Management Mistakes and Successes

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    Management Mistakes and SuccessesRobert F Hartley

    Kmart: From Mediocrity to Leadership to Jeopardy

    ...................................................................................... 2

    Scott Paper: Turnaround Trauma

    ...................................................................................... 2

    IBM: A Giant Falters But Then Arises

    ...................................................................................... 3

    Harley Davidson: Finally a Comeback

    ...................................................................................... 4

    The Saving and Loan Disaster: Greed Running Amuck

    ...................................................................................... 5

    Coca Colas Classic Planning Blunder

    ...................................................................................... 7

    Euro Disney: Bungling a Successful Format

    ...................................................................................... 7

    Contrast Southwest Airlines: Finding A Strategic Window of

    Opportunity

    ...................................................................................... 9

    Herman Miller: A role model disappoints

    ...................................................................................... 10

    Reebok vs Nike: Sneaker Wars

    ...................................................................................... 11

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    Kmart: From Mediocrity to Leadership to Jeopardy Replace those in the company who are incapable of accepting change

    Be aggressive, voluble and full of ideas Move aggressively and quickly in making changes Use technology to give yourself more control over your business If you dont experiment, you will never know Plans may be good but are not always implemented properly. The fault may lie

    within the organization, resource allocation or within top management itself Do not fail to delegate and develop key executives Although maintaining a centralised management structure of non-delegation

    has its faults (hinders creativity), an autocratic approach makes it easier to getthings done

    Heavy overhead can kill business Front-runners must stay sharp (the only way to go is backwards) Neglect your core business at your peril Attention to the core business does not rule out diversification can the

    resources be allocated to the diversification or will that allocation of resourceshurt the core business?

    Scott Paper: Turnaround Trauma Al Dunlap was brought in to turn a 115 year old company around (he was

    nicknamed Rambo in Pinstripes) The same day as Al Dunlap took over as CEO of Scott Paper, he invested $2

    million of his own money in the business to show his confidence that thecompany can be turned around

    On his first day Al Dunlap offered three of his former associates top jobs inthe company

    On the second day he disbanded the powerful management committee On the third day he fired none of the eleven highest ranking executives On the fourth day he destroyed four bookshelves crammed with strategic plans

    of previous administrations Some executives believe in instituting major challenges as quickly as possible

    because the organization is expecting it and it will be better prepared to make

    the adjustments needed than it ever will be again Other executives prefer to move more slowly after all the pros and cons can be

    weighed sometimes such delays can lull an organization into a sense of falsecalm and make for even more trauma when the changes eventually come

    After only two months at the job, Al Dunlap announced four major goals for the coming year:

    o Divest the company of non-strategic assetso Develop a core team of accomplished senior managerso Undertake a one-time-only global restructure to trim up the company

    (11,000 out of 25,900 positions were eliminated)o Develop new strategies for marketing

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    Bloated bureaucratic organizations are the epitome of inefficiency and waste but remedies can be overdone: dont cut off too much bone and muscle.

    The results of Dunlaps cost-cutting frenzy resulted in a rise in earnings by71% in the second quarter. In the third quarter, earnings increased by 73%.Fourth quarter earning were 159% higher than in 1993 (Dunlap took over in94)

    However, Scott Paper lost market share of 1% in the bath-tissue market and5.2% in paper towels.

    But Dunlap still said, I am still the best bargain in corporate America Slash and Burn techniques tend to bring great short-term results, but leave

    the company with longer term problems Cut the deadwood but not the bone and muscle A well-structured organization would appear to be best in many

    circumstances, but it tends to be too rigid, relying on rules and procedures andas a result is slow to adapt and change

    Some of the worst decisions in business concern buying and selling. Charisma, new blood and decisive leadership can turn around a company Strategic plans often delay change implementation it is often a vehicle for

    procrastination and blame-dilution

    IBM: A Giant Falters But Then Arises In 1993 IBM reported a $5.6bn loss for the fourth quarter of 1992 a yearly

    deficit of $4.97bn the biggest annual loss in American corporate history 42,900 jobs went in 1992 and another 25,000 were slated for termination in

    1993

    IBM got fat and complacent over the years Akers, the chairman of IBM, recognised that the company was in trouble in1991 and attempted to decentralise the business structure. He saw a crucialneed to cut fat from the organization

    Akers more radical proposal was to break up IBM and divide it into 13divisions and give each division more autonomy

    IBM was lagging behind Compaq, Sun and HP in producing affordable high-quality fast PCs. AT&T could sell a machine for $12.5 million thatoutperformed IBMs $20 million mainframe

    Louis Gerstner was appointed as CEO to replace Akers who lost the support of the Board. Gerstner was an outsider, an unusual step for IBM as they had a

    policy of promoting from within. It isnt always good to promote from within because by doing so you are

    happy with the status quo but always promoting from outside the company can play havoc with trainees who will lose faith in their career path within thecompany

    Resistance to change can be combated by good communication with participants about the forthcoming changes and by involving employees in thechange process.

    Change in a gradual fashion is much easier on staff, but abrupt changes canalso be more effective in certain circumstances (see the section on Scott Paper

    and Al Dunlap)

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    IBM was guilty of complacency, conservatism and conceit which leave noincentive to undertake aggressive and innovative acitons, causing growingdisinterest in such important facets of the business as customer relations,service, and even quality control. They also inhibit interest in developinginnovative new products that may cannibalise existing products and disruptentrenched interests

    IBM had a diminishing payoff on massive R&D expenditure and bloated costs IBM gave away the game they left microprocessors to Intel and software to

    Microsoft, preferring to concentrate on other issues In 1994, Gestner turned the company around its first profitable year since

    1990. Annual expenses were reduced by $3.5bn and its stock nearly tripled in price. Critics thought that Gerstners approach was not aggressive enough ashe discarded the idea of breaking up the company and opted for deep-cleaning and redecorating.

    People thought that he was moving too slowly, they were after an Al Dunlap

    style approach In an industry that moves at the speed of light, there is verylittle time for that (slow restructuring). IBM concentrated on R&D 1,298 patents in 1994 the most ever issued to

    one company in one year IBM was transformed into a lean and mean organization (in 1994, 185,000

    employees less than in the mid 1980s and $1.2bn of infrastructure sold off) Acting Small

    Adversity need not be forever firms can turnaround and come back over time, despite strong competition

    Harley Davidson: Finally a Comeback Harley Davidson motor cycles date back to 1903, but by 1960 it had destroyed

    all US competitors and had a 70% of the motorcycle market Despite their dominance, growth was minimal compared to the growth of the

    motor car market In 1964 Honda shook up the whole market by offering lightweight cycles and

    advertised towards the new customer. In only a few years Harley Davidsonsmarket share dropped to only 5%

    AMF (recreational equipment and bowling) bought a controlling stake inHarley Davidson in 1965

    Honda was making high quality motorcycles, Harleys quality control was

    very poor quality was going down just as fast as production was going up.50-60% of motorcycles failed quality control tests at Harley, only 5% atHonda

    Vaughan Beals bought out AMFs share in Harley and his massive lobbyingfor tariff protection by the government paid off and Harley began to buildmarket share

    Beale took a front line approach to marketing Harley he drove his Harley torallies; he helped to establish and grow the Harley Davidson Owners Group(HOGs) and spoke to them about their concerns etc

    In 1986 Harley Davidson requested that the tariffs be taken off imports oneyear earlier than planned their confidence was back

    Japanese operating costs were 30% lower than Harley Davidsons because of professional management and attention to detail

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    Beal divided each plant into profit centres, with managers assigned totalresponsibility within their particular area

    They formed quality Circles to increase employee involved in the qualitycontrol process. Quality circles are worker-managed-committees that meetregularly to talk about production problems, plan ways to improve

    productivity and quality and resolve job-related gripes The introduction of quality circles had a marked improvement on the

    productivity of Harley Davidson defects were down 70%! Harleys strong point was an unflappable base of loyal customers 92% of

    customers remained with Harley even during the bad years Harley also began to crack down on its copyright issues others were using its

    name on inferior merchandise. This helped to keep the Harley name associatedwith quality

    Harley increased its product range with 20 models by 1991 ranging from$4,500 to $15,000

    Harley honed in on a new market: Rich Urban Bikers (managers, professionalsetc) who brought the company back from the brink By 1993, Harley Davidson had a new problem: supply could not meet demand Visionary Leadership:

    o Challenge the process: be a pioneer and encourage innovation and people with ideas

    o Be enthusiastic: Inspire others through personal example to share in acommon vision

    o Help others to act: be a team player and support the efforts and talentsof others

    o Set the example: Provide a consistent model of how others should acto Celebrate achievements: Bring emotion into the workplace and rally

    hearts as well as minds You dont solve problems by throwing problems at them Harley took on the strategy of going slowly with its production, being careful

    with quality and refraining from heavy debt commitments. This raised the risk of permitting competitors to gain market share in the US and especially inEurope

    You must weigh up the risks of conservative planning versus aggressive planning

    Certainly a product has to be unique, but though most firms strive for thisdifferentiation, few achieve a mystique

    The Saving and Loan Disaster: Greed Running Amuck Sunbelt Savings Association McBirney formed an investment group that began buying small Savings and

    Loans companies and called it Sunbelt Savings Association which controlled$3.2bn

    Sunbelt was nicknamed Gunbelt because of the risks it took (loaning $125mto an inexperienced investor in his 20s who ended up losing $80m)

    Sunbelt spent millions on parties, aircraft and entertainment in the early 1980s

    When the regulatory authority began auditing all of the savings and loancompanies after a large company collapsed (due to high risk investments that

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    didnt pay off), the bulk of the savings and loan companies in the Sunbeltempire were declared insolvent. Many of the collateral properties weredeclared over-valued. Then real-estate prices plummeted.

    The government files a lawsuit against McBirney and other insider shareholders nearly $13 million in common and preferred dividends had

    been taken out in 1985 and 1986 at a time when Sunbelts capital was rapidlyevaporating

    General Discussion By 1988, 503 of the USAs 3178 thrift institutions were insolvent. Another

    629 had less capital on their books than required by law. In 1987 630 of thesecompanies had lost an estimated $7.5bn. More than half of these companieswere based in Texas

    The motivation for taking wild risks with deposits was that individualaccounts were insured up to $100,000 b the Federal Savings and LoanInsurance Corporation but even they could not cope without Congresscontributing billions of dollars

    Taxpayers eventually footed the bill

    Savings and Loans Companies had to Re-Evaluate Their Mission Determining your mission involves:

    o Assessing the environment and how it is changing or is expected tochange

    o Appraising competitive factors and how these may be changingo Weighing the particular strengths and weaknesses of the company

    Dont make mission statements too broad, but narrow definitions restrict perspectives and the grasping of different opportunities

    Leadership Issues Related to the Savings and Loan Debacle Leadership is vulnerable to abuses:

    o Overreachingo Not carefully assessing risk vs rewards in proposalso Operating beyond reasonable meanso Not keeping a tight rein on costso Failing to guide the organization with the best interests of the

    stakeholders in mind Such abuses are tempting in times of wild optimism Discipline is:

    o Controlled behaviour o Careful evaluation of actionso Quest for disciplined growtho Not being too conservative you risk missing opportunities and give

    competitors an advantage Adversity can create opportunities Any business firm faces a dynamic environment; nothing can be expected to

    remain constant. This requires some degree of adaptability

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    Coca Colas Classic Planning Blunder By the mid 1970s the Coca Cola Company was a lumbering giant, and this

    was reflected in its performance Pepsi was gaining a lot of headway the Pepsi Challenge proved time and

    again that taste testers preferred Pepsi In 1980 Robert Goizueta took over as chairman of Coca Cola and stated that

    Nothing is sacred to coke anymore in other words, changes were in the air he announc...

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