Business Insight Zone

Sprint’s stock has been taken to the cleaners because the company’s new CEO, Daniel Hesse, has taken the bold step of giving his honest — brutal — assessment of the company’s current and likely future performance. Two quick observations:

1. While it makes sense that investors would head for the exits after Hesse announced the company’s $29.5 billion loss, no one should act surprised about this performance. Sprint has been ailing for a long time now, as reflected in the musical chairs among its top executives and . . . well, take your pick of symptoms: the company has been stinking it up for a while.
2. It seems clear that the culprit for all of this is Sprint’s 2005 acquistion of Nextel. Again, no one should act surprised, since it’s well established that most mergers fail.

The lack of surprise didn’t keep analysts from coming up with artful ways to express the fresh dose of grief that Hesse laid down yesterday. I particularly like this paragraph from the New York Times story on the earnings announcement:

“No one expected Sprint’s results to be anything other than poor today, which makes the fact that they have managed to miss on virtually every metric a performance of some heroism,” wrote Craig E. Moffett, a senior analyst at Sanford C. Bernstein & Company. Further, he wrote, “the near-term contrarian argument of a turnaround — or, better, a strategic acquisition — remains highly speculative.”

So why do companies pursue deals like this? Well, have you ever made a move in life that left you holding your breath and hoping it would work out? “It’ll work out,” you tell yourself, “It’s just got to!”

Wouldn’t it be great if shareholders could count on better judgment than that from every high-powered executive? Unfortunately, they can’t, as this Knowledge@Wharton piece on failed mergers makes clear:

Wharton management professor Harbir Singh, who has done extensive research on mergers, says that the crucial distinguishing factor between success and failure in a merger is a sense of objectivity on the part of executives — a “realistic outlook” that needs to be maintained from the initial transaction through the entire integration process. The danger, it seems, is when executives “fall in love” with the idea of the acquisition, wanting it to work no matter what the cost.

Even executives are human: they see the potential upside of the deal — both for their company and for themselves — and their desire for things to work out overwhelms their better judgment.

Three Harvard researchers have come up with a list of “Nine Steps to Prevent Merger Failure,” from “no guiding principles” to “poor stakeholder outreach” to “cultural disconnect.” At least a few of these have affected the Sprint-Nextel combination, as the latest wave of reports on the company’s poor fortunes makes clear. What’s so sad (or enraging, if your an investor in the company) is that company management didn’t do more about them sooner.

Now for the bigger question — a theoretical one for you and me, but the make-or-break question for Hesse and his lieutenants: Can the patient be saved?

It was news when the price for a barrel of crude oil first hit $100, but mostly for psychological or symbolic reasons. Indeed, the first $100 bid was a single symbolic bid, not a flurry of genuine, price-signaling bids.

Now, though, the novelty value has worn off. Oil took some weeks to slide back from $100 to below $90, then climb back to the triple-digit mark again. Today it has traded in the $101 - $102 range, which means not only that it has set new record highs, but that traders are operating above $100 for non-symbolic reasons.

As much as we might like to think that markets operate with nothing but cold logic to drive them, the fact is that they respond to human decisions — and humans are often emotional and sometimes irrational.

At this point, a lot of rational actors have decided that a barrel of oil is “really” worth more than $100. With that psychological price barrier well and truly breached, it won’t surprise me a bit to see oil run much higher, especially if worldwide financial and geopolitical indicators continue to go the way they have been.

(Image by weirdvis.)

[Programming note: while we make some improvements to the Hoover's Index and its dedicated page, we'll be running posts here talking about some of the interesting companies from the top of the monthly list.]

Performance Food
Performance Food may not be a household name, but the food and foodservice distributor topped our most recent Hoover’s Index after Blackstone Group and Wellspring Capital Management agreed to take it private in a deal worth $1.3 billion. The private equity firms plan to combine Performance Food with Vistar, which owns Roma Food Enterprises and supplies many Italian restaurants around the country. Despite its relative obscurity, the Virginia-based Performance Food is the #3 broadline foodservice distributor in the US (behind SYSCO and U.S. Foodservice); it supplies about 41,000 restaurants, schools, and hospitals across the Eastern and Southern US. Performance Food’s top customers include Cracker Barrel, Outback Steakhouse, and T.G.I. Friday’s.

Quebecor
Stop the presses! Canadian media company Quebecor made the wrong sort of news in January, when its Quebecor World unit — one of the world’s largest commercial printers — filed for bankruptcy protection. Quebecor World accounts for more than two-thirds of its parent company’s revenues; Quebecor’s other businesses include cable TV (Vidéotron), newspaper publishing (Sun Media), and French-language TV broadcasting (TVA). Quebecor World, which specializes in printing magazines and retail inserts, maintains more than 115 printing facilities, primarily in the North America, but also in Europe, South America, and India. Before it filed for bankruptcy, the company had tried to negotiate a huge bailout package, but to no avail.

Weatherford International
The long run-up of crude-oil prices over the past few years has cast a brighter spotlight on companies throughout the oil and gas industry, including services companies like Weatherford International. The firm, which brings in more than $6.5 billion in annual revenue, supplies a wide range of equipment and services used during oil and gas drilling. Weatherford also provides pipeline services and contract land drilling services. The company’s multi-year program of acquisitions and divestments have paid off in a big way: in January it reported outstanding results for the last quarter of 2007, when it enjoyed strong performance in the Eastern Hemisphere (especially Europe and West Africa), where Weatherford has aggressively expanded its operations.

Well, actually I’ve just emerged from the sick ward of my house. My apologies for suspending posts without warning over the past few days, but I’ve been waylaid by the same flu (or “flu” — we tend to use the term loosely) that has passed through the Hoover’s HQ like a scourge.

The good news is, unlike all too many companies, Hoover’s parent company Dun & Bradstreet has one of the most enlightened sick-leave policies you can imagine. I’ll spare you the details and summarize the policy like this: if you’re too sick to work, stay home. When you’re better, come in. If you’re really sick — such that you’re going to miss more than several days — let’s talk.

A refreshing dose of humanity in an unfeeling corporate world, eh? It’s amazing what a little common sense can do. I think Cali and Jody would be proud.

(Photo by scol22.)

In last week’s post, “Make a list of ‘crucial basics’ and check it twice,” I referred to the federal bureaucratic holdup that was impeding the implementation of Dr. Peter Pronovost’s breathtakingly effective checklist system for decreasing infection rates in hospital ICUs.

Good news! Dr. Bob Wachter — one of the country’s most eminent hospitalists — reports that the Office for Human Research Protections has cleared up the problem and will no longer impede the rollout of Dr. Pronovost’s work. He thinks it’s a historical breakthrough.

This is a seminal moment for quality improvement in the United States. The prior OHRP decision, if left standing, could have mandated regulatory approval and the need to obtain patient and provider consent every time one wanted to improve a process and measure its impact. Today’s decision recognizes the need to balance traditional “research” regulations against the harm that will result if good people are forced to leap over unnecessary bureaucratic hurdles every time they seek to implement a safety or quality practice and see if it worked.

Moreover, as more and more regulations — many sensible but some asinine — are promulgated in the name of safety and quality, I hope the OHRP story kickstarts a process in which the regulators and the regulated collaborate to ensure that the ultimate goal of better patient care is being served.

Now, whether you’ve got people’s lives at stake or not, please go back to my earlier post on “crucial basics” and ask whether your own practices are impeding basic improvements. Are you subscribing to “many sensible but some asinine” self-regulations?

This thought puts me in mind of a famous line from one of the greatest process-improvers in American history — Benjamin Franklin:

The taxes are indeed very heavy, and if those laid on by the government were the only ones we had to pay, we might more easily discharge them; but we have many others, and much more grievous to some of us. We are taxed twice as much by our idleness, three times as much by our pride, and four times as much by our folly, and from these taxes the commissioners cannot ease or deliver us by allowing an abatement.

How much is your organization taxing itself with its idleness, pride, or folly?

[ICU photo by adamci; Franklin image via the National Portrait Gallery.]

A 3-minute clinic in management excellence is the effect of this short Adam Lashinsky article on Hurd, whose tenure leading Hewlett-Packard has been like a 3-year clinic in excellence:

Hewlett-Packard CEO: We can do even better

Excerpts from the article read more or less like a highlight reel for several of the key themes I try to articulate on this blog:

. . . the CEO who may be the best big-company operator in the country is all about making uncomfortable observations that so far have ended up being the right call for his company: Market share isn’t the best goal to shoot for; even good businesses need to be examined carefully (especially their cost structures); and strategy and execution trump vision any day of the week.

To me, these “uncomfortable observations” mesh well with the idea of “naive questions”: you can unleash some real transformative power when you start asking questions like “How important is market share really?” We think we know, but often what we “know” is just a sort of unexamined conventional wisdom — not the best path to success.

The observation that “even good businesses need to be examined carefully” ties to this quotation from the article:

What you see after watching Hurd for a few years, as I have, is that part of his style simply isn’t to be satisfied. Despite nearly three years of focusing on improving the selling process at HP, Hurd says the company is still not good enough at sales. “It isn’t in our DNA,” he says, echoing past comments.

Extensive research has shown that the very best performers refuse to be satisfied with where they are now. They may appreciate the success they already have, but they don’t find it a sufficient reason to slack off in their efforts to improve. The Tiger Woodses and Mark Hurds of the world are acutely aware of how much room they still have for improvement.

Hurd is also clear on which areas of focus are the steak and which are the sizzle for the CEO — and he has no interest in the sizzle.

He boils down the CEO’s responsibilities to three tasks: setting strategy (not offering a vision); aligning operations and modeling ways to execute on the strategy; get the best team to help the CEO. “There are a thousand distractions that keep you from doing that,” he says. But that’s where the focus needs to be.

Execution, execution, execution. I don’t have a documented source for this, but the other day a friend told me about a figure he had seen that stuck in his mind: whatever he was reading said that 85% of business failures (botched projects, failed product launches, etc.) could be traced to internal issues within companies, not market forces or other external factors. I can well believe it — and apparently Hurd does, too.

Sure, market forces will shape your approach. They must. But don’t make the mistake of thinking that the keys to success lie anywhere outside the reach of your and your company. If you take Hurd’s approach, you can drive results through the roof simply by focusing on the most important nuts and bolts of business — even when they’re boring, even when they’re unsexy.

Hurd has HP winning “the boring way” — but it beats the heck out of failing the flashy way.

(Image by bugdog.)

Three years ago Fast Company published an Alan Deutschman article that opened my eyes to the deep need for better-informed psychological approaches to the world of business. Deutschman, who later expanded the article into a book, launched the piece with a one of those crackerjack openings that magazine writers pine for:

Change or Die.

What if you were given that choice? For real. What if it weren’t just the hyperbolic rhetoric that conflates corporate performance with life and death? Not the overblown exhortations of a rabid boss, or a slick motivational speaker, or a self-dramatizing CEO. We’re talking actual life or death now. Your own life or death. What if a well-informed, trusted authority figure said you had to make difficult and enduring changes in the way you think and act? If you didn’t, your time would end soon — a lot sooner than it had to. Could you change when change really mattered? When it mattered most?

Yes, you say?

Try again.

Yes?

You’re probably deluding yourself.

You wouldn’t change.

Read more

4 comments

Reading this excellent GigaOM piece on Freescale, I was struck by this tidbit:

As the CEO of Intersil, [new Freescale CEO Richard] Beyer presided over several acquisitions and created a laser focus on analog chips. That strategy isn’t likely to work at Freescale, he said, which is too big in too many markets to pare down to just one.

No doubt Beyer’s judgment on this issue is sound — he’s earned his high reputation in the world of microchips — but it leads me to ponder this broader question:

Would you reduce the scale of your company if doing so meant that you enjoyed a better quality of business?

Some companies do. Earlier this decade, ABB hived off many of the businesses it had acquired from the mid-1990s forward, in favor of a devoted focus to its core markets. Alan Mulally has said that he intends for Ford to be a smaller — but much better — company when its restructuring is complete. And many companies have spun off lower-performing units in hopes of improving their own fortunes.

Such changes can be wrenching, especially because Wall Street loves to see apples-to-apples revenue growth, quarter after quarter and year after year. Just because the investment community wants it, though, doesn’t make it the right thing approach for a successful company. In any business, there will always be a tension between short-term and long-term gains — but in my view many, many firms would be better served to turn the knob more in the direction of the long term.

Freelancers and contractors know very well what it’s like to “fire” the customers who don’t bring them joy. The parting of ways could be over fees, personalities, irreconcilable creative differences, whatever. But the savviest veteran freelancers know that life — and a happy career — is too short to stick by unworthy customers, even though they do pay you such shiny, shiny money. (Stowe Boyd has a nice post here about dropping those clients whose cultures he finds toxic.)

Individually, we should also “fire” the worst uses of our time — but pride and the force of habit often prevents us from doing what we should. Since organizations are amalgams of many flawed individuals, it’s not surprising that they share the same hangups that many individuals do, even though organizations exist, in theory, to must our individual weaknesses while magnifying our strengths.

Does your company have the guts to go smaller-but-better? Do you?

(Porsche photo from the Porsche Club of America — and what a fine bunch of eye-candy those old cars make!)

Merlin Mann of 43Folders has built a devoted following with his clever but common-sense approach to personal productivity. If anything, he’s even better as a public speaker, since presentations allow his good humor to come through with full force.

The video below shows a talk that Merlin gave recently at Macworld San Francisco. (Actually, it shows his slides while it plays the audio of his talk.) It’s well worth the hour-plus length.

The key lessons I took away from the talk are these:

Simple, right? Sure, simple to say . . . and very hard to do. Give the talk a listen to hear how Merlin puts these ideas into rich (and funny) context, and to pick up on the other tidbits of wisdom he offers.

(If the video doesn’t work for any reason, you can check out the original post on 43Folders.)

It’s good news for me that I’m not in the business of predicting the future — because like most everybody else, I’m lousy at it. But it pleased me to see this post from ReadWriteWeb:

Is the iPhone the Ultimate eBook Reader?

“People don’t read anymore,” said Steve Jobs last month. Try telling that to users of his company’s iPhone and iPod Touch devices, many of whom seem to be using the device as an eBook reader. Our network blog last100 theorized that what Jobs’ really meant was, who needs the Amazon Kindle when you’ve got an iPhone that does a lot more? “Will a developer write an app to read books on the iPhone or Touch?” asked last100’s Daniel Langendorf. Actually, a few developers already have, and at least one is doing very well.

The posts seems to confirm the prediction I made back in August:

Is the iPhone the answer for e-books?

One of these days, Harper or some other publishing house is going to crack this nut. They’re going to figure out — or take a risk to try figuring out — just how many books they can move in electronic format. It’s much likelier to happen on a popular device like the iPhone than on an expensive, standalone e-book reader. The publisher who figures this out will have an audience of commuters, air-travelers, bored people in waiting rooms, and so on who already have the right piece of technology in their pockets, and who only need to be convinced to pay a reduced price for the layout and words of a book without the paper and cardboard trappings.

So, score one for Tim!

My next not-so-radical prediction: Apple will make a bigger version of its iPod Touch that will be even better suited for reading e-books — and many other kinds of browsing as well.