Archive for the ‘Recession’ Category
The Great American Workout
Monday, January 5th, 2009[originally posted Jan. 2, 2009 on The Huffington Post]
The word “workout” takes on special meaning this time of the year. We’re so predictable. Holiday binging leads to fitness cringing. And, one of our chief New Year’s resolutions is to get on a workout plan, maybe with the assistance of a trainer. In fact, during the first President Bush’s administration, his Chairman of the President’s Council on Physical Fitness Arnold Schwarzenegger acted like the country’s personal trainer by creating a highly-publicized “Great American Workout” in 1992 fashioned to help us realize just how much we were gaining around our midsection and what we could do about it. Today, Governor Arnold has installed a digital clock (sort of like a weight scale) outside his office at the Capitol in Sacramento showing the state’s “waistline” (in the form of a budget deficit) which is around $7 billion as of now, but is expected to rise to $15 billion by the end of the fiscal year in June. Arnold’s sweaty workout in 2009 is going to be with lenders, not in the gym.
We’ve been binging on debt for way too long. That great American tradition of signing up for a gym membership in January will be replaced this year with signing up for an appointment with your lender. There is no short-term recovery in sight and most of us are dangerously fat. We’re going to see massive retail industry restructurings in the new year after the historically weak holiday sales. The car industry may avert the cardiac arrest of bankruptcy, but even with a bailout, anyone associated with this industry is going to be on a crash diet this next year. Unemployment is going to experience a painful spike-up in the next few months which will put more loans at risk. Residential real estate prices still have another 10% to fall, thus putting lenders at greater risk given that their equity is about as lifeless as the guy facedown in the pool. A financial workout is defined as “the process of a debtor’s meeting a loan commitment by satisfying altered repayment terms.” If you’re lucky, your lender may become your rigorous personal trainer and be willing to work with you on a new workout plan. If you’re not and your trainer fires you, then there’s always the path of Lehman Brothers or Sam Zell’s Tribune Corporation.
I spent the post-Christmas weekend in the Inland Empire of California, an ironic name given that few real estate markets in America have been more exposed as an “Emperor with no clothes.” With unemployment over 10%, real estate prices down 30%, and those sad minimum wage-earning folks standing on street corners with their gesticulating oversized cardboard arrows pointing to tract home developments that are seriously off-track, there’s an emotional fog overhanging Palm Springs, Riverside, and Indio. Amidst some sunny R&R, I made time to meet with a lender on a Sunday late afternoon to see a hotel that was seriously underwater. You know the world is upside down if a lender is traipsing around an abandoned hotel with a barbed wire fence around it on a prime golfing day. The lender told me the sad tale of this hotel and how its borrower just kept adding on the debt with “a willing bartender – a variety of lenders – serving this drunk customer until he passed out.” The lender said to me, “I was let go by one failing bank a few months ago, but hired by this other bank since I was a ‘workout specialist’ which I learned back in the real estate debacle of 1992.” I didn’t ask if he learned his workout techniques from Arnold back then. He surmised that, “We are on the verge of the biggest meltdown we’ve ever seen for lenders. The lenders and the borrowers who will survive this time are those that know how to become great workout partners.”
Working out is an acquired taste. It isn’t something you enjoy at first. In fact, the American fitness club industry binges on a predictable numbers game that suggests few of us are as motivated to visit the club in May as we are in January when we signed up. But, our financial health depends on the kind of working out, stretching, and dieting we’re going to do in 2009. It requires a change in mind set and a willingness to show our trainer (the lender) that we’re humble, motivated, and capable of slimming down. While a lot of blood, sweat, and tears will be expended along the way, the result may be a svelte and attractive body that’s in better health than it’s ever been in. Good luck with your workout!
Hogs at the Trough
Wednesday, December 10th, 2008[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.