Overcoming Success Theater at Meetings

Source: CNBC

Do you focus only on success at your team’s weekly meetings?  When Larry Culp took over at GE, the company was in big trouble.  Some thought the company could not be rescued. Yet, Culp noticed that meetings often devolved into “success theater.”  They only talked about what was going well.  Culp notes, “In the old GE, messengers got shot.  I wanted to create a market for problems.”  Larry Arduini, President and CEO of GE Healthcare explains, “Larry made airing problems not something to be feared, but a goal.  He called it ‘Embracing Red’.”  You can read more about the GE turnaround under Culp in Fortune this week. 

The description of success theater reminds me of the culture at Ford Motor Company when Alan Mulally took over two decades ago.  He too tried to make it ok to identify the projects and initiatives that were blinking red.  Famously, he noticed that “all the charts were green” in his first few months at Ford, despite billions in operating losses.  When a brave executive first presented a red chart, he applauded vigorously and then asked, “Is there anything we can do to help you?” As the culture of these meetings changed, the charts became a rainbow of green, yellow, and red. 

Success theater afflicts many companies. People use staff meetings to talk about what’s going well. By the time people finish bragging about the key performance indicators that are green, there’s very little time left to surface and discuss the problems and concerns within the organization. Therefore, I suggest that leaders not only “embrace the red” but rethink their meeting agendas as well. They need to make space for open discussion of new problems, challenges, and obstacles. Otherwise, all the talk of success crowds out any opportunity to surface concerns. Make it a regular practice to put “surfacing the reds” on the agenda for each key meeting. Then, take great care regarding how you react when people share bad news. Be curious and open-minded, and don’t punish the messenger. Ask questions, listen attentively, and don’t jump to conclusions.

Three Critical Questions for the New Starbucks CEO Brian Niccol

As we all know, Starbucks hired a new CEO last week. They hired Chipotle CEO Brian Niccol to replace beleaguered CEO Laxman Narasimhan.  Niccol faces many challenges as the company has experienced declining revenues, frustrated customers, and disgruntled employees.  As a loyal customer (albeit also a frustrated one) and a close observer of the company, I've been considering the questions that Niccol must grapple with as he embarks on this transformation effort.  Here are three key questions:

1.  How much customization can Starbucks offer to its customers?  Give the customers what they want, right?  Customers clearly love to customize their drinks (in far more complex ways than Chipotle faces).  However, it has become abundantly clear that many Starbucks cafes are unable to effectively handle their throughput each day, particularly given the intense amount of customization they must deliver.  We've read about or experienced long wait times, abandoned orders, and incorrect drink orders.  Mass customization only works if a company can actually deliver on its promises.  One might argue that Niccol simply has to figure it out, and that he has to improve operational efficiency so that Starbucks can offer abundant customization.  However, Niccol also has to think about the practical implications of this strategy.  Should he curtail customization at all while he tries to figure out the operational challenges in the cafes?  I'm reminded of the story of Lego's turnaround twenty years ago, led by CEO Jorgen Vig Knudstorp (see HBS case study by Jan Rivkin and Stefan Thomke for details on this story).  He took charge when Lego faced the prospect of bankruptcy.  The number of parts produced by the company had doubled in the late 1990s, leading to numerous manufacturing and supply chain problems.  Knudstorp reduced the number of parts substantially so as to help the company gets its operations back in order.  At the same time, he invested heavily in innovation.  Lego came roaring back stronger than ever.  Niccol might want to study that turnaround as he considers the customization challenges at Starbucks.  

2.  How will the design (or redesign) of cafes balance worker efficiency vs. customer comfort/needs?  Longtime Starbucks CEO Howard Schultz envisioned the cafes as a "Third Place" where people could gather with others either to enjoy a friendly conversation or to get work done.  However, many of the cafes were designed to handle much less volume than they currently receive.  Workers are in each other's way, and they lack the equipment needed to handle as many orders as they receive.  In one of my local Starbucks cafes, they have renovated completely.  Now, the workers have more equipment (two espresso stations rather than one) and more space.  Undoubtedly, the set-up is much more efficient, and wait times will hopefully decline as a result.   However, customers have less places to sit and gather with others.  No tables are within reach of outlets at this point, reducing the ability to work at the cafes.  You can clearly see the tradeoffs that Starbucks must grapple with in their design choices.  Niccol has to determine the appropriate balance here between enhanced efficiency vs. "Third Place" dynamics.  

3.  How will Niccol handle the shadow of longtime CEO Howard Schultz?  We all know the story by now of how Schultz has returned twice after his initial resignation as CEO in 2000.  We also know that he has opined about the challenges his successors have faced, and he's done so in a very public way at times.  Most recently, he took to LinkedIn to criticize the efforts of CEO Laxman Narasimhan.  Niccol will have to think about how to engage Schultz.  He clearly has a great deal of influence, though he no longer serves on the Board of Directors.  Niccol can't allow Schultz to dictate strategy, but he cannot ignore him completely.  

LEGO Boost: Continuing to Renew & Extend the Core

Great firms don't simply diversify into new businesses when their core business appears to be maturing.  Diversification attempts sometimes have two deleterious effects.  First, companies find themselves extending into areas in which they do not have distinctive capabilities that can lead to competitive advantage.  Second, the attention focused on the new businesses can accelerate deterioration of the core, as management becomes distracted and resources stretched thin.   Top performing firms search for ways to deepen their competitive position, to reinvigorate their core business.  Great firms don't simply accept the apparent decline of their core business.  

LEGO went through some substantial challenges in the early 2000s. Jargon Vig Knudstorp became CEO in 2004, and he engineered a remarkable turnaround.   He focused on what made the firm successful for decades - the LEGO bricks and the play associated with those iconic bricks.   Over time, LEGO has reinvigorated the brand and the famous LEGO bricks.  Moreover, the firm has deepened its competitive position with new product offerings and brand building efforts such as the LEGO movie.  

Now the Wall Street Journal reports on the introduction of a new line of products called LEGO Boost.  The products seek to capitalize on the movement to teach kids how to code.   Geoffrey Fowler reports:

Learning programming is awesome when you’re making Lego robots fart. “Usually Legos cannot fart, so we made these Legos fart a lot,” says Eleanor, 9 years old, who helped me code dance moves, jokes and simulated bodily functions into Lego Boost, a new take on the iconic bricks. “Also burp. Don’t forget the burping,” she adds.  Making Lego bricks come to life is a big deal for children aged 7 to 12—as well as for parents who want to teach them the basics of programming.

This new product line appears to build nicely off of the success of the company's Mindstorms products.  Mindstorms is used to teach older kids about robotics.  The Boost product line aims to introduce coding to younger children (ages 7-12).   The product line is consistent with the brand positioning, and it leverages what the company is already good at doing.  LEGO Boost appears to be another way in which LEGO continues to reinvigorate the core business and deepen its competitive position, rather than trying to do new things for which LEGO does not have a distinctive capability.  

Lands' End CEO Pushed Out: Culture Eats Strategy For Lunch

The Wall Street Journal reported last week that Federica Marchionni was forced out as CEO of Lands’ End Inc. after only 19 months on the job.   The news did not surprise me given the faltering performance at the firm and the controversy surrounding her leadership.   Six months ago, I wrote a blog post about her effort to turn around Lands' End.   In that post, I referred to some comments by Columbia Professor Rita McGrath, who questioned whether the Lands' End scenario would unfold much like the situation at J.C. Penney when Ron Johnson tried unsuccessfully to engineer a turnaround.  I was particularly taken aback at the time by Marchionni's choice to work out of an office in New York, while only spending one week per month at the firm's headquarters in Wisconsin. At that time, the Wall Street Journal reported, "As part of her contract, the Lands’ End board agreed to let Ms. Marchionni work primarily from an office in New York’s garment district—an arrangement that rubbed some in Dodgeville the wrong way, according to former employees. Her employment agreement says she must be in Wisconsin for holiday parties and other social events that the Lands’ End CEO “historically has attended.” 

To me, the scenario at Lands' End reminded me of the old saying:  Culture eats strategy for lunch.  You can have a bold vision, but you will not succeed as a leader if you can't build buy-in and commitment from people throughout the organization.   How could working from an office halfway across the country have sounded like a sensible way to build support for her turnaround?   There's a bigger issue here though.  Like the J.C. Penney scenario with Ron Johnson, Marchionni did not spend sufficient time understanding the culture, building a coalition of supporters, and making people feel a sense of involvement and ownership with regard to the turnaround plan.   The best turnarounds involve people throughout the organization believing that it's their plan, not simply the CEO's plan.  Sometimes, the CEO has to set the organization on a new course.  Still, the CEO can consult with employees to determine the best way to make that shift, to execute those plans, and to achieve key goals and objectives.   You can tell them what to do differently, but still ask for their input as to how to implement that strategic shift.   

Can Small Experiments Turn Around J.C. Penney?

The failures of J.C. Penney have been well-documented, particularly with regard to Ron Johnson's rocky tenure at the retailer.  Johnson embarked on a sweeping change initiative that failed miserably. He tried to hit a grand slam, making substantial changes in strategy, marketing, and merchandising all during his first few months on the job.  He did not take the time to test many of his new ideas before rolling them out nationwide.  The failures led to his ouster less than two years after taking the helm.

Now Marvin Ellison, a former Home Depot executive, is trying to turn things around.  While sales are moving in the right direction, the profit picture is still not sound.  Still, I think it's interesting to note that Ellison is focusing on small experiments as a means of innovating and changing the retailer. Here's an excerpt from a lengthy story in Fortune on the Ellison approach:

Question: If you wanted to buy a pair of men’s shoes at a department store, would you look for them next to (a) Men’s Clothing, or (b) Women’s Footwear?  Most shoppers would probably answer “a.” But at J.C. Penney, the 114-year-old retailing mainstay, the answer until very recently was “b.” Women make up about 80% of Penney’s clientele, and Penney managers believed that, generally speaking, those women were likely to buy shoes for their spouses and beaus, just as they did during the Kennedy administration.  “It was a terrible idea,” says Marvin Ellison, shaking his head as he walks a reporter through a Penney store in Frisco, Texas. “It took space away from women’s shoes, and it made it very difficult for men to want to buy shoes.”  

Ellison, Penney’s newly minted 51-year-old CEO, had a better idea. He ran a test to see whether men’s shoes would sell faster when showcased next to, say, men’s suits; once the data showed that they did, he instituted that change last summer across the company’s 1,000-plus stores. Since entrusting guys to buy their own brogues and boots, Penney has seen double-digit sales gains in footwear. “That reset has been one of the smartest things we’ve done,” says Ellison.  This Frisco store, not far from company headquarters in Plano, north of Dallas, serves as Penney’s retail living lab, and as he continues the tour, Ellison proudly points out similar changes. Fashion jewelry now sits closer to its Liz Claiborne apparel brand, so women can try on accessories to go with a dress they might buy. The decor has been gussied up at the store’s traffic-driving in-house salons....As the adage goes, “Retail is detail.” And if the details Ellison is addressing seem forehead-slap obvious, signs of how far J.C. Penney had fallen behind its rivals—well, welcome to his world.

Lego: Sticking to Bricks

LEGO faced a perilous strategic and financial situation roughly a decade ago.   Since that time, the company has experienced a remarkable turnaround.  The LEGO story reminds us of the folly of poorly designed diversification strategies, as well as the value that can be created by renewing the core business.  

Ron Johnson: The Heat is On

The pressure continues to escalate on J.C. Penney CEO Ron Johnson.   In this week's New Yorker, James Surowiecki writes about the struggling retailer (thank you, James, for the shout-out).   Meanwhile, on CNBC, former J.C. Penney CEO Allen Questrom speaks out about the situation.

Ron Johnson's Three Mistakes at JC Penney

The turnaround at JC Penney has definitely not transpired as CEO Ron Johnson expected.   Sales have plummeted, the firm has reported huge losses, and the company's cash position has deteriorated.  Johnson came on board just a short time ago to much fanfare.  He enjoyed a successful career at Target, and then he had launched Apple's retail stores with Steve Jobs.   He came to JC Penney with high hopes of engineering a major turnaround.   He announced a major new pricing strategy and plans for changes in the layout/design of the stores.  Customers didn't flock to his stores; they fled.   The stock has taken a beating lately.

What went wrong?  I think Johnson made three major mistakes:

1.  He changed the pricing strategy BEFORE changing the merchandising strategy.   He wanted to move toward an everyday low pricing strategy, and away from constant discounting.  However, he needed to change the merchandising and store design strategies FIRST before he could try to do away with promotions and discounting.  Johnson needed to create a different shopping experience, and then having done that, he could have perhaps persuaded customers to shop without waiting for discounts and sales.

2.  He did not manage expectations well.    He was hired with great fanfare.  He talked  boldly of a new strategy for the retailer.  Perhaps he should have remembered the old adage:  under-promise and over-deliver.  

3.  He didn't recognize the difficultly involved when trying to change ingrained habits.    His customers were very accustomed to shopping in a certain way.   Asking them to shop in an entirely different manner, almost overnight, would be too much of a shock.   At the same time, he didn't have the new merchandising strategy in place that might attract different customers to his stores.   Habits die hard.   The firm learned a hard lesson there.