CEO2CEO Summit: The Challenge of Sustaining Long-Term Growth
March 20 2012 by Jennifer Pellet And C.J Prince
For more coverage of our 2011 CEO2CEO Summit, please read:
A Strategy Map: Competing Through Culture
The Leadership Agenda: What do CEOs need to know to succeed today?
Aligning People with Business Strategy
Five Executive Strategies That Work
At this time of economic uncertainty and political upheaval, the demands on top business leaders have never been greater. CEOs are called upon to generate earnings while pursuing innovation, to support new initiatives while protecting core businesses and to embrace new technology while trimming costs. These demands come during a time of both great economic uncertainty and tremendous change. Once impregnable-seeming business models and institutions are crumbling, while new giants are being born.
In December, Chief Executive magazine gathered more than 100 CEOs at The New York Stock Exchange to explore these challenges. The pages to follow capture some of the insights, opportunities and concerns shared during the presentations and discussions.
New Growth Drivers
Hunkering down is the natural reaction to mitigate risk in recessionary times. Yet sidelining the pursuit of growth can be even more risky. “Companies really render themselves irrelevant when they don’t continue to improve,” panelist Lynn Tilton, CEO of Patriarch Partners, told CEOs gathered for Chief Executive’s CEO2CEO Leadership Summit.
“When you start cutting R&D—the lifeblood of future product innovations—you’re really damaging the business,” agreed Bob Nardelli, CEO of Cerberus Operations & Advisory Company. “From an integrity standpoint, you’re not doing what the shareholders and the board of directors have asked you to do.”
At the same time, spurring growth in a troubled economic environment is no easy feat. Chief Executive’s J.P. Donlon asked investment company panelists to recount how they overcame that challenge at one of their own portfolio companies. Here are brief recaps of the stories they shared.
CEO, Patriarch Partners
The Company: Rand McNally, a $500 million Skokie, Ill.-based publisher of maps, atlases and textbooks.
The Challenge: “In 2009, Rand McNally was a manufacturer of paper maps that had been left behind as paper maps became irrelevant. It let Garmin take the navigation device market, MapQuest take the directional market; and Google go into the digital/ satellite arena. People almost didn’t care if they had Rand McNally on their shelves anymore. So we faced this challenge of how do we get back into the game of innovation when everybody else has moved forward?”
The Philosophy: “In these situations, you need short-term, mid-term and long-term plans for innovation. You need ‘quick hits’ so people see that you’re back, that you’re innovating and there’s a reason to keep you where you are. Then you need that middle plan where you’re really starting the research and development, getting into new markets. And then [you need] that long-term plan of who you will be in the future that you’re pushing forward. You might change that as you run into obstacles and changes in the global environment, but you at least have to be moving in a trajectory between two points.”
The Solution: “The first thing we did was get into the electronic market. Rand McNally already did a lot of atlases and work for the trucking industry so we created a truck navigation device, Rand McNally’s TND, something that really wasn’t out there. We brought that to market, and it has been No. 1 in the market, and it was a very big hit. We also created an RV navigation device for people who travel by RV. And we brought out a [new line] of Best of the Road paper maps, which Walmart featured at their checkout stands.”
The Outcome: “All of a sudden, all those people who didn’t care about having our paper maps and atlases anymore wanted them, because Rand McNally was relevant again. It wasn’t any huge innovation that changed the world, but it wasn’t going away. Because if you’re innovating, you’re not going away. That is the perception. And frankly, it’s the truth.”
The Future: Our long-term goal is to become a virtual-travel company, to take people who can no longer spend the money to go to Europe to shop the streets of Bellagio through sort of virtual travel. We brought the COO from our videogame company into this business as the CEO because we’re moving in the direction of virtual-reality travel.
Chairman, Bausch & Lomb
Senior Partner, Warburg Pincus
The Company: Bausch & Lomb. An innovator of contact lenses in 1971, the $2.5 billion Rochester, N.Y.-based company had grown stale and stagnant by the time Hassan came aboard in 2009.
The Philosophy: “Engagement with the customer is very, very important. One of the most important things is to measure the trust index by asking customers and employees, would you recommend this company or not? If you get those two numbers right, going in the right direction, that company is headed for stronger health.”
The Challenge: “The company was in the doldrums; it had gotten into some flat patterns and something had to be done to bring this older company back to a more vibrant culture.”
The Solution: “We worked on changing in several ways. First, customer engagement, getting customers to view Bausch & Lomb more as a partner. Second, innovation, because that improves customer engagement. Third, extending the business to overseas markets. Those were the three strategies, but the three priorities on the inside were a triangle of people, products and processes, with people at the base. Because if you can get the people part right, the products and the processes will fall into place. The best way to approach that strategy is on the two ends of the spectrum: the team at the top and the frontline managers. If you can get them to understand the approach in simple sentences, and internalize it and really focus on execution, it’s amazing how much power can be unleashed.”
The Outcome: “Our internal calculations indicate that our value has gone up 60 percent in less than two years. The top line is growing very nicely with all the businesses. Overall, it’s a case of a company that was too old and getting too stale that’s suddenly now become the new Bausch & Lomb.”
The Future: “We have been able to put very strong people on the ground in all the countries to serve as role models for the country operations. That’s creating a virtuous cycle, because as the company’s credibility increases, one can then attract better products from other partners and also better support from the key doctors who are very important in that business. And we’ve extended the business to overseas markets, which is now a big opportunity. In fact, Bausch & Lomb’s largest growth rates are overseas.”
CEO, Cerberus Operations & Advisory Company
The Company: Talecris Biotherapeutics, a Research Triangle Park, N.C.-based company with $1.6 billion in revenues. Formed through a carve-out from Bayer, Talecris processes blood into plasma for specialized applications.
The Challenge: “One of the biggest issues we had was ensuring the quantity and quality of input material—blood.”
The Philosophy: “I tend to believe there’s an infinite capacity to improve upon everything that you do, so you enhance the core and then you extend the business and expand the markets.”
The Solution: “The company undertook reverse integration, taking control of the input material with the establishment of Talecris Plasma Resource, [a network of] 65 collection centers. We took control over the quality and the price of the input material.”
The Outcome: “It had a huge impact on our ability to control the quality and the volume of the product coming out and, ultimately, to meet demand. After we ran the business for a few years, we were able to sell it for 24 times the investment.”<
With steadily eroding sales, department store operator Bon-Ton Stores last month named Brendan Hoffman CEO and president. Hoffman had served as CEO of Lord & Taylor since 2008, having taken the helm there when the company and its markets were in flux. “It had undergone a lot of management changes, and for the previous few years, sought to be more of a luxury player,” said Hoffman, recounting his experience at Chief Executive’s CEO-2CEO Summit. “I was hired to accelerate that.”
But when the market went into freefall, Hoffman, who had been steeped in the luxury marketplace during a 10-year tenure at Neiman Marcus, had to rethink that strategy. “We recognized very quickly that we would have to reposition the brand—the luxury path wasn’t really working, and it certainly wasn’t going to work in this new world,” he said.
Back to Basics
Instead, Hoffman opted to return to Lord & Taylor’s foundation by bringing back mainstream department store brands it had jettisoned in its pursuit of the luxury market—brands like Jockey underwear, Liz Claiborne apparel and Nine West shoes. It was the right call, noted fellow panelist Ram Charan, a business author and strategy consultant, who pointed out that Hoffman’s ability to recognize external changes that demand a shift in strategy is essential in achieving growth. “People like Brendan recognize what is required and figure not what they know they like to do, but what needs to be done.”
Work from the Outside In
In retrenching into the mainstream marketplace, Hoffman realized that Lord & Taylor would once again be going head to head with department stores like Macy’s. So he trolled the competition. “I realized that a traditional department store is overwhelming,” he said. “It’s big, it’s loud and it’s tough to get service.”
With its more intimate feel and higher level of service, Lord & Taylor was well positioned to capture a customer whose needs were changing. “There were a lot of people in the world who either could no longer afford to shop Neiman Marcus or maybe should never have been there in the first place,” Hoffman recounted. “I thought this customer segment could find a soft landing at Lord & Taylor.”
Focusing on the external environment—consumer needs—enabled Hoffman to identify an opportunity, noted Charan. “The rearview mirror is a major problem in companies,” he noted. “Instead of [looking back], start from the need and work backwards.”
For Hoffman, the shift in department store customers’ circumstances crystallized into a strategy for differentiation. “The answer became clear,” he said. “We were going to create an environment that was a little bit more upscale than where you traditionally find the same brands and offer a level of service that would cater to a customer that expected a little bit more. From there we really took off because nobody else was doing exactly that.”
“Aggregates are not a good indicator. There are segments [of the U.S. economy] that will grow and those segments are large.”
Hoffman had found a way to stand out from the competition, pointed out Charan. “You need the acuity to see the point of differentiation that is sustainable—how you can connect to the ground floor of the customers.” The effort paid off. Lord & Taylor, which retail industry experts had predicted might disappear, began to show growth in late 2009, and has seen sales climb by an average of 10 percent a year over the last two years.
The lesson? Even in troubled times, perhaps especially in troubled times, opportunity exists. “You hear a lot about how the U.S. economy will only grow by 1.6 percent annually,” said Charan. “But aggregates are not a good indicator. There are segments that will grow and those segments are large.”
Charan urged CEOs to actively engage their teams to focus on finding those opportunities. “Stop commiserating that the U.S. is going to have no growth and Europe is going to hell and say, ‘Let’s find the growth,’” he said. “We have a $15 trillion economy and some of the segments are changing. Find out where the opportunity is and go after it.”