Revisiting Planning Basics for CEOs
September 29 2009 by Bob Donnelly
We’ve all watched one company after another “hit the wall” and not know what to do about it. Unfortunately, this inability of CEOs and their teams to keep up with the customer has caused the demise of many once good company’s and their brands.
Jim Skinner, Chief Executive Magazine’s 2009 CEO of the Year captured it best when he described what happened at McDonald’s – “we took our eyes off the fries”.
As I have said many times in my columns, if the customer gets to the future before you do they will leave you behind. And, they have!
The basics of good planning remain unchanged. Success requires at religious concentration on (1) customers and their changing requirements, (2) competition and their activities, and (3) obvious trends in the marketplace. Change is part of the dynamics of life and the marketplace – the perpetual pursuit of something new.
Alan Mulally, the new CEO at Ford recently said in an interview with The New York Times: “you need to connect what you are doing internally with what’s going on externally and specifically: Where are the customers going? Where is the competition going? And, where is technology going?”
Entrepreneurs are infamous for solving real problems customers have in their everyday lives.
How hard was it to realize that housewives were unhappy with the design of their washers and dryers? Whirlpool solved the problem with their easier to use and energy efficient Duet washer and dryer combination and has become a major player in the front-loader market.
How about the Swiffer? That was almost a no-brainer for the obvious. Who needed the pail, the water, soap and the mop? Not me. And, how about Bounty’s neat concept and theme, “the quicker-picker-upper”?
There are many examples of good company’s and brands who were on the slippery slope to extinction that were brought back to life by a simple innovation. Sometimes all it takes is an example of the obvious to the oblivious like the famous letter from the housewife explaining how she used baking soda to absorb odors in her refrigerator to the management team at Arm & Hammer, which sparked an ongoing series of applications for their core product.
How about another international brand – Lego, who was on a downward trajectory to irrelevance five years ago? The Danish company was almost made redundant by the management team’s inability to react to the onslaught of other products draining the attention of their customer’s minds like the internet, video games, iPods and a host of other electronic distractions.
A historic loss of $344 Million in 2004 shook the owners out of complacency and into action. Obviously, their customers had moved on to more challenging interests than building simple things out of old fashioned Lego’s.
Lego hired a new CEO, Jorgen Vig Knudstorp, with planning experience from McKinsey. Jorgen says “there is no place to hide if performance is poor”. He immediately changed the operating style and employed a compensation system where employee’s pay is tied to the “key performance indicators” in the company’s new strategic plan.
Realizing from his own four children that in the marketplace today if virtual reality and video games are what kids want, then that’s the kind of strategic adaptation Lego would have to accomplish to return to profitability.
Here is another great example of how even the best brands can lose their position in the customer’s mind, but with the right plans and refocusing on the fundamentals; can be repositioned. Today Lego is a different company with new sizes and shapes of Lego pieces that kids can use to create Hollywood themes like Indiana Jones biplane to Darth Vader’s fighters, and others.
New concept stores are being opened where parents can bring children for classes with master builders, as well as have birthday parties. Next year, the first Lego board game will be introduced and its new virtual reality system, Lego Universe will be available on the Web where children can build toys from virtual bricks, and act out roles from Lego games. Video games are also available.
Even though there was a 5 percent drop in toy sales in the U.S. last year as well as the worst holiday season in 30 years, Lego’s sales grew 18.7 percent in 2008. And, in the midst of a global recession during the first half of 2009, Lego recorded a 23 percent increase in sales over the same period in 2008. Coincidentally, the company earned $355 million before taxes in 2008, and $178 million for the first 6 month of 2009.
During the same period sales have declined at the Lego’s two largest competitors, Hasbro and Mattel.
As a parent said, “the most exotic thing I could build as a kid with my Lego’s was an ambulance or truck, now my son can build the Death Star. I’m 41, and instead of playing computer games or watching TV, my son and I can now build something together with the new Lego”.
So my question to CEOs struggling to figure our what to do next because they have hit the wall is “when is the last time you talked to your customers, checked out what your competitors are doing, and took a serious look at how technology is changing your marketplace”?
If Frank Perdue changed the dynamics of his marketplace with a dead chicken, imagine what you can do with your products?
If you have hit the wall let’s start a dialogue on what can be done for your business – e me.
Bob Donnelly, is CEO of VAAS Americas, the U.S. unit of the Chennai, India based maker and distributor of industrial valves. A coach, educator, and advisor to founders/CEOs of growing firms, he is a serial entrepreneur, having started, grown and sold several technology based businesses. Earlier in his career he held senior management positions with IBM, Pfizer, and Exxon.
He has developed an online MBA program in Entrepreneurship for Rushmore University with managers from global firms enrolled in the program. Since 1998 he has served as a venture mentor at New York University’s Stern School of Business Berkeley Center for Entrepreneurial Studies, where he advises start-ups on business plan development, marketing strategy, and presentation skills.
He writes the online Entrepreneurial CEO column for Chief Executive.