Delicate Balance Needed in a Turnaround

Delicate Balance Needed in a Turnaround There are many interesting pieces about companies facing turnaround problems—from banks like Wells Fargo, to large retailers, to food and beverage companies—and these difficulties are more pronounced with COVID-19. Let’s talk about what is happening in turnarounds, why they are so difficult, and some pieces that many people have been missing. In a turnaround, it’s ultimately a corporate strategy with a gun to your head because you have limited time to respond. First, you have to immediately cut costs. Employees and suppliers know that the company is usually not paying much attention during a turnaround. When I was a senior partner and did a lot of turnarounds, the first thing you would do is realize that fraud is taking place. It doesn’t matter if there’s no evidence—it’s taking place because that's human nature. The first thing you need to do is impose very strict capital controls. Anything that needs to go out in terms of cash needs to get approval from somebody who is set up to check these things. The second thing you have to do is the hard part: Figure out which businesses you're going to keep that have a chance to…

Synergy Is Very Hard to Achieve

Synergy Is Very Hard to Achieve Sony, a large Japanese entertainment and electronics company, for many years struggled to get synergy across its various arms. It has video game consoles, a huge music catalog and access to intellectual property like the Spider Man brand. They also make movies, and now they own comics. Even though it owns a movie studio in the United States, Sony has experienced the challenge of not being able to get one asset to create value across all of the platforms at once. For example, let's say it launched a great Spider Man movie. Theoretically, it should have a soundtrack generating a lot of money in the music catalog, a Spider Man game creating a lot of value in the gaming universe, and a Spider Man comic creating a lot of value in the comic world. Synergy is hard to achieve, but it’s what companies undertaking an acquisition or merger talk about a lot. You have to understand that the cost side of synergies is relatively easy to calculate. When a CEO says synergies are worth 800 million a year, recurring for five years, and you ask them to break that down, you should be very…

What Is a Digital & IT Strategy?

What Is a Digital & IT Strategy? Many news articles have raised the issues of getting an IT strategy to work. The Wall Street Journal talked about Volkswagen Group’s difficulties in putting together a program to take on Tesla. There was another piece about retailers facing difficulties in going digital and making sure their e-commerce operations are able to offset the decline in foot-traffic-based sales. Another example is how game-based apps have struggled to handle the significant volume of people spending more time at home and more time playing game-based apps. Clearly, there's a huge focus in the world on either building or optimizing a digital and IT strategy. Almost every company in the world needs to have a digital and IT presence, capability or focus. In all these stories, companies have underestimated the difficulties of putting together a coherent digital and IT strategy. It’s not an uncommon problem because for every company in a sector that are seen as leaders, there are probably 10 companies that are failing. What separates the digital strategies of the winners from the losers? If you compared the two, they’ll look fairly similar. How many companies have decided that streaming is the way to launch video…

Promising Careers Are Also a Venus Flytrap

Promising Careers Are Also a Venus Flytrap I want to wrap up today's Monday Morning 8 a.m. by talking about a big theme I see with executive coaching clients. I call this theme: “Promising careers are also a Venus flytrap.” When I work with clients, I ask them how their career is going. We've developed a strategy for them, so I ask them about the results they’re seeing. They often get excited and say, “I saw a 5%, 10% increase in my compensation year-on-year.” Then I always correct them and say, “Let’s remove inflation from that first, and let's remove the mean increase in the base salary and bonuses that your peers received because that’s your net improvement in your career.” Remember to always do this. Don't just say you're getting a 20% salary increase and your colleagues are getting a 30% salary increase, because that's a problem. Or don't get excited about a 10% salary increase when inflation in your country is actually 15% because then they're actually paying you less. Let's assume your net, your real improvement, is actually 15% a year, which is pretty good. When clients get excited about that, I always caution them that they're…

Amazon and Knowing That One Thing That Drives Your Strategy

Amazon and Knowing That One Thing That Drives Your Strategy The next big theme I want to talk about is a little bit close to me because I used to be a corporate strategy senior partner, is what I call Amazon and knowing that one thing that drives your strategy. As you know, Jeff Bezos is stepping down as CEO from Amazon and will take over as executive chairman. Of course, he's done a tremendous job in creating Amazon, the culture, and the way he’s catalyzed the change of digital e-commerce around the world. He’s done a phenomenal job, and I think he’ll do many other big things because he's still young, energetic and obviously he knows what he wants to achieve. But the lesson here is not about Jeff Bezos. I'm going to talk about a client I had many, many years ago. This company was an investment firm. I did one piece of work for the CEO, and we became very good friends, but I never worked with that CEO again—but not because I didn’t like her. I thought she was amazingly talented, and she went on to do many big things in the world. But I felt that…

Shared Values vs. Paid Friends

Shared Values vs. Paid Friends The third theme is an interesting one because it comes from an executive coaching client in Australia who is the chief operating officer for a very large services company. He runs a very prestigious firm, and most of their offices are in Australia, Singapore, Japan and the United States. They have to make a critical decision now: How far should they expand outside of these four core markets? He made the following argument to me: “For a long time, Singapore, Japan and the United States have been close allies of Australia. Therefore, over the next 5-10 years, no matter what other economies rise in this part of the world, I'm expecting these three countries to constantly come to us for work, give us the benefit of the doubt and grow with us.” I asked him why he made this assumption. He said, “It's always been this way. When I was young, it was this way. When I joined the firm, it was this way. When I worked my way up the ranks until I became a senior partner and then a chief operating officer, it was this way.” Then I asked, “So, why has it…

Apple’s Car and What It Means for Manufacturing

Apple’s Car and What It Means for Manufacturing Apple Car is about to enter the auto market, and it’s all over the news. I mentioned this earlier about what it means for decoupling and so on, but I’m going to take it further because I received many questions about this. I'm going to talk about what is core to your business. In any business you're in, there are certain things that you've decided are the core part of your business, and you can never remove control of that from your business and hand it to someone else. For a long time, strategy has taught you that you cannot outsource what is core because if you do, that means that anyone else can do it, and if anyone else can do it, then how do you have a point of differentiation here? Let me ask you this question. For two similar companies offering the same service in the same sector, do they have the same core assets and capabilities? Is it possible that two direct competitors in the same sector, serving the same customers, can have two distinct and different core capabilities and assets? The answer is yes. Your point of…

Value Chain Migration Death March

Value Chain Migration Death March We’re going to start with what I call the value chain migration death march. I’m referring to the universal tendency across every company, anywhere in the world, to want to respond to their envy. In every single sector in the world, there's a value chain. On the one side, usually the left-hand side, there are suppliers, and on the other side, usually the right-hand side, there are customers. Typically, the closer you get to customers, your margins increase. The further you get from customers, your margins usually decrease—but there are definitely exceptions to the rule. For example, tech companies that operate platforms tend to operate on the left-hand side of the value chain, and whatever is hosted on their platforms is what interacts with customers. For a bank that hosts a capability—whether it's some part of their digital infrastructure on a cloud server somewhere, maybe hosted by Amazon—that digital application is what interacts with customers, not Amazon. Amazon is hosting the part that interacts with customers—and they do an excellent job. [bctt tweet="If you’re a cloud-based streaming company that hosts the capabilities of companies, the thinking is that if the cloud company has such a good…

How to become a better leader

How to become a better leader A lot of clients ask us about how to become a better leader. Leadership is very confusing, nebulous and grainy. People always tell me they want to be a motivational leader and inspire their team. That’s nice, but I know many leaders who were fired even though they inspired, motivated, and gave a compelling vision to their teams. The leaders who don't get fired are the ones who help their teams be successful. Even if you're the CEO of a company with 100,000 employees, your direct reports are your team because you work through them. I have a client who runs the Asia division for one of the biggest electronics companies in the world. He was a coaching client, worked at McKinsey, and then we helped him move into this role. He’s obviously doing very well, and he’s a contender to be CEO one day. He once asked me, “How do I lead? I’ve read all these books about setting a vision.” I told him, “There are many things you can do, but you don’t have a lot of time. You have a team of direct reports. How you unlock their potential is what's…