How Do You Know What Really Matters?
One of the first phone calls I received when news broke about my becoming Gillette’s new CEO was from a Boston-based business associate. “Jim, I know a lot of Gillette executives, and my advice is go slow.” Gillette people don’t like outsiders, he said, which is why the company last had an outside CEO seventy years ago, and he failed miserably. “Give people time to get to know you before you start changing things,” my friend said. “It’s the best approach you can take.”
That call was followed by many more, along with dozens of proposals from professionals, including consultants, bankers, compensation specialists, and sales motivation experts. Each had a plan or recommendation that should receive my top priority if I wanted to succeed at Gillette.
With all that advice, how do you decide what matters?
One of the biggest impediments to success in business—for individuals and companies—is the failure to achieve that understanding.
Whether you’re the CEO of a multibillion-dollar company, the brand manager for a struggling product, a director of human resources, or an entrepreneur starting your own business, you’re always confronted with an insurmountable amount of information and a number of options, conflicting opinions, and management theories that are as endless as they are confusing.
Making these decisions isn’t a job for the timid or weak of heart. It takes guts to say these are the things that really matter; I’ll pay absolutely no attention to the rest. That’s the challenge everyone faces. This book helps you meet that challenge.
You’re always confronted with an insurmountable amount of information and possible options.
$40 Billion of LosT Value With No End In Sight
For example, I faced no bigger challenge than the decisions we made during my first months at Gillette. Early in 2001, the company had missed its earnings estimates for fifteen straight quarters. Sales and earnings had been flat for the prior four years. Market shares were declining sharply. Advertising spending, the lifeline of consumer products, had been slashed year after year. Overhead costs were high and growing. And competition was intensifying.
Wall Street had lost patience with this chronic under- performance. And Gillette’s share price reflected the disappointment. It had fallen from an all-time high of $64.25 in March of 1999 to $24.50 in 2001. That’s a 62 percent drop in two years—a loss in market capitalization of close to $40 billion, and there was no end in sight.
So it’s no surprise that analysts and investors had plenty of ideas for what had to be done. The problem was that no two suggestions were the same, and many were conflicting. It was up to me to decide which ones really mattered. Or whether it was better to put aside the advice and chart a different course.
Multiple Options, No Simple Answers
These wouldn’t be simple decisions. And they would make the difference between whether Gillette would survive and prosper, or continue its unrelenting decline. Here are some of the suggestions that were being offered. Many would result in a corporate yard sale.
• Divest the ailing Duracell business. This was a $2 billion business that Gillette had spent around $8 billion dollars to purchase just four years before. The post-acquisition performance had been miserable. Duracell had gone from one of the best-performing brands in the consumer products sector to a true basket case. Its market share had slipped by almost 15 percent—from 46 to 40 percent of the alkaline-battery market in the United States. And the competitive pressure was mounting. So on the face of it, selling the Duracell business and cutting any further losses seemed like a pretty good idea.
• Hold on to the Duracell business, but slash prices drastically. In other words, we should acknowledge that Gillette’s high-priced acquisition of Duracell was a big mistake. Admit that batteries were a commodity business, not an advantaged category. And milk our investment, not try to restore it. Since it’s never good to tilt at windmills, this was another seemingly plausible approach.
• Divest the Braun electric shaver and household appliance business. Braun represented an early acquisition by Gillette, dating back to 1967. Unfortunately, Braun’s performance had been bleaker than Duracell’s for a far longer time. The last time Braun had made an annual budget was such a distant memory that no present senior manager could even remember it. There was no question that Braun’s inconsistent performance and costly investments were a major drag on Gillette.
• Divest the Personal Care business, which included such brands as Right Guard, Dry Idea, and Soft & Dri antiperspirants and deodorants as well as Gillette Foamy and the Gillette Series shaving preparations. Not only were the market shares for most of these products falling, their profits also were deteriorating, with operating margins that were much lower than competitors’.
• Strip the company by selling all assets except the highly profitable blade and razor business; operate Gillette as a pure play in one sector only. The sales would be lower, but the profit margins would be so high that the share price would rocket.
• Acknowledge that Gillette was yesterday’s news and invent a whole new growth strategy. Enter new product sectors that analysts said were “burgeoning with growth.” Multiple acquisitions would redefine Gillette and jump-start the stock performance.
• Or, acknowledge that Gillette was yesterday’s news and throw in the towel. Call in the investment bankers and work on the best possible “endgame.”
These were a broad and opposing group of options, and that wasn’t all of them. There were dozens of others, dealing with everything from business and operating strategies to where Gillette’s headquarters should be located (it was in the high-rent Prudential Tower in Boston’s Back Bay district). I could have filled my days just sorting through the endless opinions that were being offered up on how to manage Gillette. In the end, I worked with my team to set our own course that would restore Gillette to its number one position in the consumer products arena.
Deciding What Really Matters
But how do you make such decisions? How do you know what really matters? Is there an approach that can work regardless of the circumstances? Something that can put you on the right course more often than not? There is. It’s what I call the fast-track quick-screen elimination process. Many times in my career—especially when working through the fog of conflicting opinions—I’ve found the right direction by answering a few critical questions that allow me to eliminate most, if not all, other options.
Let’s go back to the advice on Gillette to see how it works.
Quick-screen took me to the right answer without having to slog through a swamp of details. Divest Duracell In order to divest Duracell, there had to be someone willing to buy Duracell. So Duracell had to be worth more to someone else than to Gillette. But, there wasn’t anyone. The battery category was so irrational and competitive no company that could afford to buy Duracell wanted to get into the fray. And even if they did, Gillette’s price-earnings ratio, which is the price investors will pay for a stock expressed as a multiple of its net earnings, was far higher than any possible buyer. So Duracell was worth more to Gillette than anyone else. By utilizing the fast-track quick-screen elimination process, I could eliminate the “sell Duracell” option. No need to give it a second thought.
Milk Duracell A second option was slash the prices on Duracell, admit it’s an undifferentiated commodity, and milk the business. This time I applied my past experience in the quick-screen process. Was a Duracell battery more or less of a commodity than Kraft Singles—the cheese slices that carried, on average, a 25 percent higher price than private-label products when I managed the Kraft business? (Literally, in blind taste tests, consumers could detect only a slight difference between Kraft and private-label.)
The differences between Duracell batteries and the private-label and price-brand batteries were perceived by consumers to be significant on a number of factors, including reliability and durability. In addition, the performance difference between alkaline Duracell and general-purpose zinc batteries was enormous. So why give up on Duracell, a branded product with great equity and an impeccable twenty-year record of high growth and profitability, simply because it had stumbled for the last three years? Again, the quick screen took us to the right answer without having to slog through a swamp of detail. (Don’t get me wrong; we later did an exhaustive study of the battery business. Our new management team had to assess the category’s potential and determine the best way to get it. And that required detailed analysis.)
The quick screen told us that Duracell was the leader in the alkaline battery category, which meant it should be disciplined in how it led the category and in how it imposed discipline when the nonleaders got out of line. Duracell had done neither.
The leader in a consumer products category must invest in marketing to drive growth and increase the consumer equity and preference for the brand. Instead, Duracell had cut its advertising substantially.
A category leader must demonstrate that it won’t allow competitors to steal its market share. Duracell allowed repeated theft of market share by relatively minor competitors that emboldened them for future initiatives. Category leaders must avoid creating a frenzy of out-of-control promotional spending in order to enhance short-term results. Duracell had succumbed to a pattern of frequent and heavy promotional activity.
None of these observations required in-depth, protracted analysis. They were fact-based and verifiable. You have to know what to look at.
In consumer products, the first place you go—in addition to sales and earnings trends—is market shares. Are they ris- ing or falling? Advertising-to-sales ratios—again, are they up or down? And promotion and trade spending to sales ratios—an upward trend signals trouble.
Key metrics will vary, but they always exist.
In other businesses, the key metrics will vary. But they always exist, and they will give you the quick read you need to move forward. Yes, you’ll go back and spend time conducting the analysis necessary to execute a plan of action. How much should you invest in marketing? What does marketing-mix modeling tell you about where to invest? How much of a price gap does your brand and market advantage allow? How effective is your sales force in working with your trade customers? What channel of trade is driving growth? Do you have the right trade-channel strategy? There’s a lot you’ll have to cover. But you can’t allow it to bring you to a halt at the outset. You have to go with the quick screen so you can act.
Let’s look at one more option, the real scorched-earth option:
Sell Everything Sell everything except the shaving business and focus on Gillette’s strongest and most profitable franchise. With all its assets combined, Gillette was a medium-sized consumer products company. It had $10 billion in sales, compared with $48 billion for Unilever and $70 billion for Nestlé. Strip Gillette down to its blades and razors and you have a $4 billion company. Now, what sort of presence would this stripped-down Gillette command with its principal customer, the $300 billion Wal-Mart? Slim to none. We might just as well hang a for-sale sign on the door.
The quick-screen approach does not eliminate all options. A variant of the 80/20 rule works here. You almost always can screen out four-fifths of the choices, which means that what matters is the remaining 20 percent. In effect, something that seemed larger than life is now scaled down to manageable proportions. You will find specific steps for applying this approach at the end of the chapter.
Your assessment must be well thought through and fact based.
Benign Neglect Leads to Bad Results
When using the fast-track quick-screen process, it is important to reduce issues to their simplest elements. However, your assessment must be well thought through and fact based. The superficial application of concepts, even of good, well-grounded concepts, will get you in deep trouble.
For example, two of my guiding principles are the importance of alignment and the value of utilizing scale. Those were the precepts that had led the prior Gillette management to place the $800 million Gillette Personal Care business within the Blades & Razors Business Unit (BU). They believed that shaving preparations—such as Gillette Foamy and the Gillette Series—and antiperspirants and deodorants (AP/DEO)—such as Right Guard, Dry Idea, Soft & Dri, and the Gillette Series—should be closely tied with the Gillette-branded blades and razors. The scale of all the products combined would have a big impact on customers, which should translate into a greater in-store presence for the Personal Care products.
Those are good concepts. But applied to the Gillette Personal Care business, they caused problems. Tucked within the Blades & Razors Business Unit, the Personal Care business was managed like a stepchild. There are times when benign neglect is the best course of action for a low-growth, low-return business. However, when the neglect causes self-inflicted wounds, then it’s time for a change. And that was the situation when we started at Gillette.
Peter Klein, my longtime associate, first worked on the Gillette Personal Care business in the 1970s. He became part of the new Gillette management team and pointed out that deodorants and antiperspirants required great attention to detail and a constant flow of new fragrances, forms, and other consumer benefits to stay ahead of competition. But as part of the much larger and more profitable Blades & Razors Business Unit, Personal Care became an afterthought. It was a training ground for young managers, and not a place with a lot of institutional knowledge about the ins and outs of toiletries.
Those were the insights we used in the fast-track quick-screen process that resulted in my setting up Personal Care as a separate business unit. Rather than focusing primarily on utilizing scale and limiting the personnel expenses associated with running Personal Care, we paid attention to the vitality of the brands and increased cost control that a dedicated management would bring to these products. Within three years of splitting off the Personal Care division, market shares were rising, profits had returned to competitive levels, and the new-product pipeline was bursting with innovation.
The Little Red Razor
Another element in the quick-screen process is to weigh your own experience in assessing an option or making a decision. Your assessment must be well thought through and fact based. You cannot rely on your gut alone to arrive at make-or-break decisions. But you cannot permit what are supposed to be facts or solid judgments to overwhelm your experience and common sense. Oftentimes you’ll find some facts will turn out to be “old truths” that were never tested or challenged.
One of my favorite old-truth stories at Gillette involves what came to be called “that little red razor.” We talk more about this “problem” that was really an opportunity in chapter 12. But the essence of the story involves a strongly held old truth among the marketing and market-research gurus of the Blades & Razors Business Unit. The overall marketing talent in this unit was impressive. Many of the senior managers had been with the company for twenty to even thirty years! These people were in an excellent position to know old truths.
In 2001, Gillette introduced a variant on our Mach 3 razor Don’t let supposed facts or solid judgments overwhelm your experience and common sense. that was designed to increase its appeal and penetration among young shavers. The product was called Mach3 Cool Blue. And the name says it all. It was a Mach3 razor with an attractive, vibrant blue handle. Nothing more. No new features. No performance advantages. Just a new blue color. But the color did exactly what it was supposed to do. It boosted our appeal with young males and increased our overall Mach3 razor sales by a remarkable 15 percent.
Now fast-forward about six months to a planning meeting with our Blades & Razors Business Unit. We reviewed a number of new-product options for the future. In the discussion, I suggested that we build on the success of our blue razor by introducing a red razor. Well, based on the reaction of the Blades & Razors marketing people, you would have thought that I had suggested selling dull blades as an innovative breakthrough.
Didn’t I know that red was the color of blood? That anything suggesting blood would subconsciously tap into shavers’ fears of cutting themselves? That a red razor would not increase our sales, but rather drive untold millions of our loyal shavers to competitive brands? That was a hard-and-fast old truth. I felt chastised, to say the least, yet not really convinced. Our Blades & Razors marketing people were impressive, just about as sharp as their products. On this one, however, I felt they made a bad call. But we dropped the subject.
Now fast-forward another year to a time when our arch competitor, Schick, has trumped our Mach3 with a four-bladed cartridge called Schick Quattro. Our testing told us that Quattro gave a shave that was far inferior to our Mach3 Turbo. But we needed something to blunt the anticipated $75 million marketing blitz that Schick would use to launch Quattro. Our next new-product breakthrough wouldn’t be ready for market for another fifteen months.
The Little Red Razor that Could Reenter the red razor. Not really convinced of the old-truth validity of the cut-and-blood basis for eliminating red as a razor color, I went back to our Blades & Razors Business Unit and asked them to put the testing of a red razor on a fast track.
The results, backed by an excellent marketing program, were staggering. The red razor became our Mach3 Turbo Champion. The concept that powered the marketing initiative was racecar-driver champions behind the wheels of red supercharged cars. High-powered men in high-performance cars taking on the gutsy challenge of high-speed racing.
The imagery, symbolism, and attributes were an exact fit with brand concept we wanted for Mach3 Turbo Champion. It became not only the most successful product extension ever introduced at Gillette, it also stopped Quattro dead in its tracks. A year after its introduction, Quattro’s share in the United States was 4 percent. Mach3’s share stood at 34 percent. And when I met the chairman of Schick’s parent company at a business function, he said that he couldn’t believe we did all that damage with “that little red razor.” So much for the validity of supposedly fact-based old truths.
By doing what matters and using the quick-screen approach, we made decisions and set directions for Gillette that might have taken many months, if not a year, had we moved painstakingly through all the advice that was heaped on us at the outset. Not all of our decisions were right; we made midcourse corrections. But our big decisions were winners. We bet on strong growth for Duracell and over three years, its sales increased, profits trebled, and market shares grew. We focused on Personal Care, and the new business unit was able to drive profit margin from the lowest in its product categories to the highest. And we held on to the Braun business and transformed it from a financial black hole to a high-powered innovator that fueled growth in our Oral Care and Blades & Razors businesses as well as its own.
Get To Heart of the Matter
I opened this chapter with an observation that success in business boils down to knowing what really matters and then doing it. Regardless of your position in a company or organization, there is always a flood of information and data, and a lot of conflicting ideas and opinions. In the end, how you get to the heart of what matters will define you as a leader. While there are no simple formulas, there are approaches that help facilitate the process. The fast-track quick-screen elimination process is one way to cut through conflicting opinions. It helps find a direction by answering the few critical questions that allow you to eliminate other considerations. It’s this type of thinking that we’ll be demon- strating and discussing throughout the book.
How you get to the heart of what matters will define you as a leader.
Putting the Quick-Screen Process to Work
• Reduce the problem or issue to its simplest elements; strip out extraneous factors. Zero in on the key metrics or levers. In consumer products, for example, look beyond sales and earnings to market shares and marketing and promotion to sales ratios as barometers of health. In other sectors, find comparably important metrics.
• Ask fact-based questions that require you to give fact-based answers. Go beyond generalizations. For example, saying a product has “become a commodity” offers little insight about its growth and profit potential if it were well managed. Statements or beliefs that aren’t fact based can easily lead you astray.
• Force yourself to give simple, clear answers; complex multifaceted answers probably aren’t focused on basic concepts. For example, you don’t need the data derived from marketing-mix modeling or a segmentation study to know if you have an advantaged product or service in a growth category. Keep things simple at the outset so you’re in a position to act, not to inhibit action.
• Decide whether further immediate analysis is needed. With your best option in hand, would further analysis now yield more clarity and a better decision? Or would it just postpone the time for action? I’ve found that four out of five times, you can screen out the nonstarters and also-rans and be confident that you’ve identified the winning option.
• Conduct the detailed analysis and collect the data necessary to act at the right time. Making an initial decision does not mean there’s nothing more to do. There’s a right time for getting into the weeds. But don’t let the need for future action result in real-time, immediate paralysis.From the Hardcover edition.
Excerpted from Doing What Matters by James M. Kilts with John F. Manfredi and Robert L. Lorber. Copyright © 2007 by James M. Kilts. Excerpted by permission of Crown Business, a division of Random House, Inc. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.