What is the root cause of the loss of investor confidence with General Electric’s Jeffrey Immelt?
On July 10, 2008, Bloomberg reported: “…investors, impatient with…Immelt’s effort to revive the shares…his job appears secure for now…it is safe in the short run. He has the support of the board in the short run…”
Could Jack Welch have created this uncertainty, with his April 16, 2008 statement on CNBC, claiming Mr. Immelt has suffered a “credibility crash”?
GE announced its first quarter earnings forecast on March 2008, just weeks prior to reporting the actual earnings. The bottom line was significantly lower than the forecast, leaving investors shocked and surprised. GE stock dropped significantly.
However, Mr. Immelt has almost doubled the earnings for GE over his 5 year tenure. Wouldn’t this be considered a success? Isn’t this proof of his credibility?
Was Mr. Welch’s negative insight merely a slip of the tongue? Did he ever make this type of verbal error in his twenty years as GE’s CEO?
Was this intentional? What would be the motive?
Perhaps as Genghis Khan once said, “It is not sufficient that I succeed - all others must fail.”
Friday, September 5, 2008
Friday, July 11, 2008
Bankruptcy - The Fate of General Motors, Ford and Chrysler?
General Motors, Ford and Chrysler may have to enter into Bankruptcy to reduce their hourly cost of labor. Running out of cash may be the trigger that puts one or all of them into bankruptcy, but it will be a blessing in disguise.
One of their most significant problems is that their hourly labor costs are reportedly $20 to $30 per hour higher than their Japanese competitors. Some of the differential will be reduced with the UAW’s assumption of retiree health care with VEBA -- Voluntary Employee Beneficiary Association – beginning in 2010. This could reduce employee health insurance costs by one-third but will only produce a relatively small reduction in hourly labor costs. This won’t be enough - including consideration of the two-tier wage structure.
Most of the Japanese competitors have non-union hourly labor in their USA manufacturing operations. As such, their labor costs will not significantly increase over time. In fact, they will probably decrease because of higher capital investments with more effective productivity improvements.
By comparison, GM, Ford and Chrysler are at a distinct disadvantage. They are strapped for cash which severely limits their ability to invest capital for operating improvements. Recent plant closings and operational restructuring have reduced their overall costs by billions of dollars, as well as their hourly headcounts by the thousands. However, the overall impact is somewhat misleading. The hourly cost for direct labor employees has not been reduced. While the number of automobiles manufactured by the Big Three have declined in dramatic fashion, the actual cost of each automobile continues to be higher than its Japanese competition.
Will they be able to negotiate “voluntary” hourly labor cost reductions with the UAW?
One negative example from my turnaround experiences:
I was CEO of a legally insolvent, severely distressed manufacturing company. We asked the local union members to accept minor “voluntary” changes in the union labor contract. Specifically, we needed a delay in the contracted 3% increase in the base wage rate and an increase in the co-pay percentage for health insurance. These proposals were rejected by the local union leaders, although we had the International’s support for the changes. The local labor leaders proved indifferent to the company’s condition and were hostile to essential requests needed for the restructuring required to help save the company.
Admittedly this distressed company was not the size of GM, Ford or Chrysler. However experience suggests the UAW will not “voluntarily” agree to the significant reductions needed in hourly labor costs. (Which may require cuts as large as $10 per hour or more). Thus, the Big Three will be forced to attempt to terminate the labor agreement in Bankruptcy Court. If they fail to do so, they will continue to decline. And their future will offer even more desperate operating and financial conditions.
One of their most significant problems is that their hourly labor costs are reportedly $20 to $30 per hour higher than their Japanese competitors. Some of the differential will be reduced with the UAW’s assumption of retiree health care with VEBA -- Voluntary Employee Beneficiary Association – beginning in 2010. This could reduce employee health insurance costs by one-third but will only produce a relatively small reduction in hourly labor costs. This won’t be enough - including consideration of the two-tier wage structure.
Most of the Japanese competitors have non-union hourly labor in their USA manufacturing operations. As such, their labor costs will not significantly increase over time. In fact, they will probably decrease because of higher capital investments with more effective productivity improvements.
By comparison, GM, Ford and Chrysler are at a distinct disadvantage. They are strapped for cash which severely limits their ability to invest capital for operating improvements. Recent plant closings and operational restructuring have reduced their overall costs by billions of dollars, as well as their hourly headcounts by the thousands. However, the overall impact is somewhat misleading. The hourly cost for direct labor employees has not been reduced. While the number of automobiles manufactured by the Big Three have declined in dramatic fashion, the actual cost of each automobile continues to be higher than its Japanese competition.
Will they be able to negotiate “voluntary” hourly labor cost reductions with the UAW?
One negative example from my turnaround experiences:
I was CEO of a legally insolvent, severely distressed manufacturing company. We asked the local union members to accept minor “voluntary” changes in the union labor contract. Specifically, we needed a delay in the contracted 3% increase in the base wage rate and an increase in the co-pay percentage for health insurance. These proposals were rejected by the local union leaders, although we had the International’s support for the changes. The local labor leaders proved indifferent to the company’s condition and were hostile to essential requests needed for the restructuring required to help save the company.
Admittedly this distressed company was not the size of GM, Ford or Chrysler. However experience suggests the UAW will not “voluntarily” agree to the significant reductions needed in hourly labor costs. (Which may require cuts as large as $10 per hour or more). Thus, the Big Three will be forced to attempt to terminate the labor agreement in Bankruptcy Court. If they fail to do so, they will continue to decline. And their future will offer even more desperate operating and financial conditions.
Thursday, April 10, 2008
Kinko’s – Was It Damaged?
Claudia H. Deutsch of the NY Times reported on Clayton, Dubilier & Rice’s management of Kinko’s on May 5th 2007 with an article titled "Paper Jam At FedEx Kinko's". One quote referring to the culture change: “Some say Clayton, Dubilier massacred Kinko’s, and that FedEx can never repair the damage.”
On March 8, 2008 the New York Times reported again on the issue, “...the unit has underperformed since FedEx bought the business for $2.4 billion.”
In my experience as CEO, a culture change was necessary in every turnaround I have managed. The turnarounds were largely penal colonies staffed with brow beaten and frightened officers and managers. The uncoordinated top-down, silo management process was used. Analysis made it clear that mistakes mounted and financial deterioration occurred a matter of months following the start of a punishing culture.
Improving the cultures was accomplished via cross-functional communication meetings with candid discussions at all organization levels. Once an improved culture was accomplished and a self-confident team was developed, profits followed shortly thereafter – usually in just a few months.
One lesson I learned seeing the consequences of the angry, confrontational style used by Emerson Electric Co.'s CEO was not to bully and yell at employees. As CEO I want strong, assertive but civil officers and managers to build a solid performing company. A CEO can whisper and get results.
Emerson Electric conducted anonymous employee opinion surveys annually on each of its divisions. Ironically, if a division president was confrontational with employees and maintained a punishing culture, Chuck Knight would remove him.
As Peter Drucker and Jim Collins advise, use metrics to make people accountable for tangible results. Fire the non-performers. Only deal in brutal facts in an open culture in which everything can be discussed. A tyrant style can sometimes get immediate profit improvement, but it usually results in the company becoming uncoordinated followed by unexpected mistakes and short-term profit decline. It can make the sale of the company problematic if potential buyers realize the management is weak.
On March 8, 2008 the New York Times reported again on the issue, “...the unit has underperformed since FedEx bought the business for $2.4 billion.”
In my experience as CEO, a culture change was necessary in every turnaround I have managed. The turnarounds were largely penal colonies staffed with brow beaten and frightened officers and managers. The uncoordinated top-down, silo management process was used. Analysis made it clear that mistakes mounted and financial deterioration occurred a matter of months following the start of a punishing culture.
Improving the cultures was accomplished via cross-functional communication meetings with candid discussions at all organization levels. Once an improved culture was accomplished and a self-confident team was developed, profits followed shortly thereafter – usually in just a few months.
One lesson I learned seeing the consequences of the angry, confrontational style used by Emerson Electric Co.'s CEO was not to bully and yell at employees. As CEO I want strong, assertive but civil officers and managers to build a solid performing company. A CEO can whisper and get results.
Emerson Electric conducted anonymous employee opinion surveys annually on each of its divisions. Ironically, if a division president was confrontational with employees and maintained a punishing culture, Chuck Knight would remove him.
As Peter Drucker and Jim Collins advise, use metrics to make people accountable for tangible results. Fire the non-performers. Only deal in brutal facts in an open culture in which everything can be discussed. A tyrant style can sometimes get immediate profit improvement, but it usually results in the company becoming uncoordinated followed by unexpected mistakes and short-term profit decline. It can make the sale of the company problematic if potential buyers realize the management is weak.
Monday, March 6, 2006
A Helpful History Book For CEOs
I came across an impressive book, which would be very helpful to any CEO. It is an interesting historical effort and was referenced in a footnote of a best selling business book “Good to Great”. It proved to be a better book on management in my opinion, than the popular business publication.
Barbara Tuchman wrote “The March of Folly”. In the work, she reviews four historical debacles. The reasons for these past failures, was primarily due to “wooden-headedness and cognitive dissonance”.
Ms. Tuchman's essential definitions:
The British Generals who had been in the Colonies were essentially opposed to a land war, but there was no “cross functional” type communication and their advice was not heard.
The King and the Parliament believed America was small, populated with criminals and other worthless people. In fact it had a population of 2.5 million, was an economic locomotive populated with many well-educated and independent people.
The taxes the British levied totaled only 50,000 pounds sterling annually. Imports from Britain into the Colonies totaled 3 million pounds sterling annually, one-half of which were lost when Americans boycotted British goods.
Completing their homework in a hands-on manner would probably have caused Britain to handle the situation differently and retain America as one of its Colonies.
“Good to Great” by James Collins is the book that referenced “The March of Folly”. Worthwhile reading, it studies how companies built themselves into great companies.
Characteristics of successful companies:
Barbara Tuchman wrote “The March of Folly”. In the work, she reviews four historical debacles. The reasons for these past failures, was primarily due to “wooden-headedness and cognitive dissonance”.
Ms. Tuchman's essential definitions:
“Wooden-Headedness”: the source of self deception, assessing a situation in terms of preconceived fixed notions while ignoring or rejecting any contrary signs – acting according to wish while not allowing oneself to be deflected by the facts, the refusal to benefit from experience.This book gives meaningful perspectives on:
“Cognitive Dissonance”: reject objective evidence and rigidly hold on to strongly held beliefs regardless of rationality of disproof.
“Folly”: the obstinate attachment to a disserviceable goal.
- How to manage,
- Why open and cross-functional communication is important,
- Hubris,
- The true meaning and benefits of “hard-work, homework, hands-on”.
The British Generals who had been in the Colonies were essentially opposed to a land war, but there was no “cross functional” type communication and their advice was not heard.
The King and the Parliament believed America was small, populated with criminals and other worthless people. In fact it had a population of 2.5 million, was an economic locomotive populated with many well-educated and independent people.
The taxes the British levied totaled only 50,000 pounds sterling annually. Imports from Britain into the Colonies totaled 3 million pounds sterling annually, one-half of which were lost when Americans boycotted British goods.
Completing their homework in a hands-on manner would probably have caused Britain to handle the situation differently and retain America as one of its Colonies.
“Good to Great” by James Collins is the book that referenced “The March of Folly”. Worthwhile reading, it studies how companies built themselves into great companies.
Characteristics of successful companies:
- Disciplined focus,
- No hubris,
- Openness in that everything is discussed,
- A self-effacing CEO only interested in the company’s success - who is not a tyrant,
- Accountability for tangible results,
- Staff the right people – wrong people get fired,
- Only deal in brutal facts and truth, simplicity,
- A culture of freedom and responsibility,
- Have defined what the company is “best” at.
Wednesday, February 6, 2002
Managing & The Firestone Debacle
David Wessel's article in the Wall Street Journal on January 10, 2002, titled “The Hidden Cost of Labor Strife” describes how incorrectly reducing labor costs results in higher operating costs.
Fortune Magazine often cites various examples of correctly reducing costs in difficult times, while encouraging employees to remain sympathetic, helpful, supportive of your decisions.,
At Emerson Electric, we never had employees be sympathetic and helpful when we sought wage cuts, job rule changes or downsizing. However we never encountered labor strife and rarely a strike. Chuck Knight was a ferociously difficult CEO with his officers. But he was very reasonable and fair, with lower level salaried or hourly employees.
As a result, we never offered harsh and unreasonable terms in any negotiation. We were trained to manage with a union including candid, frequent communication. We stopped trying to decertify unions essentially because of the poor return on investment. If the union chose to strike, we had built a strike hedge and organized non-union employees to staff the plant. We never lost a strike.
This Wall Street Journal article is based on the findings of two Princeton University professors. Firestone Tire offered harsh, one-sided rule changes, wage cuts with new 12-hour shifts in an effort to reduce its Decatur, IL costs. They defeated the strike. Workers were forced to return to work and accept the new terms. As a result, this plant produced the bulk of the defective tires that resulted in 40 deaths.
Fortune Magazine cites the reasons companies are rated 'Best to Work For': (1) Employees are treated with dignity and respect, (2) The CEO is personable and uses “random walk” to talk to employees informally. Employees said they want to see the CEO, touch him and talk to him, (3) Knowing what is going on in the company and how it is doing. The reasons for decisions. Communicating the why for a downsizing and the alternatives. (4) In bad times management and employees are treated the same. (5) All of which leads to “trust” of management, an important factor. (6) Money or salary was not a prime factor.
Interestingly, terminated employees in a downsizing within these 'Best To Work For' operations, were often understanding and productive, even while working their last day on the job.
Companies considered by employees to be the 'Best To Work For' tend to be best performers.
See Fortune's "100 Best Companies to Work For”
Fortune Magazine often cites various examples of correctly reducing costs in difficult times, while encouraging employees to remain sympathetic, helpful, supportive of your decisions.,
At Emerson Electric, we never had employees be sympathetic and helpful when we sought wage cuts, job rule changes or downsizing. However we never encountered labor strife and rarely a strike. Chuck Knight was a ferociously difficult CEO with his officers. But he was very reasonable and fair, with lower level salaried or hourly employees.
As a result, we never offered harsh and unreasonable terms in any negotiation. We were trained to manage with a union including candid, frequent communication. We stopped trying to decertify unions essentially because of the poor return on investment. If the union chose to strike, we had built a strike hedge and organized non-union employees to staff the plant. We never lost a strike.
This Wall Street Journal article is based on the findings of two Princeton University professors. Firestone Tire offered harsh, one-sided rule changes, wage cuts with new 12-hour shifts in an effort to reduce its Decatur, IL costs. They defeated the strike. Workers were forced to return to work and accept the new terms. As a result, this plant produced the bulk of the defective tires that resulted in 40 deaths.
Fortune Magazine cites the reasons companies are rated 'Best to Work For': (1) Employees are treated with dignity and respect, (2) The CEO is personable and uses “random walk” to talk to employees informally. Employees said they want to see the CEO, touch him and talk to him, (3) Knowing what is going on in the company and how it is doing. The reasons for decisions. Communicating the why for a downsizing and the alternatives. (4) In bad times management and employees are treated the same. (5) All of which leads to “trust” of management, an important factor. (6) Money or salary was not a prime factor.
Interestingly, terminated employees in a downsizing within these 'Best To Work For' operations, were often understanding and productive, even while working their last day on the job.
Companies considered by employees to be the 'Best To Work For' tend to be best performers.
See Fortune's "100 Best Companies to Work For”
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