will lose its distinction and its soul. That’s what happened to Starbucks. First, a little history. As numerous business and management books have noted ad nauseum, the remarkable success of Starbucks was its capacity to pump compelling value into what used to be a high volume low margin commodity “coffee” industry. That value, of course, revolved around the unique experience that Starbucks offered the customer: a diverse menu of high-end global coffees and a comfortable friendly environment that served as a refuge from the woes of the external world.The trouble is, the experience became less and less unique as an increasing number of providers—from Dunkin’ Donuts and McDonald’s to ma-and-pa enterprises—began to offer their own versions of designer coffee and comfort. When a McDonald’s spokesperson recently declared that high-end coffee has become “democratized”, you know that what was once a unique value proposition has become commoditized. Meanwhile, as part of its growth zeal, Starbucks itself accelerated the commoditization process. The strategic decisions revolved around leveraging a static Starbucks experience to an ever increasing number of locations in order to increase volume, revenue, and share. If the best people weren’t hired or properly trained, and if the furniture and amenities weren’t revitalized—so be it. Size and scale ruled. You can’t have it both ways. You can’t demand that your people and culture obsess about corporate growth as “the” top priority and at the same time expect them to continually enrich the customer experience in order to maintain the sense of uniqueness and “gotta-have-it”. It won’t happen.Schultz himself recognized this. A year ago, he wrote a controversial memo to staff that bemoaned the increasing “dilution of the experience” and the “commoditization of the brand” as adverse consequences of Starbucks’ growth imperative. He should have stepped in back then as CEO, rather than simply fretting, because today the chickens have come home to roost. Starbucks has become a big, “mature” company with declining differentiation, buzz and market cap. My wife and I go to a funky local “coffee shop” around the corner to get our espresso fix, and a BloggingStocks.com entry concludes that Starbucks “will never be cool again.” Maybe, maybe not. Schultz is following the precedent set by Michael Dell and Charles Schwab, both of whom founded companies which thrived, both of whom left the companies to others while assuming the non-operating “Chairman” role, and both of whom returned to their CEO roles when the doo-doo hit the fan. Schultz is obviously hoping that he can help Starbucks find the soul it has lost. As a woo-able customer, and as a long-term investor, I selfishly wish him well.

The Real Essence of Strategy

As I sit here pounding on a battery-powered laptop while a storm which has knocked power out of my office and home rages outdoors…..I want to wish you a happy new year and I hope you’re warmer than I am right now!! I just read an article by strategy guru Michael Porter in the Harvard Business Review. As usual, Porter’s thoughts on strategy are incisive, and his detailed nuts-and-bolts analysis of competitive forces are useful. Yet, as I’ve noted in the past, conventional approaches to strategy have some significant limitations. It’s not merely that they’re too linear and mechanical (the world often doesn’t align itself to the logical premises and categorizations of planners). It’s also that they miss the essence of what a successful strategy is all about. Porter’s very first sentence is the giveaway: “In essence, the job of the strategist is to understand and cope with competition.” Respectfully, I say: No it isn’t. Of course leaders must understand and cope with competition. That’s a given for corporate survival. But when an organization’s strategy revolves around its competition, you can bet that the strategy will be more defensive and reactive than groundbreaking—and thus limited in scope and impact. You can bet that innovations will revolve primarily around imitation (“me-too” products) and incrementalism (“hopefully a little better than what our competitors are doing”), neither of which yields sustainable competitive advantage. Think about it. Back in the 1960’s, American tire companies—all bias-ply producers—concentrated so much on one-upping each other that they were blindsided by the powerful left hook coming from Michelin and its radials. Kodak concentrated so much on its jousting with known competitors like Fuji that it failed to see and exploit the opportunities in digital media. United Airlines actually “beat” Eastern and Pan Am before plunging into bankruptcy as the economics of the airline business changed and radically different business models from Southwest Air and Jet Blue changed the rules of the industry. Once again, I agree that leaders must constantly survey competitors in order to fully understand and cope with them. But unlike Porter, I would argue that in essence, the job of the strategist is to go to a place beyond competition. I would argue that the job of the strategist is to mobilize the organization to achieve something special, great, and unexpected in the marketplace so as to create new, compelling, and significant value for customers—and thereby for investors. That raises the bar significantly, doesn’t it? But isn’t that what market leadership and sustained competitive advantage is all about? After all, when John Mackey launched Whole Foods Market, he certainly had to be knowledgeable about the business practices of competitors—from giant grocery retailers like Albertsons and Kroger to small corner shops like 7-11 and Harry’s Deli. He certainly had to understand competitor-driven forces like capital requirements, customer switching costs, potential retaliation from entrenched players, supplier power, pricing impact, and such. And he certainly had to (still has to) continually monitor the moves of other food retailers. But at the end of the day, Mackey’s strategic purpose was not to understand his competitors, cope with them, or even to “beat” them. His purpose was to provide customers a radically new and desirable alternative in the form of natural, organic foods. His purpose was to create an exciting and lucrative market. That, in turn, is why Whole Foods busted the competitive landscape and transcended its competitors while becoming the fastest growing, highest-margin food retailer in the industry. Without a doubt, understanding and coping with competitors is a vital part of competitive strategy. But never forget that the soul of a winning strategy revolves around the pathbreaking value that your organization can create, regardless of what competitors are doing. That’s what excites customers, turns on employees, and brings investors rushing in.