Evolving Excellence

Uh - But What About the Product?

By Kevin Meyer

That old retail icon, JC Penney, is undergoing a transformation thanks to Apple.  Apple?  Yep - JCP's new CEO is one of the guys responsible for creating the Apple Store.  Anyone that has been in one knows it is a bit of a different experience.  Where else can you pick up a $2000 piece of equipment at the back of the store and walk all the way out without a receipt - because it was emailed to you - with no one batting an eye?  Where else can you sit for a couple hours playing with the equipment with no one trying to give you the hard sell?  Apple believes that if you help people to use and like the technology, the technology will sell itself.

So now that concept is coming to JC Penney.

The first significant change will be embracing a new pricing strategy, consisting of "fair and square" pricing. It includes three types: everyday, regular prices; monthlong values; and best prices, on the first and third Fridays of every month. To determine new prices across its product range, Mr. Johnson said that the retailer looked at what it was charging and what customers most often paid after numerous discounts. He found that only one in 500 items sold at full price, while 72% of revenue was derived from selling products at 50% off or more.

Ok, perpetual sales are sort of useless.  Sounds good.

The strategy will trim JC Penney's promotions to 12 a year from 590.  "Steve [Jobs] would have called this insanity," Mr. Johnson said of the sheer volume of promotions. "At some point you, as a brand, just look desperate. JC Penney spent over $1 billion, and the customer didn't even pay attention."

Funny, I have always thought of JC Penney as something of a "desperate" brand - never quite understanding what they stood for.

Working with PMH, JC Penney created a personality and color palette for each month that will be carried throughout marketing, in-store displays and even external lighting on stores. By focusing on one month at a time, Mr. Francis said, JC Penney can highlight important consumer events, such as Valentine's Day, Super Bowl or the Academy Awards.

Ok, ok... I get it.  New logo, new store colors, streamlined promotions.  All good... except...

What about the product?  Advertising does not create value, a new logo does not create value.  If your product is valuable in the eyes of the customer, it will sell.  Advertising may mask true value to a customer, but just for a short while.  Apple has a great store experience... but there are great products inside. 

So, Mr. Johnson, is all the glitz to just sell the same old stuff? 

Tumbling Down the Slippery Slope

by BILL WADDELL

The task of the die hard Toyota defenders just got tougher. The company just sold out sixty plus years of being able to assure job security at a level no one else could. To save one tenth of one percent of their global payroll they sent the message to all 317,000 of their employees that their long-standing pledge to keep them on the job no matter how tough things got was no longer part of the culture.

Toyota has announced the layoff of 350 employees at their Altona Australia plant. For this paltry savings they sold out a vital part of their culture. The hand of Fujio Cho is at work here. The leader of the gang of outsiders who have spent the last ten years 'Americanizing' Toyota with disastrous results thus far, Cho has pursued growth for growth's sake and is deeply imbued with the sort of thinking one can get at the likes of Wharton business school.

As I have pointed out in the past, Toyota's abandonment of their culture in no way detracts from the credibility of lean thinking. It is way past that. If Toyota were to be wildly successful in their pursuit of imitating GM and less like their heritage, that would repudiate lean, but the odds of that happening are almost nil.

Why Mitt is the Anti-Lean

by BILL WADDELL

My disdain for Mitt Romney was made clear a few months ago - I was bashing Mitt before Mitt-bashing was cool. I am compelled to do it again if for no reason other than the fact that his supporters have the unmitigated gall to sneer at anyone who opposes him as anti-capitalism. There is no one on the planet more committed to capitalism and free enterprise than me, unless it is the legions of lean proponents who follow Evolving Excellence. Creating value for shareholders by creating the maximum value for customers, and fully engaging the rest of the stakeholders - employees, suppliers and communities - is capitalism and free enterprise at its finest. What Romney and Bain did all too often was the sort of thing that has a lot of Americans looking at the Occupy Wall Street crowd and thinking, 'they are a bunch of economically clueless, off the wall nut jobs, but that doesn't mean they don't have a point'.

You see, even the most scorned robber barons in our history - guys like Andrew Carnegie, Cornelius Vanderbilt and John D. Rockefeller - created wealth by creating value. The criticism of them is that they kept it all for themselves, sending labor into a probably well deserved conniption fit. But there is no questioning the fact that they left oceans of oil, miles of railroads and mountains of steel behind making the country as a whole much better off for their efforts. Romney, however, merits all of the criticism these guys deserve with none of the redeeming qualities. In fact, many of his ventures destroyed value. The robber barons began with a legitimate, value creating business proposition, then found every legal way (and some not so legal ways) to exploit that business to their maximum personal benefit. Romney and Bain began more often than not by finding value others had created, then finding every legal way to grab it for their own, often destroying it in the process.

Case in point: GS Steel. Romney and Bain put $8 million into the company along with a big chunk of bank loans - enough to take control. They promptly paid themselves a $36 million dollar dividend out of money they had the company borrow against its assets. Now playing with house money, they plowed $16 million back in before they saw it was a goner, crushed under the weight of the loans Bain had it take out, and let it go bankrupt. Their net profit on the deal - $12 million ... and I almost forgot, they paid themselves another $4.5 million in 'consulting fees' from the money they had the company borrow. So Bain walked away with $16.5 million and GS Steel went belly up. Every other stakeholder got screwed. 750 employees unemployed. Suppliers and lenders up the creek, communities devastated, and the steel from GS Steel was to be had no more. And the icing on the cake, while Mitt was sending his share of the $16.5 million to the Cayman Islands, the US taxpayers - you and me - got stuck with the tab for GS' $44 million in unfunded pensions.

If you are reading this, odds are you work for someone who actually creates a product or provides a service of legitimate value. For the Romney supporters to suggest that not your company's owner, but Mitt, is the job creator and paragon of capitalism is beyond absurd. It is an insult to all of the people who have risked their fortunes and careers on the prospect that they had an idea for a product of value, and stood ready to reap the gains if they were right, and suffer the loss if they were wrong. Romney and Bain too often created nothing and risked nothing. Instead they took advantage of companies that had value - earned from long hard work - but were either so desperate or so naive they got into bed with the likes of Bain.

To be sure, at some level Bain hoped the company succeeded, much the same as the pawn shop owners, payday lenders and buy-here-pay-here used car guys hope the loan works out for their customer. In the end, however, it doesn't really matter. Bain and these guys come out ahead no matter what and the fact that most of their business deals end up in disaster for the other party has little or no bearing on their profits. Like the afore-mentioned 'capitalists' Romney did nothing illegal, but just because the loan sharks are legal doesn't mean you want your kids to be one of them, and you certainly don't want one of these legal leeches in the White House.

Oh, to be fair and honest, Romney's claims to have created lots of jobs are true. The bulk of the jobs he created are barely above minimum wage retail jobs at the Sports Authority, Staples and Dominos, while the jobs he destroyed were manufacturing jobs that were taking people to the middle class, but technically he did create jobs. Of course, in light of the fact that the shelves at Staples and Sports Authority are sagging with goods from China he probably created a half dozen jobs in the People's Republic for evey one minimum wage job he created here, but, again, he did create jobs.

Obama with all of his convoluted wealth redistribution schemes, passion for bringing back the glory days of the AFL-CIO, and his tunnel vision on creating economically unsustainable alternative environmental boondoggles is killing the manufacturing economy the slow way. Romney and his bottom feeding buddies in the investment banking world will kill it off quickly. Not sure there is much difference in the end.

In the meantime, I think I will take a harder look at Rick Santorum and Newt Gingrich. Both are a bit on the nutty side, but neither leaves the trail of slime behind them Romney does.

Advice for Women

by BILL WADDELL

Gender discrimination comes in a lot of forms, and with all of the hundreds of companies I have visited and the thousands I have researched I expect I have seen them all. There is the overt 1950's neanderthal style like the manufacturing guy who explained to me just a few months ago that set up reduction was not practical in his plant. His reasoning: most of the machine operators were women and set ups were men's work - too physical, dirty and mechanically difficult for the female body and mind to handle. That kind is easy to spot and arises from sheer stupidity, and is pretty easy to overcome. Any woman who cannot intellectually match wits and succeed against such an idiot is probably doomed to failure any way.

Equally blatant and grounded in a comparable level of ignorance are the business advice articles such as the one in Bloomberg/Business Week of a few days ago providing tips and pointers when you find yourself in Las Vegas for business and "need to network and give the impression that you’re a high-roller to your more hedonistic colleagues and boss." It includes advice for women who find themselves in a strip club with such "hedonistic colleagues" and the boss. One helpful tip: "If you don't mind getting a lap dance, it will endear you to your male colleagues ...", and "... chat up the strippers. They may well appreciate the female companionship. To thank them for their time, either purchase them a drink or buy a man in your party a lap dance."

My advice to the woman who finds herself in Las Vegas with colleagues and a boss who require such networking and are impressed by the impression that you are a "high roller" would be to tell the louts to stick their job where the sun doesn't shine and find yourself a new job with decent normal colleagues and bosses. And then cancel your subscription to Bloomberg/Business Week at once, of course.

I think the worst kind of gender assault, however, is the more insidious kind - the kind that comes in sheep's clothing. It creeps up on women, treats them as 'sisters in bond' and leaves them lesser for it in the long term. It is the kind in seemingly supportive articles such as this one: "5 Reasons Why Women Are Good Leaders". The article, and many like it, is built entirely on the premise "Women’s skills are different than men’s." If that is true then there is absolutely no reason why women deserve equal consideration for jobs. If that's true then there are some jobs better suited to 'women's skills' and other jobs better suited to men's skills - it's 1950 all over again.

In fact, lucky for all, that premise is absurd. I have worked with plenty of female managers who embody the points in the article ... but there is no shortage of examples of the polar opposite. Carol Bartz who slashed and burned Yahoo to oblivion, and just today Irene Rosenfeld of Kraft who is laying off 1,600 people in their relentless downsizing effort come to mind as women who set the notion that "Female leaders are more concerned with helping everyone feel like a necessary part of the team" on its ear. No one ever accused Margaret "Iron Panties" Thatcher of "leading with empathy".

I have long believed, (and drilled into every one of my kid's heads) the principle that anyone who begins a sentence with "women are ...", or "black folks are ... ', or any other broad class of people are ... is about to say something very stupid or outright dishonest unless the subject is biology. There are no universal character attributes - just individuals, each with their unique set of talents and shortcomings, each to be taken on their own individual merits.

The person who asserts that someone is better than others, or just different from others, because of thier gender - or their race or ethnicity - is just as demeaning and just as intellectually dishonest as the person who says someone is worse than the rest because of gender or race. Respect for people means respect for people individually - one on one - as they are, with all of their unique human capabilities, values and flaws, and anything else strikes me as extremely disrepectful.

Milliken, the Anti-Kodak

By Kevin Meyer

The last couple weeks have brought the story of yet another icon of business, Kodak, collapsing and filing for bankruptcy.  Yes, failure a key component of capitalism, and when you try to skew things so they feel better you get some crazy outcomes... like $250,000 Chevy Volts.

But failure doesn't have to happen.  And that's the story we also read about last week - the story of a successful textile company, no less - and in the United States.  Milliken.

Milliken & Co. of Spartanburg, S.C., arguably should have been crushed by global competition, just like Kodak. Its roots are in the textile industry, a labor-intensive business that long ago decamped for lower wages abroad, leaving abandoned mills throughout the Southeast.

And yet a visit to Milliken's vast campus finds the company thriving. "All of Milliken's traditional textile competitors are gone," says John Fly, a top executive who just wrapped up 45 years at the company. "They're out of business. And Milliken is having the best economic performance it's ever had. It's clear we did something different."

So what did they do?  Well at first they joined the folks that whine and complain about how all the external forces... regulations, taxes, and the like... are crushing them.

What Milliken did was first try to hold back the flood of cheap imports—a strategy that chewed up management time and ultimately failed.

But then, unlike many of their brethren and unfortunately most manufacturers for that matter, they took a good hard look at their business.

Milliken diversified rapidly out of traditional textiles and moved deeper into niche products that built off its knowledge of textiles and specialty chemicals. And it bore down on scientific research and manufacturing innovation.

Today, Milliken makes the fabric that reinforces duct tape, the additives that make refrigerator food containers clear and children's art markers washable, the products that make mattresses fire resistant, countertops antimicrobial, windmills lighter, and combat gear protective.

Along the way it has amassed thousands of patents, focusing on specialty fabrics and chemicals, floor coverings and performance products. Milliken boasts that we come in contact with its many products almost 50 times a day.

"They were different because of their willingness to change," says Bill Fischer, co-author of "The Idea Hunter" and an expert on innovation. "And they moved fast."

Not too shabby.  And that last statement by Mr. Fischer is critical.  A willingness to change.  Not ask for handouts, not ask for bailouts, not spend millions lobbying for less regulation and the like.  And then they did it fast.

While Milliken doesn't disclose its financial data, Mr. Fly says revenue and profit have been rising steadily. Mr. Salley says the company is also debt free, has double-digit returns on invested capital, and has increased in value more than 30% since 2007 alone.

Yes, a textile company.  In the United States.  So tell me again why your business is in trouble?  And in which direction are you pointing the finger?