Archive for the ‘Admired Companies’ Category

Outsourcing the Government to Wal-Mart

[orginally posted April 1, 2009 on the Huffington Post]

Admit it. We are in uncharted territory. We’re spending more than a trillion dollars to prop up an economy that was overly-stimulated during the dot-com bubble and then propped-up again by the Fed during the real estate bubble. When Republicans are talking about nationalizing banks and the Obama administration is taking a more expansive role in virtually every industry, we have to recognize that our next bubble may be the viability of our government. We can’t afford to have that bubble burst. In fact, the Chinese, our biggest offshore “pusher” that have helped facilitate our consumption and borrowing addiction, have warned us. They’ve asked us to tame our government-sanctioned stimulus sensibilities for fear of piling on the future America’s debt burden. You know when the largest Communist country in the world is educating the U.S. on the risks of too much government intervention and debt that we’ve crossed some sort of line that only Ayn Rand would have imagined a generation or two ago. So, within the context of this new version of the New Deal landscape, let me propose a blasphemous concept. Given the huge logistical exercise that the Obama administration will be conducting in health care, environmental, infrastructure, and virtually every other policy matter, why not learn from the masters of how to make big things work better: Wal-Mart? This resilient and entrepreneurial company has pranced across the planet creating annual revenues that surpass most mid-size countries’ annual GDP. Of course, Wal-Mart and McDonald’s were the only two American companies that experienced growth in their 2008 stock prices in this new survivalist economy, so they may be the right role model for these trying times.

Yes, I know you hate Wal-Mart. So, do many Americans. In fact, between 2000 and 2005, the company’s stock price dropped more than 25%, partly due to the fact that almost 10% of Wal-Mart consumers had stopped shopping there due to the company’s well-documented reputation of being socially-irresponsible (or for the conservatives in the crowd, at least severely politically incorrect). But, this company has remade itself in some truly impressive ways…partly out of necessity. But, ultimately, Wal-Mart is a brilliant case study of how a behemoth can do well by doing good and do that with the kind of speed that Barack and his team need.

Exhibit A: Health Care. While Wal-Mart still trails many of its competitive retailers in terms of the health care benefits it provides employees, it has made large-scale changes such that the percentage of employees covered is 15% higher today than it was in 2006 (at the same time that most companies are going in the opposite direction by reducing benefits in this recession). It helps to be the world’s largest self-insured employer, but this fact means that the company has innovated in all kinds of ways that would be deeply instructional to the U.S. government: hundreds of in-store health clinics have recently opened which are meant to provide affordable access which saves big money for local government public health facilities, $4 generic drug prescription programs have saved over $1 billion for customers and employees, a $20 per month catastrophic care program for employees, an investment in digitalized and secure medical records (one of Obama’s most well-received health proposals) for its employees and retirees, a contract with the Mayo Clinic to provide all transplants for Wal-Mart employees as a means of a single source approach to reducing the costs associated with these expensive procedures, and a “Life With Baby” education program aimed at reducing the rate of premature births and early infant diseases for employees. Whether its making health care more affordable and accessible or revolutionizing some of the systems associated with this slightly-archaic industry, Wal-Mart’s best practices are noteworthy for the White House.

Exhibit B: Environmental. Prior to 2005, Wal-Mart was appropriately scolded for its passivity with respect to how it was reducing its environmental footprint as the world’s largest company. While today no one would mistake Wal-Mart for Patagonia or any other eco-focused retailer, it’s remarkable what changes have been made in such a short time based upon the company’s collaboration with a variety of environmental organizations. Wal-Mart created its own environmental standards – since there weren’t any federal standards to rely upon – regarding eco-packaging and they imposed these on Procter & Gamble, General Electric, and even the folks who make the Radio Flyer wagon (you may have heard the much-told story of how a Wal-Mart employee saw how much waste occurred when they unpacked their child’s gift, which gave this employee the incentive to recommend changes to their Wal-Mart superiors). Additionally, they created a supplier index and eco-rating system that they rolled across all of their product categories. With the largest private trucking fleet in the world, the company is changing the design of these trucks to create 25% better fuel efficiency which will save Wal-Mart $500 million annually by 2020. And, they’ve made great efforts to provide more eco-friendly products for their customers such that they now sell more than 100 million fluorescent bulbs annually.

We have a lot to learn from Wal-Mart. Through no contractual obligation, Wal-Mart employees were elbow-to-elbow assisting Katrina victims faster than feeble FEMA due to some independent decision-making by local store managers. Within a couple of days, the senior leaders of Wal-Mart made the kind of decisive decisions sorely lacking in the Bush White House. They committed 1,500 truckloads of free merchandise, food for 100,000 meals, job security for all displaced Wal-Mart workers in the area, and they contributed $20 million in donated cash to the efforts. And for those who think a Wal-Mart job is a dead-end experience, realize that the company has a well-respected career development program that promotes line level workers quickly such that two-thirds of all Wal-Mart managers are elevated hourly employees. You may not like Wal-Mart, but the vast majority of their employees do seem to be committed to the company and every single employee has the potential to earn a quarterly bonus based upon store performance.

Yes, I know that Wal-Mart deserves to be the corporate piñata for a variety of other business strategies and tactics and their commitment to many of these new-found practices may seem to be as much bottom-line and reputation-driven than a new-found religion (and, I’m not sure that the ratio of Prius’ to Hummers in their headquarters parking lot has escalated any faster than any other American corporate giant). But, what the Obama administration needs to succeed today isn’t more politically-correct zealots. What it needs is an efficiency expert that can implement logistics very quickly on a grand scale as Barack’s agenda is vast and the stakes are high. The last time I checked the U.S. government wasn’t all that good at efficiency, logistics, or speed (although I will say that our government has gotten much better in these areas during the past decade).

Don’t be surprised if we’re going to be “bending toward Bentonville” in these next few survival-driven years. If you need a little proof that Wal-Mart’s reputation is making a comeback, take the case of Wal-Mart.com’s signage in the bastion of liberalism, San Francisco. My college fraternity brother was President of Wal-Mart.com a couple of years ago. He told me about how his employees were occasionally embarrassed to tell their friends in the Bay Area (where Wal-Mart.com is headquartered) that they worked for the company. And, for potential sabotage reasons and to limit their exposure in this geographic hot bed of political protest, Wal-Mart.com chose for years to downplay their Bay Area office building signage presence. So, given Wal-Mart’s recent “coming out” as a good corporate citizen, I guess I shouldn’t be surprised that the other day when I was driving to the San Francisco airport, there was a huge sign on a bayside office building proclaiming Wal-Mart.com was headquartered in that building.

For those of you who are still having a hard-time digesting the idea of Barack being mentored by Bentonville, would you consider a joint venture with Wal-Mart, instead of an outsourcing or consulting contract? I can certainly think of better investments for the U.S. government (and all of us who “invest” in our government) than A.I.G.

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Hogs at the Trough

[originally posted Dec. 9, 2008 on The Huffington Post]

Once upon a time there was an old school, midwestern company that was in the business of manufacturing motor vehicles. That company was on the verge of bankruptcy in the early 80’s as it was getting pummeled by foreign competitors that were creating more stylish, less expensive, and lighter weight vehicles. But, this teetering company led by a CEO named Teerlink remade itself, went the IPO route in 1986, and grew their American market share from 15% (1982) to nearly 50%. In fact, this company — Harley Davidson — has such a profitable business model that it has provided investors with an annual rate of return that has come close to matching its fellow ‘86 IPOer, Microsoft.

What could the Big Three in Detroit learn from Milwaukee-based Harley-Davidson? If you’re going to purposefully transform an American icon, you’d better have transformational leadership. CEO Rich Teerlink forced Harley Davidson to become an entrepreneurial enterprise that saw a deeper mission in their role of building and selling motorcycles. He hired an organizational consultant, Lee Ozley, who was a disciple of legendary American psychologist Abraham Maslow, to help Harley Davison remake its approach to internal management. Gone was the command and control organizational hierarchy and in came Maslow’s Hierarchy of Needs with its goal of creating a workplace where everyone could aspire to their personal form of self-actualization. And, once they’d repaired themselves internally, they went HOG wild unleashing a customer enthusiasm that borders on evangelism. I know this self-actualization stuff may sound a little fluffy, but it’s a true story and no one would claim that Harley Davidson attracts New Age nuts.

There’s another American transportation company that was remade by a Maslow-following leader. When Gordon Bethune took over as the CEO of Continental Airlines in 1994, the company had suffered through ten CEO’s in ten years and was in last place on virtually every metric that defined the airline industry. Bethune believed that Continental couldn’t beat the outside competition until they started dealing with the competitive challenges within the organization that were leading to a dispirited and hyper-political corporate culture. Realizing that the number one determinant of airline customer satisfaction was on-time performance, the CEO and his team developed a program that attempted to move Continental from last place to being in the top five airlines. Bethune engaged his employees in this goal and pledged to give all 40,000 of their non-managers a $65 bonus for the first month they met this goal of getting in the top five. That’s quite a monthly investment ($2.5 million) for a company that was hemorrhaging cash.

Remarkably, within three months, Continental went from last to first in on-time performance and Bethune upped the ante by paying $100 per month each time the company came in first. Today, Continental is one of the best-run airlines in America. Bethune’s comment in his book From Worst to First is sage advice for the Big Three, “Keep Maslow’s Hierarchy of Needs in mind when you’re working on your business.”

As a CEO, I faced a similar struggle when my San Francisco Bay Area boutique hotel company, Joie de Vivre Hospitality, was struggling with making payroll back in the dot-com bust, 9/11 era earlier this decade. We produced our own version of Maslow mojo when, as the largest hotelier in the most vulnerable region in the country, we used Maslow’s Hierarchy of Needs to focus not just on the base needs of our employees, customers, and investors, but to imagine their higher needs and how we could deliver on those also. We asked ourselves how some other transformational companies — like Apple or Southwest Airlines or Fed Ex — would operate if they were in our position. Moving from just focusing on survival needs to addressing the success and transformational needs of our key constituencies led to us tripling our revenues in the five years after the dot-com meltdown.

So, how can Motown go Maslow? First, let’s recognize that the auto company leaders who got us into this mess are transactional, not transformational leaders (think of the difference between Hillary Clinton and Barack Obama). When change is what’s needed, look for change agents as leaders. So, if the government is going to bail these guys out, they better show the top leaders the door and bring in a refreshing set of new eyes, ears, brains, and hearts. Secondly, these new leaders need to create a revolution in the employee culture of these organizations. Impossible, you say? The unions will never allow that! Look at Southwest Airlines — they’re one of the most unionized airlines in the country yet they have a healthy culture that’s a model for any company. Harley Davidson and Continental are similarly unionized and so is a large portion of my company of 3,500 employees. Create some small wins that mean that the unions and their members can also profit from a turnaround and, in turn, get some essential concessions from the unions that will reduce the Big Three’s break-even point.

Lastly, Detroit, create a car that we can love. There was a time you did that very well. Whether it’s staking your full bet on green cars or remaking the idea of how you sold cars (there was a certain allegiance to Saturn at one time), take a lesson from Harley. They were getting outgunned by the Japanese, just as you have been by Toyota, Nissan, and Honda, but they reengaged their employees to create the kind of bikes that tapped into a deep emotional need of their customer. And here we are twenty years later, and I can’t think of any worldwide brand that has more logos tattooed on the bodies of their customers than Harley. GM, you know you got it right when you start seeing your “General Motors” tattooed on the scrawny bicep of a small town accountant who’s looking to be a little self-actualized by living in the halo of your brand.

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