Doing What Matters: How to Get Results That Make a Difference - The Revolutionary Old-School Approach

Book by Kilts James M Manfredi John F Lorber Robert

Chapter 1

How Do You Know What Really Matters?

One of the first phone calls I received when news broke about my becoming Gillette’s new CEO was from a Boston-based business associate. “Jim, I know a lot of Gillette executives, and my advice is go slow.” Gillette people don’t like outsiders, he said, which is why the company last had an outside CEO seventy years ago, and he failed miserably. “Give people time to get to know you before you start changing things,” my friend said. “It’s the best approach you can take.”

That call was followed by many more, along with dozens of proposals from professionals, including consultants, bankers, compensation specialists, and sales motivation experts. Each had a plan or recommendation that should receive my top priority if I wanted to succeed at Gillette.

With all that advice, how do you decide what matters?

One of the biggest impediments to success in business—for individuals and companies—is the failure to achieve that understanding.

Whether you’re the CEO of a multibillion-dollar company, the brand manager for a struggling product, a director of human resources, or an entrepreneur starting your own business, you’re always confronted with an insurmountable amount of information and a number of options, conflicting opinions, and management theories that are as endless as they are confusing.

Making these decisions isn’t a job for the timid or weak of heart. It takes guts to say these are the things that really matter; I’ll pay absolutely no attention to the rest. That’s the challenge everyone faces. This book helps you meet that challenge.

You’re always confronted with an insurmountable amount of information and possible options.

$40 Billion of LosT Value With No End In Sight

For example, I faced no bigger challenge than the decisions we made during my first months at Gillette. Early in 2001, the company had missed its earnings estimates for fifteen straight quarters. Sales and earnings had been flat for the prior four years. Market shares were declining sharply. Advertising spending, the lifeline of consumer products, had been slashed year after year. Overhead costs were high and growing. And competition was intensifying.

Wall Street had lost patience with this chronic under- performance. And Gillette’s share price reflected the disappointment. It had fallen from an all-time high of $64.25 in March of 1999 to $24.50 in 2001. That’s a 62 percent drop in two years—a loss in market capitalization of close to $40 billion, and there was no end in sight.

So it’s no surprise that analysts and investors had plenty of ideas for what had to be done. The problem was that no two suggestions were the same, and many were conflicting. It was up to me to decide which ones really mattered. Or whether it was better to put aside the advice and chart a different course.

Multiple Options, No Simple Answers

These wouldn’t be simple decisions. And they would make the difference between whether Gillette would survive and prosper, or continue its unrelenting decline. Here are some of the suggestions that were being offered. Many would result in a corporate yard sale.

· Divest the ailing Duracell business. This was a $2 billion business that Gillette had spent around $8 billion dollars to purchase just four years before. The post-acquisition performance had been miserable. Duracell had gone from one of the best-performing brands in the consumer products sector to a true basket case. Its market share had slipped by almost 15 percent—from 46 to 40 percent of the alkaline-battery market in the United States. And the competitive pressure was mounting. So on the face of it, selling the Duracell business and cutting any further losses seemed like a pretty good idea.

· Hold on to the Duracell business, but slash prices drastically. In other words, we should acknowledge that Gillette’s high-priced acquisition of Duracell was a big mistake. Admit that batteries were a commodity business, not an advantaged category. And milk our investment, not try to restore it. Since it’s never good to tilt at windmills, this was another seemingly plausible approach.

· Divest the Braun electric shaver and household appliance business. Braun represented an early acquisition by Gillette, dating back to 1967. Unfortunately, Braun’s performance had been bleaker than Duracell’s for a far longer time. The last time Braun had made an annual budget was such a distant memory that no present senior manager could even remember it. There was no question that Braun’s inconsistent performance and costly investments were a major drag on Gillette.

· Divest the Personal Care business, which included such brands as Right Guard, Dry Idea, and Soft & Dri antiperspirants and deodorants as well as Gillette Foamy and the Gillette Series shaving preparations. Not only were the market shares for most of these products falling, their profits also were deteriorating, with operating margins that were much lower than competitors’.

· Strip the company by selling all assets except the highly profitable blade and razor business; operate Gillette as a pure play in one sector only. The sales would be lower, but the profit margins would be so high that the share price would rocket.

· Acknowledge that Gillette was yesterday’s news and invent a whole new growth strategy. Enter new product sectors that analysts said were “burgeoning with growth.” Multiple acquisitions would redefine Gillette and jump-start the stock performance.

· Or, acknowledge that Gillette was yesterday’s news and throw in the towel. Call in the investment bankers and work on the best possible “endgame.”

These were a broad and opposing group of options, and that wasn’t all of them. There were dozens of others, dealing with everything from business and operating strategies to where Gillette’s headquarters should be located (it was in the high-rent Prudential Tower in Boston’s Back Bay district). I could have filled my days just sorting through the endless opinions that were being offered up on how to manage Gillette. In the end, I worked with my team to set our own course that would restore Gillette to its number one position in the consumer products arena.

Deciding What Really Matters

But how do you make such decisions? How do you know what really matters? Is there an approach that can work regardless of the circumstances? Something that can put you on the right course more often than not? There is. It’s what I call the fast-track quick-screen elimination process. Many times in my career—especially when working through the fog of conflicting opinions—I’ve found the right direction by answering a few critical questions that allow me to eliminate most, if not all, other options.

Let’s go back to the advice on Gillette to see how it works.

Quick-screen took me to the right answer without having to slog through a swamp of details. Divest Duracell In order to divest Duracell, there had to be someone willing to buy Duracell. So Duracell had to be worth more to someone else than to Gillette. But, there wasn’t anyone. The battery category was so irrational and competitive no company that could afford to buy Duracell wanted to get into the fray. And even if they did, Gillette’s price-earnings ratio, which is the price investors will pay for a stock expressed as a multiple of its net earnings, was far higher than any possible buyer. So Duracell was worth more to Gillette than anyone else. By utilizing the fast-track quick-screen elimination process, I could eliminate the “sell Duracell” option. No need to give it a second thought.

Milk Duracell A second option was slash the prices on Duracell, admit it’s an undifferentiated commodity, and milk the business. This time I applied my past experience in the quick-screen process. Was a Duracell battery more or less of a commodity than Kraft Singles—the cheese slices that carried, on average, a 25 percent higher price than private-label products when I managed the Kraft business? (Literally, in blind taste tests, consumers could detect only a slight difference between Kraft and private-label.)

The differences between Duracell batteries and the private-label and price-brand batteries were perceived by consumers to be significant on a number of factors, including reliability and durability. In addition, the performance difference between alkaline Duracell and general-purpose zinc batteries was enormous. So why give up on Duracell, a branded product with great equity and an impeccable twenty-year record of high growth and profitability, simply because it had stumbled for the last three years? Again, the quick screen took us to the right answer without having to slog through a swamp of detail. (Don’t get me wrong; we later did an exhaustive study of the battery business. Our new management team had to assess the category’s potential and determine the best way to get it. And that required detailed analysis.)

The quick screen told us that Duracell was the leader in the alkaline battery category, which meant it should be disciplined in how it led the category and in how it imposed discipline when the nonleaders got out of line. Duracell had done neither.

The leader in a consumer products category must invest in marketing to drive growth and increase the consumer equity and preference for the brand. Instead, Duracell had cut its advertising substantially.

A category leader must demonstrate that it won’t allow competitors to steal its market share. Duracell allowed repeated theft of market share by relatively minor competitors that emboldened them for future initiatives. Category leaders must avoid creating a frenzy of out-of-control ...