Work at Home or in the Office?

There are obvious benefits to the employee of working from home.

However the negatives to the company are too significant to ignore.

 

In every turnaround of a distressed company I have fixed, the absence of face-to-face cross-functional communication was glaringly absent.

 

Cross-functional communication is defined as employees from every function meeting as a group on a regular basis to discuss anything affecting the company’s performance including: priorities, problems, issues, creating new opportunities, etc. These functions or departments include: sales, marketing, accounting, manufacturing, engineering and human resources.

 

Effective cross-functional communication starts at the top with the Chief Executive Officer. A successful CEO must meet regularly with direct reports, as well as with lower organizational levels. The organizational tiers below the CEO level must meet regularly. The meetings should include a mix of officers, managers and individual contributors. Depending on the issues and their severity, by meeting regularly I suggest weekly.

Cross-functional communication must be done face-to-face. In person communication simply provides the most honest, candid, productive exchange.  

 

Whether problem solving or evaluation of a new opportunity some people will not express their opinions openly in a meeting. There are many factors for this hesitation to share thoughts, including basic modesty, shyness, uncomfortable speaking publicly, pecking order politics, etc.  Successful managers must be able to read a team, recognize the body language and facial expressions of a person reluctant or shy to express themselves and have the skill to draw the person out – get them to open up.

 

This is very hard to do at a distance via conference calls and other contemporary technology. It simply cannot be done relying on Zoom calls.

 

A further complication of employees not working in the company’s offices is the elimination of informal communication. Employees frequently stop to chat informally in a hallway or someone’s office to further discuss an issue important to the company. Occasionally in these informal meetings a solution is formed.

 

The staff of any company working exclusively from home will negatively affect creativity, problem resolution and company performance.

 

Articles:

 

Goldman Sachs lifts all COVID protocols, orders staff to return to office full-time

Is the work-from-home debate already over?

What’s wrong with General Motors?

It seems that #GeneralMotors has deteriorated and is in trouble yet again with:

• ·      GM posted a decline in net income of 141% in 2018.
• ·      GM registered a $4 billion net loss in 2017.
• ·      GM recently announced the closure of 6manufacturing plants.

Meanwhile, Toyota actually increased netincome almost 40% in 2018, and earned a net income of $17 billion in 2017.

Why is #Toyota thriving?  While #GM struggles? 

Does corporate staff dominate decision making?

To support its line management large companies develop staff organizations that include advisory services for corporate planning, manufacturing services, market development and finance. Line management produces sales and profits through the functions it manages including manufacturing plants, sales force, supply chain, plant cost accounting, etc. These are separate organizations.

Is General Motors’ driven by its staff organization versus line management driven? In actual practice does General Motors’ staff organization run the company? Do they set goals? Do they develop and write the strategic and operating plans? Do they specify what products are to be sold? Are line officers subordinate to the directions from staff officers?

If its staff organization dominates decision making, this is a serious fault that will lead to continued failure.

Line management leads successful companies, Staff organizations do not.

Out of touch management.

It was once reported in a #Bloomberg article that General Motors’ senior management may not have been informed of the infamous ignition switch failures that resulted in consumer fatalities. The astonishing reason provided was simply,“people didn’t want to push bad news upward” within the company.

Was GM management truly unaware of this stunning problem for a decade?

Depending on a company’s culture, lower ranking employees may not come to a chief executive officer’s office to reveal a problem. Some may not speak up in a meeting with higher ranking officers. Even senior officers may remain silent so as to not violate an unspoken pecking order, keeping vital information from being considered.

If we are to believe that management was unaware of this extremely serious defect for a decade, it suggests General Motors is dysfunctional, lacking an informed leadership. This raises the question of what other hidden operating problems remain at GM its #CEO may not be aware of today that can affect its performance and reputation.

One example: The Chevrolet Volt electric vehicle was first introduced in 2010. It will be discontinued in 2019. Why did it fail? Why did it take 9 years to realize it was a failed product? It was reportedly considered a failure some years ago – well prior to the decision to discontinue production. Was senior management even aware of this failure?

Does GM have a hidebound culture that isolates senior management from accurate and timely information? Thus failing to have a basic understanding of GMs’ operating fundamentals and its internal operation.

Absence of hands-on management by senior officers.

Focused hands-on management requires that the Chief Executive Officer and senior officers submerge themselves into lower organization levels. One must enter into the “bowels” of the company. Go down to the plants, warehouses and administrative offices to talk to hourly employees, non-exempt office and exempt individual contributor employees. The goal is to develop healthy and candid relationships. This grows insight, understanding, functionality, and success. It will result in improved morale, problem resolution, efficiency and reduced costs.

Does GMs’ CEO and senior line officers meet face-to-face with car and truck dealers? Do they occasionally physically visit manufacturing plants, warehouses and remote offices? A couple of times a year is sufficient. Relying purely on staff memos is not going to provide the essential knowledge for sound decision making.

Establishing broad based communication is not hard to do.  It just takes time, effort, discipline. If GMs’ senior management does not have the time in their schedules to periodically do it, they are working on the wrong priorities.

If not, GM will continue to stumble and decline.

Effective headcount reduction.

Reportedly General Motors’ will attempt to reduce costs with a salaried headcount reduction.

In my experience, management will often report the salaried headcount reduction has been executed. Yet, later examination of this action reveals only the removal of hourly employment. To be truly cost effective, headcount reductions must include all within the company beyond just hourly employees. It must include senior and junior officers, managers, salaried exempt and non-exempt staff.

This is important, as this action will affect the morale of the company. Without a reduction across all levels of the organization, a sense of unfairness will be established within the business. Also, the workload will most likely be disproportionally increased on lower ranking employees, ensuring the greater possibility for mistakes. Other essential tasks may not be addressed. In this case, costs will increase as profits decline.

For any corporation with a staff organization, it is best to reduce it to a skeleton organization. This creates a lean, focused, informed, unified leadership. With a streamlined approach, dedicated to promoting healthy relationships, it will become quickly apparent if other levels of the company need improving.

#TurnaroundCEO #GeneralMotors

Was GE correct in replacing its CEO?

A nagging thought kept running through my mind when I read General Electric had replaced Mr. John Flannery as Chief Executive Officer after just 14 months on the job: Was he given enough time to fix this huge severely distressed $120 billion company?

My answer is no...

It would take at least 3 years to fix a company with the complexity and size of General Electric. It is extremely difficult to even save a smaller company with sales under $300 million in only one year, based on my own experience completing a number of turnarounds as CEO. This type of challenge takes time.

In my experience, although the chief executive officer I replaced had failed, the Board of Directors were at times also at fault and contributed to the failure. In more than one turnaround, the Board was more at fault than the chief executive officer.

It is not difficult to determine that a company is failing but surprisingly, in my experience, some Boards did not recognize that management failed and that the company was in trouble until the decline was at a desperate crisis level.

One has to wonder....

Why wasn’t General Electric’s decline identified some years earlier when it would have been easier to fix the problems? Siemens, one of General Electric’s competitors, realized it was headed for trouble in 2003 and began a restructuring. Now Siemens is reportedly successful.

News reports suggest GE's entire Board of Directors will be replaced by 2019. There are currently six new Board members.  But 5 of the 11 current Board members recently involved with removing Flannery were also on the Board during the company's decline. Did these five Board members participate in the decision to replace Flannery? If yes, how can anyone be certain the latest move was sound? Or did this Board make another poorly considered decision that got General Electric in trouble in the first place?

Personally I find General Electric’s demise particularly sad, since I started my career at GE. I would have thought this decline would have been virtually impossible after the excellent job Mr. Jack Welch completed in building GE from its troubled condition when he took over.

Bloomberg: GE Ousts Flannery After Slump, Names Lawrence Culp CEO 

Washington Post: Why GE is making a dramaticoverhaul to its board of directors

CNBC: GE was once America's most valuable company. Today it is fighting junk-bond status.

Wall Street Journal: GE Powered the American Century—Then It Burned Out
 

China's Debt Crisis

China may be forced to continue to increase its debt position. Their cash flow future looks grim.

China’s debt is largely held by corporations. The problem is a fair number of their small and large companies are poorly managed. Their inefficient equipment and systems results in high-cost, money-losing operating companies. This results in deficit cash flows which severely limits the capital available for the repayment of debt.

China is reportedly attempting to have lenders restructure weak loans into equity. The majority of the lenders are banks. Banks will be converting their loans into equity in a number of financially distressed companies which may negatively affect a bank’s financial condition.

Will the current tariff challenge affect corporate revenue and further increase operating losses?

As a consequence China may need to increase its debt to support companies incapable of repayment or restructuring.

Debt Articles:

Forbes

South China Morning Post

China Power

Bloomberg

Tariff Articles:

Bloomberg

Politico

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Broken Business Models: Sears & Kmart

The NY Post’s article and others seem surprised that Sears Holdings may not be able to continue as a going concern. Clearly sale of its Craftsman brand was a signal that Sears was in serious financial straits.

The acquisition of Sears and Kmart was completed ten years ago. But twenty years ago, before e-commerce became a major competitor, it was painfully obvious that Sears and Kmart were in serious trouble. Vendors selling to both companies at that time were questioning whether they could survive against Wal-Mart.

Could it be accurate that Wal-Mart’s physical distribution and information technology systems are so efficient that Wal-Mart receives cash for its products prior to having to pay its vendors for the purchases? All? Some? If true, tough to compete against.

Sears’ and Kmart’s business models were unmistakably broken starting in the 1990s. It is virtually impossible to repair a business model once it is broken. At minimum it would have required major capital investments in information technology and restructuring of their physical distribution operation with its high overhead and slow inventory replenishment. Would there have been a positive return on investment?

Mr. Edward Lampert was certainly considered a successful investor when he acquired Sears and Kmart. Possibly he was optimistic that he could repair both companies. Perhaps taking over as chief executive officer was a mistake as he apparently had never worked as CEO of a large retail company.

To be qualified to be CEO of a retail, manufacturing or service company – particularly one as large as Sears and Kmart - one needs to have started their career in the bowels of a company – at the bottom. Mr. JackWelch is an example of a successful CEO who started at the bottom.

Working ones way up from the bowels gives experience with all the functions (departments) of a business. How do these functions work together. Why is cross-functional communication so critically important - while simple in concept it is difficult to practice. How to submerge oneself into the lower organization levels to find out the priority problems and solutions without being a distraction. CEOs who started at the bottom are more calmly self-confident and make better decisions when they get to the top position.

Regardless of any mistakes that have been made Sears and Kmart seem to fit the axiom: “not every business can be turned around” – particularly if their business model is broken.

Second Best Company to Work For

Fortune Magazine’s 2017 “100 Best Companies to Work For” rated Wegmans Food Markets as the second best company to work for.

As Inc. Magazine’s article reports, Wegmans does not pay the highest wages compared to many of the other companies on Fortune’s list. However, it does have some attractive perks for tuition reimbursement and health care insurance but, in comparison to others on the best to work for list, it falls well short.

Why the high rating? Its culture and its management style receive high grades. This is true even though Wegmans has strict rules for its employees such as: the precise number of minutes for a break and the speed at which cashiers check out customers’ purchases.

Marriott International is number 33 on Fortune’s Best to Work For list. I became aware of Marriott’s rating when I was Chief Executive Officer of a distressed company in Austin Texas. The company I was managing had high hourly employee turnover. We paid minimum wage. Marriott also paid minimum wage to its hourly employees but had virtually zero turnover. I met with the hotel manager. Spent time learning how it was accomplished.

Marriott has similar reasons for being on Fortune’s list. Its culture and its management style. Heavy on employee recognition. Its support of employees and their families when they have a medical or personal issue. At the same time, Marriott also has strict performance measurements for it employees.

One minor example. A Marriott hourly laundry employee’s mother died. The hotel gave him paid time off to take care of the funeral arrangements. The hotel manager attended the funeral. The employee deeply appreciated it. He was moved to tears because the manager attended the funeral. He had thought he was a nobody at Marriott, fungible. He never forgot this gesture. He stayed with Marriott and was eventually promoted to a supervisory position.

It is not difficult to have a Wegmans’ and Marriott’s culture. It is not expensive. It pays off with higher than average profit margins and return on total capital.

Wegmans is a privately owned company. Some estimates put its operating profit margin at above 7% - higher than its largest competitors and Whole Foods.

Recession?

Are we headed into a recession in 2016-2017?

The decline in the key drivers of economic growth say yes:

• Business fixed investment has declined by an annualized 4% over the past two quarters. Business equipment and software declined 5%. Non-residential structures dropped almost 8%.

• Employee layoffs. "U.S.-based companies announced 65,141 job cuts last month (April), up 35 percent from March.” Boeing plans to layoff  8,000 employees - 10% of its workforce. Intel plans job cuts of 12,000 - 11% of its total headcount.

• In 1980 there were 60 USA non-financial corporations rated AAA. Today there are just 2 with the recent surprise that ExxonMobil was downgraded to AA+. This will reduce capital investment and ultimately employment and GDP growth.

Business investment and employment are critical factors in economic growth.

As a result of these negatives:

• The Labor Force Participation rate dropped to 62.8% in April 2016. A 38 year low. Thus 94 million people are out of work. This is a decline over the recent several years from 66%-67%. New job creation is weak and will not improve the participation rate.

• GDP growth is in decline. It registered an anemic 0.5% increase (revised to 0.8% in May 2016) in the first quarter of 2016. In the third and fourth quarters of 2015 it was 2.0% and 1.4% respectively.

China’s struggles area concern. Its growth has consistently slowed. 2015 was its slowest year in 25years. This is a factor in the global decline in the demand for commodities and the 55% reduction in commodity prices since 2014 negatively affecting capital investment and employment. Unfortunately 2016 growth is difficult to accept as real as it has been stimulated by debt in an economy that is seriously overleveraged.

The USA’s growth prospects are muddled by an apparent decision by one of its major industries – automobiles. General Motors, Ford and Chrysler are reportedly not investing in flexible production systems as are its German and Japanese competitors. This is described as: “…technological change that stands to radically reshape the car business.”

Will this result in the Big Three’s costs being higher than its competitors? Probably. It will most likely lead to lower unit sales and lower overhead absorption resulting in lower operating profits, lower cash flows, less capital investment and lower employment.

Adding to the puzzle about General Motors’ viability is its $500 million investment in Lyft – a Uber competitor. Lyft is a business outside of GM’s vehicle manufacturing core. Is GM losing disciplined strategic focus?

Follow-up articles: 

Business Insider, May 26,2016, “Japan's prime minister is warning world leaders about a 'Lehman-scale crisis'” He interprets economic data as pointing to the reemergence of the global financial crisis of 2007-2008.

InvestmentWatch, May 26, 2016: Interview with former Federal Reserve Chairman Alan Greenspan: “Greenspan: Western World Headed for a State of Disaster”. “…have a very profound long-term problem of economic growth…(not) on the verge of a market…collapse…”