Volume 10, Issue 5
2008 Hopkins and Company, LLC
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If we trip on the sidewalk, we could end up with a scrape, bruise, sprain or a break. If we’re like the most successful executives, our stumble may put us off balance for a bit, but we recover balance and momentum quickly and stride ahead. The opportunities to stumble seem to be increasing for executives in most organizations. Long supply chains and high transportation costs are wreaking havoc for some, entering new markets while facing recession at home can be perilous, and any lack of strategic clarity can cause an organization to drift. On that happy note, this issue explores some of the ways in which these challenges are being managed, and presents some hope that a stumble will not lead to disaster. As you read this issue, think about your preparedness in facing those things that might trip you up on your chosen path to success.
Fifteen new books are rated in this issue, beginning on page 5. Two books are highly recommended with four-star ratings; twelve are recommended with three-star reviews; and one book is rated with a two-star recommendations. Visit our 2008 bookshelf at http://www.hopkinsandcompany.com/2008books.html and see the rating table explained as well as explore links to all 273 books read or those being considered this year, including 28 that were added to the list in April. If there’s something missing from the bookshelf that you think we should be considering or if there’s a book lingering on the Shelf of Possibility that you think we should read and review sooner rather than later, let us know by sending a message to email@example.com. You can also check out all the books we’ve ever listed at http://www.hopkinsandcompany.com/All Books.html.
General Electric Company’s annual meeting on April 23 came two weeks after the company announced weak first quarter results that led to the largest one day selloff of company shares in twenty years. It came as no surprise to many observers that CEO Jeffrey Immelt tackled the performance results head on in his comments to shareholders at the meeting, and reinforced his unrelenting efforts to continue the strategy and produce improved results. Here’s an excerpt from his remarks (http://www.ge.com/investors/events/shareholder_address_2008.pdf): “We have built a stronger GE. That is good, because we are in a very difficult environment. We are in the toughest economy since 2001 and the worst housing crisis since the depression. … While I am confident about the economy long term, we could see even more difficult times ahead. GE has not been immune. We had a tough first quarter 2008, below last year and our own expectations. … We are disappointed that we will not hit our 10% earnings growth goal, particularly after we said that we could. This has triggered a tough reaction and it should. I can assure you that we look in the mirror and ask ourselves some very tough questions. We do this every day. But we will not let others define our future. We are a performance Company. We learn from our successes and failures to get better. Meeting our financial commitments is important to our investors and our culture. We are making the appropriate changes in our operations and planning processes to ensure that we deliver for you. … We will continue to be tough minded on performance. Since I became CEO, 60% of our top 185 leaders are new. You must be a high-tech, global, customer-oriented leader to play on this team; and you must perform with integrity.
This is not a company that makes excuses. What we are is a great company that had a tough quarter. I think it is important to separate this quarter from the underlying strength of the Company. …This Company is very strong. What should you think about the stock price? Over the past five years, earnings have nearly doubled, but our price to earnings ratio has declined 50%. Our PE ratio today is about the same as it was in the early 1990's. One driver of the lower PE ratio is our exposure to financial services. And we will continue to trim our exposure to the most volatile pieces of this industry. But we have great financial service businesses that drive high returns and outperform the competition. When you think about the company today, there are many reasons to invest. Even our reduced earnings growth estimate should still exceed the S&P 500. We have a dividend yield of 4%. And, at our current PE ratio, there should be upside as we perform. Investors have been very patient. We run GE based on your trust. But you don't want me to be CEO of your company if I don't have the courage of my convictions. This Company needed to change, and we are improving it every day. My belief in this Company is unshaken. We have the right team and we have the right strategy. From here it is all about execution … solid earnings, organic growth, expanding returns, generating cash. And we will deliver for you. We believe in our strategy, and will not turn back.” When Immelt made this comments, he was certainly aware of what his predecessor Jack Welch had to say on CNBC (http://www.msnbc.msn.com/id/24163368/) about what he would do if the company missed earnings targets again: “I’d be shocked beyond belief, and I’d get a gun out and shoot him if he doesn’t make what he promised now. Just deliver the earnings. Tell them you’re going to grow 12 percent and deliver 12 percent. … Jeff has a credibility issue. He’s getting his ass kicked.” Ouch. For the second quarter, will we see the company achieve the promised earnings target, or will Immelt have to file for an order of protection from his predecessor?
How unwavering would you be to your strategy when faced with surprising negative results? When your critics include the person who put you in your job, how would you react? How clearly do you separate for those with whom you work the poor outcomes from the good processes and strategy? How quickly can you recover from a setback?
How well-informed are you about the business processes and risks you face because of your links to an array of business partners? How much of your business results depend on their actions? How predicable can your results be when you are unaware of what others are doing? When others stumble, do you get hurt?
Good to Great guru Jim Collins has an article in the May 5 (the 500) issue of Fortune titled, “The Secret of Enduring Greatness” that provides hope for those executives trying to recover after a stumble. (http://money.cnn.com/2008/04/18/news/companies/enduring_greatness.fortune/index.htm?postversion=2008042113) Here’s an excerpt, “Just because a company stumbles - or gets smacked upside the head by an unexpected event or new challenge - does not mean that it must continue to decline. Companies do not fall primarily because of what the world does to them or because of how the world changes around them; they fall first and foremost because of what they do to themselves. … It doesn't matter what lens we look through - the lens of those that go from good to great, the lens of zero to great in exciting new industries, or the lens of those that prevail in adversity and last 100 years - one lesson stands out: Whether you prevail or fail, endure or die, whether you make it onto the Fortune 500, and whether you stay there, depends more on what you do to yourself than on what the world does to you. … When you've built an institution with values and a purpose beyond just making money - when you've built a culture that makes a distinctive contribution while delivering exceptional results - why would you surrender to the forces of mediocrity and succumb to irrelevance? And why would you give up on the idea that you can create something that not only lasts but also deserves to last? The best corporate leaders never point out the window to blame external conditions; they look in the mirror and say, ‘We are responsible for our results!’ Those who take personal credit for good times but blame external events in bad times simply do not deserve to lead our institutions. No law of nature dictates that a great institution must inevitably fall, at least not within a human lifetime. That most do fall - and we cannot deny this fact - does not mean you have to be one of them.” Whether Collins is right or wrong, he brings hope to those executives trying to avoid a permanent fall.
Is what you’ve created likely to last? Does it deserve to last? Will you and your organization be one of the survivors? What are you doing to make that happen?
Here’s an update on stories covered in prior issues of Executive Times:
2006 issue of Executive Times we noted how Disney CEO Bob Iger
was disassociating himself from his predecessor, Michael Eisner.
Here’s what The Economist said
about this in the 4/17 issue (http://www.economist.com/business/displaystory.cfm?story_id=11058438),
“Mr Iger's management style is said by many to
have unlocked Disney's creativity. ‘There was already creativity inside
Disney, but Bob removed the barriers to it,’ says Peter Chernin, chief
operating officer of News Corporation, a rival media group. ‘Michael
Eisner was all about his own creativity,’ says Stanley Gold, a former
Disney board director who led a campaign to oust Mr Eisner in 2004, referring
to the way in which the former boss meddled in the detail of Disney's parks
and movies. In contrast, he says, ‘Bob pushes creative decisions to the
people below him.’”
Ø Many issues of Executive Times encourage a clear articulation of corporate strategy to keep everyone aligned with what fits and what doesn’t fit the company’s planned approach for achieving success. One of the best articles on this topic appears in the current issue of Harvard Business Review titled, “Can You Say What Your Strategy Is?” by David J. Collis and Michael G. Rukstad. (http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?ml_action=get-article&articleID=R0804E&ml_issueid=BR0804&ml_subscriber=true&pageNumber=1&_requestid=67288) Here’s a grabber on why to read it: “Can you summarize your company’s strategy in 35 words or less? If so, would your colleagues put it the same way? It is our experience that very few executives can honestly answer these simple questions in the affirmative. And the companies that those executives work for are often the most successful in their industry.”
Latest Books Read and Reviewed:
(Note: readers of the web version of Executive Times can click on the book covers to order copies directly from amazon.com. When you order through these links, Hopkins & Company receives a small payment from amazon.com. Click on the title to read the review or visit our 2008 bookshelf at http://www.hopkinsandcompany.com/2008books.html).
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