• Skip to content
  • Skip to primary sidebar

Right Attitudes

Ideas for Impact

Search Results for: wal-mart

Book Summary of Verne Harnish’s ‘The Greatest Business Decisions of All Time’

December 6, 2021 By Nagesh Belludi Leave a Comment

'The Greatest Business Decisions' by Verne Harnish (ISBN 1603209786) The Greatest Business Decisions of All Time (2012) is a flatfooted anthology of 18 engaging—and oversimplified—business stories that influenced the course of business. Edited by management consultant Verne Harnish, this tome contains long articles by nine Fortune magazine journalists.

  1. Apple and the Return of Steve Jobs. The 1996 decision by Apple’s board of directors to bring back Jobs revived the company, transformed the consumer electronics industry, and made Apple one of the most valuable companies in the world.
  2. Zappos and Free Shipping. Zappos’s decision to offer free shipping and 365-day free returns lured more mainstream buyers onto the internet. Other retailers had no choice but to provide free shipping (albeit with some restrictions) and absorb the costs.
  3. Samsung and Global Immersion. In the early 1990s, Chairman Lee Kun-Hee instituted a policy to send his brightest young employees on international sabbaticals that exposed them to the local cultures and build business networks. This program later fuelled Samsung’s global ambitions.
  4. Johnson & Johnson and the Tylenol Comeback. Consistent with the company’s “patients come before profit” credo, CEO James E. Burke set the benchmark for crisis management when he decided to pull Tylenol off the shelves nationwide and create a tamper-proof bottle at the cost of $100 million. Johnson & Johnson cemented its reputation for responsible management.
  5. 3M’s 15% Free Time Rule and Innovation. 3M Company CEO William McKnight’s extraordinary idea of giving employees free time for “experimental doodling” yielded such innovative products as Post-It notes. 3M quickly diversified its portfolio and entered many consumer- and industrial-businesses. 3M inspired Google’s 20% rule.
  6. The “Intel Inside” Marketing Campaign. To forestall the commoditization of the computer chip, CEO Andy Grove shifted Intel’s image from that of a microprocessor company to that of a producer of a coveted, brand-name product that stood for performance. Intel became a household name that consumers sought when they purchased a computer.
  7. General Electric’s Jack Welch and Crotonville. Welch transformed GE’s sprawling management-training institute in Crotonville, New York, into a focal point of learning for the company.
  8. Bill Gates and His “Think Weeks.” The Microsoft founder’s twice-yearly retreat in rural isolation allowed him to read, reflect, and map out ideas—away from the distractions and the noise of business life.
  9. Softsoap and Impeding Competition. A small Minnesota company called Minnetonka Corp. developed liquid hand soap in the early 1980s. When Softsoap started flying off the shelves, deep-pocked behemoths like Procter & Gamble began to prototype their own variants. Minnetonka’s CEO Robert Taylor developed a smart strategy to block his giant competitors and keep his company’s market share. He purchased the entire U.S. supply of plastic pumps used in the liquid soap bottles for one year—that’s 100 million units from the only supplier. By the time his competitors had access to the plastic pumps, Taylor’s Softsoap’s brand was well established.
  10. Toyota and the Quality Revolution. Toyota’s institutional obsession with waste-reduction, zero defects, and process improvement has transformed manufacturing and inspired excellence in every service industry—including hospitals.
  11. Nordstrom and Customer Service Excellence. Nordstrom built its brand on “above-and-beyond” customer service and problem-solving. The entirety of the Nordstrom Employee Handbook fits on a 5×8 card and contains precisely one rule, “Use the best judgment in all situations. There will be no additional rules.”
  12. Tata Steel and Labor Relations. During a turbulent period of India’s leading steelmaker, Managing Director Jamshed J Irani confronted a bloated cost structure by reducing his 78,000-strong workforce to 40,000 by 2005. In keeping with the Tata Group’s rich philanthropic legacy, Irani offered decent pension plans and invested in labor welfare.
  13. Boeing 707 and the Jet Age. Boeing’s decision to develop the Boeing 707 at the cost of $185 million (more than the company’s market capitalization) “remade a company, an industry, and the very culture of its time.” The 707 was the first transatlantic commercial jetliner in an era of prop planes. It kicked off the Jet Age, revolutionized air travel, and established Boeing as a dominant airliner manufacturer.
  14. IBM and the Customer-Centric Makeover. In 1993, Lou Gerstner became CEO and embarked on an “Operation Bear Hug” to launch new communication pipelines between top executives and IBM’s customers. This helped transform IBM from an inwardly focused bureaucracy to a customer-centric market-driven innovator.
  15. Sam Walton and Walmart’s Saturday Morning Meeting. Walton’s energetic 6:00 A.M. meeting was a pep rally, merchandising workshop, and financial update—all rolled into one. He brainstormed with his store managers on how to improve things week after week and helped metamorphose Walmart from a single, small-town variety store in 1962 into the world’s largest retailer.
  16. Eli Whitney and the Dawn of American Technology. Whitney’s invention of the “saw gin” that worked well with short-staple cotton helped transform Southern agriculture (and sustain the institution of African slavery!) Whitney then popularized the use of interchangeable parts in making firearms.
  17. Bill Hewlett and David Packard and the “HP Way.” The essence of Hewlett-Packard’s management philosophy was an openness and respect for the employees. With a framework of principles and the simplicity of their management methods, they established many progressive management practices that prevail even today.
  18. Henry Ford and the Factory- and Wage-Revolution. When Ford introduced the moving assembly line, his fledging factory was confronting a dispirited workforce, declining workmanship and quality, absenteeism, and annual labor turnover of 370 percent. Then Ford decided to raise wages from $2.50 to $5 a day. The following week, Ford Motors had more than 26,000 job applicants. Ford increased production rates and slashed the per-unit cost of the Model T. Annual labor turnover fell to 16 percent, and Ford’s profits doubled within two years. Every time Ford increased the productivity of car production, he continued to raise wages. His well-paid workers had more to spend—and could afford the very cars they built.

Recommended: Quick read. The Greatest Business Decisions of All Time is a concise and entertaining read, especially if you like getting into heads, the thoughts, and the motivations of well-known business luminaries. The 18 case studies lack rigor and are beset with recency biases, narrative fallacies, and a misplaced sense of causes and effects. Some stories, e.g., the Softsoap one, aren’t well known.

Daniel Gross’s Forbes Greatest Business Stories of All Time (1997) is significantly more engrossing and instructional.

Filed Under: Business Stories, Leadership Tagged With: Creativity, Innovation, Leadership Lessons, Thinking Tools

How Jeff Bezos is Like Sam Walton

November 1, 2021 By Nagesh Belludi Leave a Comment

Walmart founder Sam Walton’s brilliant autobiography, Made in America (my summary,) was published a few weeks before his death in 1992. The penultimate page reads,

Could a Wal-Mart-type story still occur in this day and age? My answer is of course it could happen again. Somewhere out there right now there’s someone—probably hundreds of thousands of someones—with good enough ideas to go all the way. It will be done again—over and over, providing that someone wants it badly enough to do what it takes to get there. It’s all a matter of attitude and the capacity to constantly study and question the management of the business.

Jeff Bezos started Amazon just two years later. After eight years on Wall Street, Bezos dreamt up Amazon during a drive from New York to Seattle in 1994. His wife (now ex-wife) MacKenzie drove, and Jeff “tapped out a business plan on his computer along the way.”

'Sam Walton: Made In America' by Sam Walton (ISBN 0553562835) Amazon began as a loss-making book e-tailer at the dawn of the commercial Internet and as the dot-com poster child in the late ’90s. It has since evolved into one of the world’s most valuable companies. Amazon has come a long way from its genesis as the curse of bricks-and-mortar booksellers and has diversified broadly into just about every adjacent business it could get its hands on.

Bezos’s and Amazon’s dominant leadership values echo those of Sam Walton and Wal-Mart: frugality, a bias for action, long-term focus, motivating staff to think like owners, and customer obsession.

The Everything Store (2013,) Brad Stone’s excellent chronicle of the rise of Amazon notes, “In his autobiography, Walmart’s founder expounds on the principles of discount retailing and discusses his core values of frugality and a bias for action—a willingness to try a lot of things and make many mistakes. Bezos included both in Amazon’s corporate values.” On an earnings call, Bezos famously declared, “there are two kinds of retailers: there are those folks who work to figure how to charge more, and there are companies that work to figure how to charge less, and we are going to be in the second, full-stop.”

All along, Bezos has made big bet-decisions that hurt it in the short term but created value in the long term. Amazon’s market capitalization has rocketed up from $4.55 billion in 2001 to $1.08 trillion before the Coronavirus/COVID-19 infected the stock markets. Amazon’s secret, in Bezos’s words, is,

We are genuinely customer-centric, we are genuinely long-term oriented and we genuinely like to invent. Most companies are not those things. They are focused on the competitor, rather than the customer. They want to work on things that will pay dividends in two or three years, and if they don’t work in two or three years they will move on to something else. And they prefer to be close-followers rather than inventors, because it’s safer. So if you want to capture the truth about Amazon, that is why we are different.

Amazon has not been consistently profitable over the years, and that is a deliberate upshot of how Bezos approaches business. Amazon cycles through periods of substantial investments that beget future revenue growth (with low profits) and periods of increasing profits as its investments ebb.

'The Everything Store' by Brad Stone (ISBN 0316219266) Bezos has maneuvered Wall Street into believing that he is just getting started—his “Day 1” philosophy has become something of a legend. “A big piece of the story we tell ourselves about who we are is that we are willing to invent … and very importantly, we are willing to be misunderstood for long periods of time,” Bezos asserted at Amazon’s 2011 annual shareholders meeting.

Not all of Bezos’s bets have succeeded. However, investors have come to acknowledge that his long-term initiatives will produce rich results several years down the road. Little wonder, then, that Amazon’s stock has defied short-termism by continually progressing upward even during quarters of little or no earnings.

Postscript: Bezos has been, until recently, the world’s wealthiest person since about 2018. Walton was the richest man from 1985 until his death in 1992. His inheritors, the Walton family, are collectively more affluent than Bezos!

Filed Under: Leadership, The Great Innovators Tagged With: Amazon, Entrepreneurs, Jeff Bezos, Leadership Lessons, Management, Strategy

I Admire Business Leaders Who’re Frugal to an Extreme

October 4, 2018 By Nagesh Belludi Leave a Comment

Business folks are rarely frugal, especially when they’re on their clients’ dime or using nameless stockholders’ funds.

I admire businesspeople and companies that are frugal to an extreme and are obsessed with reducing waste. Here are three prominent examples of leaders who’ve successfully inculcated frugality in their companies’ cultures.

Walmart founder Sam Walton was famously frugal and lived a humble life right up until his death. He drove a red 1985 Ford pickup and said, “What am I supposed to haul my dogs around in, a Rolls-Royce?” On business trips, Walton required Walmart’s buyers to lodge two to a hotel room, eat in family diners, and even bring pens from the hotel rooms for use at “home office.” One of their travel goals was to limit expenses to less than 1% of their purchases. Walmart did not have a corporate jet until they had $40 billion in sales. Walton wrote in his biographical Made in America: My Story (1992; my summary,) “A lot of what goes on these days with high-flying companies and these overpaid CEO’s, who’re really just looting from the top and aren’t watching out for anybody but themselves, really upsets me. It’s one of the main things wrong with American business today.”

Amazon is obsessed with reducing waste. From the very beginning, founder Jeff Bezos built a company focused on providing value in terms of prices and customer service. A micromanager, Bezos audited all corporate expenses when the company was much smaller and reproved everything not warranted for delivering value to customers—no first-class travel for executives, no color printers, office desks made from wooden doors, etc.

Thriftiness is at the heart of the Brazilian private-equity group 3G’s operating model. 3G is notorious for pressing the zero-base budgeting method of cutting operating costs at companies it acquires. Julie MacIntosh’s Dethroning the King (2010) has an interesting story about 3G-run InBev CEO Carlos Brito‘s first visit to Anheuser-Busch’s St. Louis headquarters after InBev purchased the American brewer in 2008:

To honor Brito’s visit and pay him the respect it felt he deserved as the soon-to-be new chief, Anheuser-Busch arranged for him to stay in a suite at the cushy Ritz-Carlton. The Ritz wasn’t Brito’s style, though, especially since he was just about to start indoctrinating Anheuser-Busch’s staffers to InBev’s frugal way of life. He had flown commercial into St. Louis from New York’s LaGuardia Airport.

He had someone call back and say, “No, no no, I’ve already reserved a room at such and such a place—like the Holiday Inn,” said one InBev insider. “I think that’s when it probably, for the first time, hit home in St. Louis that things were going to be different.” Rather than hitching a town car or helicoptering in to Anheuser-Busch headquarters from his hotel on Tuesday morning, Brito accepted a ride from [Anheuser-Busch President] Dave Peacock.

While on the subject of leaders and indulgence, I’d like to mention private jets, those symbols of corporate indulgence. Corporate jets were famously ridiculed when the CEOs of General Motors, Ford, and Chrysler flew them to Washington DC to seek government bailouts in 2008. General Electric’s former CEO Jeff Immelt’s was disparaged recently for flying around the world with a needless “backup jet” in case something happened to the corporate plane he was using. But a corporate jet isn’t an indulgence for a big company, it is a business necessity. Having used corporate jets during a previous job, I can swear that flying commercial is relatively counterproductive and costly. In the 1990s, Warren Buffett, the poster boy of thriftiness, reluctantly bought a private plane. He christened it “The Indefensible,” but within a few years, renamed it “The Indispensable.”

Filed Under: Leadership, Mental Models, The Great Innovators Tagged With: Amazon, Attitudes, Jeff Bezos, Leadership Lessons, Materialism, Parables, Philosophy

Ten Rules of Management Success from Sam Walton

February 2, 2016 By Nagesh Belludi 1 Comment

Sam Walton (1918–1992,) the iconic founder of Walmart and Sam’s Club, was arguably the most successful entrepreneur of his generation. He was passionate about retailing, loved his work, and built and ran Walmart with boundless energy.

'Sam Walton: Made In America' by Sam Walton (ISBN 0553562835) “Made in America” is Walton’s very educational, insightful, and stimulating autobiography. It’s teeming with Walton’s relentless search for better ideas, learning from competitors, managing costs and prices to gain competitive advantage, asking incessant questions of day-to-day operations, listening to employees at all levels of Walmart, and inventing creative ways to foster an idea-driven culture. “Made in America” is also filled with anecdotes from Walton’s associates and family members—in fact, some of their opinions are less than flattering.

Former CEO of General Electric Jack Welch once said, “Walton understood people the way Thomas Edison understood innovation and Henry Ford, production. He brought out the very best in his employees, gave his very best to his customers, and taught something of value to everyone he touched.”

Here are ten insightful management ideas from “Made in America” with the relevant anecdotes from Walton or his associates.

  1. When hiring employees, look for passion and desire to grow. Having the right skills and qualifications is no doubt essential in a potential employee, but a better predictor of long-term success and career advancement is his/her passion for learning new things, commitment to a task, and a drive to get things done. A former Walmart executive recalls, “Sam would take people with hardly any retail experience, give them six months with us, and if he thought they showed any real potential to merchandise a store and manage people, he’d give them a chance. He’d make them an assistant manager. They were the ones who would go around and open all the new stores and they would be next in line to manage their own store. In my opinion, most of them weren’t anywhere near ready to run stores, but Sam proved me wrong there. He finally convinced me. If you take someone who lacks the experience and the know-how but has the real desire and the willingness to work his tail off to get the job done, he’ll make up for what he lacks.”
  2. Delegate and follow up. Delegation is indispensable; yet it remains one of the most underutilized and underdeveloped managerial skills. One element of effective delegation is consistent follow-up. Far too often, managers will delegate a task and then fail to follow up to see how things are going. Such failure to follow-up is tantamount to abdication of accountability for results, which still lies with the manager. Former Walmart CEO David Glass recalls, “As famous as Sam is for being a great motivator … he is equally good at checking on the people he has motivated. You might call his style: management by looking over your shoulder.”
  1. Persist and rally people to the cause. Passionate managers demonstrate the energy and drive needed to rally their teams around a shared vision. They engage their employees with the same messages over and over, escalate their sense of urgency, and get their vision implemented quickly. Former Walmart CEO David Glass recalls, “When Sam feels a certain way, he is relentless. He will just wear you out. He will bring up an idea, we’ll all discuss it and then decide maybe that it’s not something we should be doing right now—or ever. Fine. Case closed. But as long as he is convinced that it is the right thing, it just keeps coming up—week after week after week—until finally everybody capitulates and says, well, it’s easier to do it than to keep fighting this fight. I guess it could be called management by wearing you down.”
  2. Mentor, critique, and inspire employees. Mentoring employees is an effective way to improve employee performance and build trust and loyalty. Effective mentoring is not merely telling employees what to do. It is helping them broaden and deepen their thinking by clarifying their goals and asking the right questions. Effective mentoring is also about supporting employees as they learn and practice new skills and habits. Walton writes, “I’ve been asked if I was a hands-on manager or an arm’s-length type. I think really I’m more of a manager by walking and flying around, and in the process I stick my fingers into everything I can to see how it’s coming along. I’ve let our executives make their decisions—and their mistakes—but I’ve critiqued and advised them.”
  3. Invest in frontline employees for better customer relationships. Much of customers’ opinions about a business come from the myriad interactions they have with customer-interfacing frontline employees, who are the face of any business. If a business doesn’t get these customer experiences right, nothing else matters. Walton writes, “The way management treats the associates is exactly how the associates will then treat the customers. And if the associates treat the customers well, the customers will return again and again, and that is where the real profit in this business lies, not in trying to drag strangers into your stores for one-time purchases based on splashy sales or expensive advertising. Satisfied, loyal, repeat customers … are loyal to us because our associates treat them better than salespeople in other stores do. So, in the whole Wal-Mart scheme of things, the most important contact ever made is between the associate in the store and the customer.”
  4. Treat employees like business partners and empower them by sharing information. Effective managers foster open communication by treating employees as co-owners of the business and sharing operational data regularly. Managers empower employees by helping them understand how their contribution makes a difference, discussing opportunities and challenges, and encouraging them to contribute to solutions. Walton writes, “Our very unusual willingness to share most of the numbers of our business with all the associates … It’s the only way they can possibly do their jobs to the best of their abilities—to know what’s going on in their business. … Sharing information and responsibility is a key to any partnership. It makes people feel responsible and involved …. In our individual stores, we show them their store’s profits, their store’s purchases, their store’s sales, and their store’s markdowns.
  5. Never be satisfied. There’s always room for improvement. Effective managers never rest on their laurels and are persistently dissatisfied with the status quo. They possess a pervasive obsession for discovering problems and improving products, services, and people. Home Depot founder Bernard Marcus recalls, “If you ask Sam how’s business, he’s never satisfied. He says, ‘Bernie, things are really lousy. Our lines are too long at the cash registers. Our people aren’t being helpful enough. I don’t know what we’re gonna do to get them motivated.’ Then you ask some of these CEOs from other retail organizations who you know are on the verge of going out of business, and they brag and tell you how great everything is. Really putting on airs. Not Sam. He is down to earth and knows who he is.”
  1. Appreciate employees and give honest feedback. A key determinant of employee engagement is whether employees feel their managers genuinely care. Do the managers provide regular, direct feedback, both appreciative and corrective? Do they coach employees in their learning and career growth? Walton writes, “Keeping so many people motivated to do the best job possible involves … appreciation. All of us like praise. So what we try to practice in our company is to look for things to praise. … We want to let our folks know when they are doing something outstanding, and let them know they are important to us. You can’t praise something that’s not done well. You can’t be insincere. You have to follow up on things that aren’t done well. There is no substitute for being honest with someone and letting them know they didn’t do a good job. All of us profit from being corrected—if we’re corrected in a positive way.”
  2. Listening to employee’s complaints and concerns could be a positive force for change. Effective managers provide their employees the opportunity to not only contribute their ideas, but also air concerns and complaints. By fostering an environment of open communication, managers who handle employee opinions effectively not only boost employee motivation, performance, and morale, but also benefit from learning directly about problems with teams, organizations, and businesses. Walton writes, “Executives who hold themselves aloof from their associates, who won’t listen to their associates when they have a problem, can never be true partners with them. … Folks who stand on their feet all day stocking shelves or pushing carts of merchandise out of the back room get exhausted and frustrated too, and occasionally they dwell on problems that they just can’t let go of until they’ve shared it with somebody who they feel is in a position to find a solution. … We have really tried to maintain an open-door policy at Wal-Mart. … If the associate happens to be right, it’s important to overrule their manager, or whoever they’re having the problem … . The associates would know pretty soon that it was just something we paid lip service to, but didn’t really believe.”
  3. Learn from the competition. Effective managers understand that keeping tabs on competitors, copying their innovations as much as possible, and reaching out to customers the way competitors do is a great strategy for growing business. Sam Walton’s brother Bud recalls, “There may not be anything (Walton) enjoys more than going into a competitor’s store trying to learn something from it.” A former K-Mart board member recalls, “(Walton) had adopted almost all of the original Kmart ideas. I always had great admiration for the way he implemented—and later enlarged those ideas. Much later on, when I was retired still a K-Mart board member, I tried to advise (K-Mart) management of just what a serious threat I thought he was. But it wasn’t until recently that they took him seriously.”

Filed Under: Leadership, Leading Teams, Managing People, Sharpening Your Skills Tagged With: Employee Development, Entrepreneurs, Great Manager, Hiring & Firing, Mental Models, Mentoring

Lessons from Sam Walton: Cost and Price as a Competitive Advantage

November 10, 2015 By Nagesh Belludi Leave a Comment

I recently finished reading “Made in America”, the bestseller autobiography of Sam Walton (1918–1992.) The book is very educational, insightful, and stimulating.

Walton, the iconic founder of Walmart and Sam’s Club, was arguably the most successful entrepreneur of his generation. From 1985 until his death, he was the richest man in the world. On the 2015 list of the world’s richest individuals, his descendants ranked at #8, #9, #11, and #12.

Despite his immense fortune, Walton lived a humble life right up until his death. He as an enthusiastic outdoorsman and lived in a modest home in Bentonville, Arkansas, for 33 years. On quail hunting trips, he slept in smelly, old beat-up trailers and ate peanut butter sandwiches for breakfast, lunch, and dinner. He even drove a red 1985 Ford pickup and famously said, “What am I supposed to haul my dogs around in, a Rolls-Royce?”

Sam Walton's Red 1985 Ford Pickup Truck

Cost and Price Control

One of the book’s key takeaways is to “control your expenses better than your competition.” Walton says that this focus on cost-efficiency contributed more to Walmart’s enormous success than did any other aspect of his business model:

This is where you can always find the competitive advantage. For twenty-five years running—long before Wal-Mart was known as the nation’s largest retailer—we’ve ranked No. 1 in our industry for the lowest ratio of expenses to sales. You can make a lot of different mistakes and still recover if you run an efficient operation. Or you can be brilliant and still go out of business if you’re too inefficient.

A Child of the Great Depression Takes to Retail

Walton was a child of the Great Depression. The poverty he experienced while growing up in a rural Missouri farming community taught him the value of money, hard work, and perseverance.

Walton learned the value of a dollar early from his parents, who financially struggled to raise their family. The two squabbled constantly, except on one topic. “One thing my mom and dad shared completely was their approach to money: they just didn’t spend it.”

Walton was just plain cheap. His devotion to bargain became Walmart’s underpinning. He lived by a simple formula: pile it high, sell it cheap. “Say I bought an item for 80 cents. I found that by pricing it at $1.00, I could sell three times more of it than by pricing it at $1.20.” He refused to increase profit margins at the expense of price: “I might make only half the profit per item, but because I was selling three times as many, the overall profit was much greater. Simple enough.”

The Lasting Impact of Sam Walton

'Sam Walton: Made In America' by Sam Walton (ISBN 0553562835) In 1962, Walton decided that the future of retailing lay in discounting. He studied his competitors and borrowed liberally. His strategy was to buy low, sell at a discount, and make up for low margins by moving vast amounts of inventory. Over the decades, Walmart has relentlessly squeezed as much value as possible from its supply chain and passed those savings on to consumers.

Walton’s passion to serve as the “agent” for consumers has changed retailing forever. It’s hard not to overestimate Walmart’s influence on local communities and economics. Walmart’s obsessive focus on low prices changed the way Americans shop. Its bargaining power, superlative size, and logistical efficiency not only dampened inflation, but also brought about productivity gains throughout retailing and manufacturing. Its dominance has attracted backlash from labor unions, anti-sweatshop campaigners, and anti-sprawl activists. Critics also blamed Walmart for contributing to the movement toward overseas production jobs, and for destroying small-town merchants.

However, Walmart’s business model has struggled overseas, especially with profitability in countries where it operates three fourths of its international stores.

Sam Walton’s Influence on Entrepreneurs

Walton inspired legions of other entrepreneurs who thrive on managing costs and prices to gain competitive advantage. Prominently,

  • Dell’s Michael Dell kept costs low by using direct sales as his primary sales channel and orchestrating Dell’s supply chain with that of its suppliers.
  • Ryanair’s Michael O’Leary used absurdly low fares to generate demand from fare-conscious travelers who would have otherwise used alternative means of transportation or would have not traveled at all. O’Leary’s operating costs (aircraft, equipment, personnel, customer service, airport access, and handling) are one of the lowest in the airline industry.
  • Amazon’s Jeff Bezos used innovative sales-discounting methods and a strong emphasis on customer service to grab market share from traditional retailers. Without the burden of operating physical stores, Amazon’s efficiency has played a key role in the structural shift away from brick-and-mortar retail.

The “wheel of retailing” theory in corporate strategy posits that a lower-cost innovator eventually undercuts every dominant merchant. To combat the risk of cost-leadership from Amazon and other online retailers, Walmart has made major investments in e-commerce, even at the risk of cannibalizing its in-store sales.

Filed Under: Business Stories, Great Personalities, MBA in a Nutshell Tagged With: Entrepreneurs, Finance, Materialism, Mental Models

What Opportunities Are You Overlooking?

October 13, 2015 By Nagesh Belludi Leave a Comment

What Opportunities Are You Overlooking?

In 1975, a young Bill Gross, now America’s most prominent bond-focused mutual fund manager, passed up two opportunities to invest in businesses that would later become two of the world’s most prominent companies.

'The Four Filters Invention of Warren Buffett and Charlie Munger' by Bud Labitan (ISBN B001U3YK9S) Gross turned down two “smart and intelligent” men who approached his PIMCO fund for a $10 million loan for their textile business. “It seemed like a funny company, had a dilapidated industrial complex in the Northeast, a See’s Candies store … Blue Chip Stamps … not much else,” Gross later remembered of not being impressed by the applicants’ prospects. The two men, Warren Buffett and Charlie Munger, built their textile company, Berkshire Hathaway, into one of the largest companies in the world. In 2008, Buffett became the world’s wealthiest person.

'Sam Walton: Made In America' by Sam Walton (ISBN 0553562835) The following week in 1975, Bill Gross visited an entrepreneur named Sam Walton in Bentonville, Arkansas. Walton, then in his late-fifties, had sought a loan from PIMCO to expand his family-run discount store. Walton was renowned for his frugal lifestyle and his crusade to cut costs. Walton and his two sons received Gross at the airport in an old pickup truck. Gross later recalled turning Walton down based on appearances: “[They] would drive me around town and show me the Walmart, all the while with their dog named Dan … they’d yell, ‘Get ’em, Dan, get ’em, Dan,’ when a dog or cat would cross the street … [Walton and his sons] seemed like very high character, reputable people, but the store and idea were [not very impressive.]” By the time Sam Walton passed away in 1992, he had built Walmart into a formidable retailer and had become the world’s wealthiest man.

Parenthetically, two weeks later in 1975, Gross lent $5 million to a rail-car leasing company called Itel after visiting the company’s headquarters in a high-rise building and being impressed, among other things, by thick carpets and “good looking secretaries.” Itel went bankrupt six months after Gross made the loan.

Reflecting upon these experiences, Gross recalled a famous remark made in 1912 by legendary financier J. P. Morgan: that credit lending should be based not on wealth, but on character.

Idea for Impact: What Could You Regret?

While in hindsight it’s easy to empathize with Gross’s regret of missing the opportunities to invest early in Berkshire Hathaway and Walmart and his overlooking the character and promise of their entrepreneurs, it’s difficult to comprehend how Gross could have then objectively predicted the enormous potential in either company.

Narratives of such missed opportunities, though, should make you wonder what opportunities you could be overlooking today that months, years, or decades from now, you could come to regret with the perspective that comes with time or upon mature reflection.

Filed Under: Sharpening Your Skills Tagged With: Biases, Regret

Three Leadership Lessons from Ron Johnson’s Debacle at J.C. Penney

April 11, 2013 By Nagesh Belludi Leave a Comment

Monday’s dismissal of J.C. Penney CEO Ron Johnson comes as no surprise.

In late 2011, J.C. Penney had hired Ron Johnson from Apple to revive the sagging fortunes of the storied retailer. He was deemed as a retailing genius who had proved himself by creating Target’s hip-yet-inexpensive cachet and then by leading Apple’s highly lucrative retail stores.

During his 17-month tenure, Ron Johnson had poured hundreds of millions into rapidly remaking the retailer. Mostly, his attempt at the high-stakes makeover of J.C. Penney hadn’t worked. Revenue deteriorated sharply, feedback from customers and employees was persistently negative, and the J.C. Penney share price declined by over 50%.

Lesson 1: Don’t disenfranchise your traditional customer base

Over the years, J.C. Penney’s economic moat had declined considerably. J.C. Penney lost customers to higher-end retailers and specialty stores who had started to offer better value at lower prices. At the other end, Wal-Mart and Target wooed price-sensitive customers with better-than-basic goods.

When retailing relatively undifferentiated merchandise, one of the key levers to revenue is discounts and promotions. Like other retailers, J.C. Penney had trained its customers to buy largely when its stores had a sale. Shoppers recognized that J.C. Penney’s tag prices were made-up to be marked down during sales events and were fixated on coupons, discounts, and promotions. Shoppers had come to regard of shopping at J.C. Penney as a treasure hunt for significantly marked-down merchandise.

Within weeks of joining J.C. Penney, Ron Johnson observed that three-quarters of everything sold had been discounted by at least 50% from list price. Instead of marking up the tag prices and then using deep discount sales to attract customers, he initiated a new “fair and square every day” pricing strategy. By offering good prices every day he attempted to change customer bahavior and dissuade them from waiting for markdowns. Further, by minimizing sales, promotions, and coupons, Ron Johnson eliminated the thrill of pursuing markdowns, a key characteristic of J.C. Penney’s conventional customer. When the pricing strategy flopped, Ron Johnson reinstated sales and coupons, and even brought back “fake prices.” The successive changes confused employees and customers. Additionally, J.C. Penney stopped carrying some traditional brands that many of its long-time customers had favored and injected trendy brands to appeal to younger customers. Ron Johnson’s team created exciting marketing and advertising that was seen as too edgy and further confused traditional customers.

Lesson 2: Don’t be so hubristic as to wager big on hunches without prototyping

At Apple, Steve Jobs frequently shunned extensive consumer research because he had the exceptional genius to introduce the right products, with the right features, at the right time. Drawing from his success at the helm of Apple stores, Ron Johnson was perhaps overconfident that he had all the right answers and could therefore forego the crucial feedback from employees and customers before embarking to “revolutionize retailing” by “teaching people how to shop on their terms” and “fundamentally disrupting the traditional retailing paradigm.”

The gravest error Ron Johnson made at J.C. Penney was not testing his new pricing strategy in a handful of stores. According to this WSJ article, when a colleague proposed a limited store-test of the new pricing strategy, Johnson allegedly responded, “We didn’t test at Apple.”

Clearly, what Ron Johnson thought of value was not what its customers saw as value. As a result, J.C. Penney overlooked the reality that, for its customers, pursuing discounted goods on sale was part of the fun of shopping at J.C. Penney. Ron Johnson set about to tear down an old business model before he had switched over to a new business model without prototyping.

Ron Johnson possibly had a compelling out-of-the-box vision for J.C. Penney. However, he did not stay closely connected to J.C. Penney’s customers and employees before the launch of a radical strategic change. It is challenging to be an effective leader when customers and employees don’t understand and buy major changes.

Incremental improvements to J.C. Penney’s merchandising strategy through extensive prototyping and measured makeover could have provided the opportunity to learn through trialing and encouraged ownership of the strategy by employees, especially those in customer-facing roles.

Lesson 3: Beware of the “Halo Bias” in rating leaders

We tend to attribute a manager/leader’s success to his apparent genius and we overlook the role of the context (team, product, industry, timing, and luck) in his success. Thus, we come to expect him to have the same success in a different context. We anticipate that the very tactics and devices that proved successful in the past would work for him in the new context. (See my earlier article on the halo and horns biases in rating people.)

Ron Johnson certainly proved his retailing genius by first creating Target’s hip-yet-inexpensive brand image and then, for ten years, by leading Apple’s highly lucrative retail stores where he most famously introduced the Genius Bar concept. Nevertheless, his experience with selling premium-priced products at full price all the time with no promotions at the Apple stores did not translate well to J.C. Penney’s undifferentiated merchandise and its customer base of bargain hunters.

In June 2011, J.C. Penney stock spiked by 17.5% when the company announced Ron Johnson’s appointment as CEO. Wall Street saw in him a proven leader with the silver bullet. Investors got overly optimistic that he would remake the embattled retailer and overlooked the fact that J.C. Penney lacked the brand image of Apple and its most-sought-after products. Alas, J.C. Penney stock slid by over 50% during Ron Johnson’s 17-month tenure. The golden boy of retail never hit his stride.

Filed Under: Leadership, Leading Teams, Managing Business Functions Tagged With: Apple, Leadership Lessons, Winning on the Job

Want to be more likeable? Improve your customer service? Adopt Sam Walton’s “Ten-Foot Rule”

January 7, 2010 By Nagesh Belludi 2 Comments


Walton Ten-Foot Rule

Sam Walton, Walmart’s iconic founder and perhaps the most successful entrepreneur of his generation, demonstrated considerable charisma, ambition, and drive from a very young age.

Sam was a committed student leader when he attended the University of Missouri, Columbia. One of the secrets to his reputation in college was that he would greet and speak to everybody he came across on campus. If he knew them, he was sure to address them by their name. In a short time, he had made many friends and was well-liked. Small wonder, then, that Sam triumphed in nearly all the student elections he entered.

From his bestselling autobiography, “Made in America”:

'Sam Walton: Made In America' by Sam Walton (ISBN 0553562835) I had decided I wanted to be president of the university student body. I learned early on that one of the secrets to campus leadership was the simplest thing of all: speak to people coming down the sidewalk before they speak to you. I did that in college. I did it when I carried my papers. I would always look ahead and speak to the person coming toward me. If I knew them, I would call them by name, but even if I didn’t I would still speak to them. Before long, I probably knew more students than anybody in the university, and they recognized me and considered me their friend. I ran for every office that came along. l was elected president of the senior men’s honor society, QEBH, an officer in my fraternity, and president of the senior class. I was captain and president of Scabbard and Blade, the elite military organization of ROTC.

When Walmart became sizeable enough, Sam realized that it could not offer prices lower than those of other retail giants—yet. As part of his customer service strategy, he institutionalized the very trait that had made him popular when he was a student. He insisted on the “Walton Ten-Foot Rule.” According to the rule, when Walmart associates (as Walmart calls its employees) came within ten feet of customers, they were to smile, make eye contact, greet the customer, and offer assistance. As Walmart grew, Sam added greeters who would greet customers at the door (and control “shrinkage” / shoplifting.) Even today, the Ten-Foot Rule is a part of the Walmart culture.

Likeability: A Predictor of Success

Likeability is an important predictor to success in life. Some people seem naturally endowed with appealing personalities. They tend to complement their talents by being personable and graceful, presenting themselves well, and by possessing the appropriate social skills for every occasion. They often win others over effortlessly. At school and in college, they are their teachers’ favorites and are chosen by their peers to represent their classes. They are invited to the right kind of parties and gatherings, and infuse them with life. At work, they are persuasive; they get noticed and quickly climb the corporate ladder.

From my observations of the traits of the talented and successful, I offer you a few reminders to help you become more personable, develop rapport, and thus maximize your chance of success:

  • Look people in their eyes. Smile. Greet them by their names.
  • Listen. Speak with a pleasant tone of voice and in a positive manner. Show respect. Indeed, even your adversaries have some admirable characteristics.
  • Show genuine interest in others. Try to build a rapport by sharing something about yourself with them.
  • Say “Please,” “Sorry,” and “Thank you.” Offer a kind word. Compliment them. Do not superficially flatter.
  • Consider the other’s perspectives and his/her circumstances before disagreeing.
  • Practice compassion. Make a sincere effort to help others.
  • Do not overdo any of the above. Try your best. Do not please others at the expense of your own sanity—stay true to your values, principles, and happiness.

Filed Under: Great Personalities, Sharpening Your Skills Tagged With: Body Language, Courtesy, Entrepreneurs, Etiquette, Likeability, Personality

Etiquette: Protocol of Introducing People

November 3, 2007 By Nagesh Belludi 38 Comments

The purpose of introducing people is to give them an opportunity to know each other. Beyond just stating names of the two parties, the person making the introduction is often obligated to establish an acquaintance and help the two parties initiate a conversation.

The Art of Making Introductions: Four Steps

The basic protocol of introductions calls for introducing the ‘lesser-ranking’ (socially, professionally, by age or seniority) to the ‘higher-ranking’ person. Here are four steps:

  1. First, state the name of the person being introduced to. This is the ‘higher-ranking’ person.
  2. Second, say “I would like to introduce” or, “please meet” or, “this is,” etc.
  3. Third, state the name of the person being introduced. This is the ‘lower-ranking’ person.
  4. Finally, offer some details about each, as appropriate. As I wrote in a previous article, add a snippet of information about a topic of common interest between the two parties. Do not elaborate. This will help them connect and pursue a conversation.

The foremost principle of etiquette for making introductions lies in understanding reverence and respect. Here are some guidelines.

Higher Ranking Person Lower Ranking Person Example: Introduce lower-ranking person to higher-ranking person
An older person A younger person “Grandma, this is my neighbour, John”
A senior professional A junior professional “Mrs. President, this is Mr. Analyst”
A customer A team of employees “Mr. Customer, this is my sales team”
A guest A host “Ms. New Yorker, this is my daughter, Sarah”
A guest from out-of-town A local guest “Mr. Australian, this is my neighbour Janet”
Peer from another company Peer from your company “Mr. IBMer, this is Ms. Edwards”

When introducing people of equal seniority or status, you may introduce either person to the other.

Making Introductions: A Few Examples

  • Introduce a younger person to an older person. “Grandma, please meet Alicia and Carlos, my neighbors.”
  • Introduce a relatively junior professional to a senior professional. “Ms. Director, I would like to introduce Mr. Nakamura, the Chief Product Architect for our software division.”
  • Introduce an employee to a customer. “Mr. Sung, I would like to introduce our plastics engineering team. This is Mark Smith, Jessica Ramos and Liang Zhu. All three participated in last week’s teleconference regarding product definition.”
  • Introduce a host to a guest. “Elaine, I don’t think you have met my daughter, Anna. Anna arranged for all the food at this festival party. Anna, Elaine is my Project Manager.”
  • Introduce a local guest to a guest from out-of-town. “Charlie, this is Debbie. Debbie is my colleague from work. Debbie, Charlie is visiting me from New York. We shared an apartment when we were at Columbia together.”
  • Introduce a peer from your company to a peer from another organization. “Melissa, I would like you to meet Steve, our Systems Engineer. Steve, Melissa Hoffmann is from Marketing. She is our Account Manager for Wal-Mart.”

Gender Distinction

Customarily, a number of people introduce a man to a woman out of respect, regardless of the guidelines presented above.

When introducing a man and a woman at work, consider their positions and seniorities alone. Outside of work, it may be more appropriate to introduce a man to a woman, in contradiction to the above guidelines. Be judicious and sensitive.

Concluding Thoughts

Many people have difficulty introducing people to one another and helping initiate a conversation. With some practice and a sense of social and/or professional ranking, you too can master the art of introduction.

Filed Under: Managing People, Sharpening Your Skills Tagged With: Etiquette, Social Skills

Home Depot Stock Underperformance: Who’s to Blame?

January 5, 2007 By Nagesh Belludi Leave a Comment

Home Depot Chairman and CEO Robert Nardelli resigned on Wednesday. Since early 2006, Nardelli had been under a fair amount of criticism from investors primarily for disproportionate compensation and poor performance of Home Depot’s stock [HD].

In May of last year, the New York Times estimated that Nardelli had received compensation worth $245 million during the first five years of heading the company. During this time, Home Depot’s stock had slid some. The stock performance was especially poor when compared to that of Home Depot’s archrival, Lowe’s [LOW].

Is the company management completely at fault for the fact that the share price has gone nowhere in the last six years? After all, during Nardelli’s tenure, Dec-2000 to Jan-2007, Home Depot’s has grown significantly and profit margins have improved. Here are key numbers (2007 data are Wall Street consensus estimates for the financial year ending 31-Jan-2007.)

  • Revenues increased from 45.7 billion to 91.0 billion, an increase of 100%
  • Net income increased from 2.6 billion to 6.2 billion, an increase of 140%
  • Earning per share (EPS) increased from $1.10 to $2.95, an increase of 170%
  • Dividends (per share) increased from $0.16 to $0.90, an increase of 460%

Lesson for Investors: Perspective in Valuation

During the late eighties and nineties, Home Depot grew exponentially under the leadership of its founders. Naturally, its stock was very popular on Wall Street and attracted rich valuations. The Price to Earning ratio (P/E) of the stock was high; so was the PEG ratio (the ratio of P/E to growth rate). Investors ‘bought high’ and ‘sold high’ during this period: they purchased at rich valuations and sold at rich valuations, as with any other growth stock.

Home Depot Stock Underperformance: Who is to Blame?

After Nardelli assumed leadership of the company in December 2000, investors continued to expect richer valuations. In the post-bubble period, Home Depot’s stock lost its sheen; it lost the rich valuations it once attracted. Its P/E ratio was now comparable to that of mature companies. Further, stocks of large, blue chip companies (GE, Intel, Microsoft, Wal-Mart, Citigroup, Pfizer, etc.) went out of favor on Wall Street from year 2001. Despite impressive earnings growths, these companies have suffered from decreased interest in their stocks (see story and chart on Business Week’s cover story and accompanying chart from April 2006.)

Investors often have undue expectations of stock prices of rapid-growth companies and lack perspective on stock valuations as such companies mature.

Filed Under: Business Stories, News Analysis

Next Page »

Primary Sidebar

Popular Now

Anxiety Assertiveness Attitudes Balance Biases Books Coaching Conflict Conversations Creativity Critical Thinking Decision-Making Discipline Emotions Entrepreneurs Etiquette Feedback Getting Along Getting Things Done Goals Great Manager Leadership Leadership Lessons Likeability Mental Models Mentoring Mindfulness Motivation Networking Parables Performance Management Persuasion Philosophy Problem Solving Procrastination Relationships Simple Living Social Skills Stress Thinking Tools Thought Process Time Management Winning on the Job Wisdom Worry

About: Nagesh Belludi [hire] is a St. Petersburg, Florida-based freethinker, investor, and leadership coach. He specializes in helping executives and companies ensure that the overall quality of their decision-making benefits isn’t compromised by a lack of a big-picture understanding.

Get Updates

Signup for emails

Subscribe via RSS

Contact Nagesh Belludi

RECOMMENDED BOOK:
The Wright Brothers

The Wright Brothers: David McCullough

Historian David McCullough's enjoyable, fast-paced tale of how the Wrights broke through against great odds to invent inventing powered flight.

Explore

  • Announcements
  • Belief and Spirituality
  • Business Stories
  • Career Development
  • Effective Communication
  • Great Personalities
  • Health and Well-being
  • Ideas and Insights
  • Inspirational Quotations
  • Leadership
  • Leadership Reading
  • Leading Teams
  • Living the Good Life
  • Managing Business Functions
  • Managing People
  • MBA in a Nutshell
  • Mental Models
  • News Analysis
  • Personal Finance
  • Podcasts
  • Project Management
  • Proverbs & Maxims
  • Sharpening Your Skills
  • The Great Innovators
  • Uncategorized

Recently,

  • Where Empowerment Fails
  • Why You Should Make a Daily Appointment with Your Worries
  • Inspirational Quotations #1016
  • Hate is Self-Defeating
  • The Dark Side of Selfies
  • Stop Getting Caught in Other People’s Drama
  • Separate the Job of Creating and Improving

Unless otherwise stated in the individual document, the works above are © Nagesh Belludi under a Creative Commons BY-NC-ND license. You may quote, copy and share them freely, as long as you link back to RightAttitudes.com, don't make money with them, and don't modify the content. Enjoy!