The news that Hostess Brands (aka Interstate Bakeries), maker of the legendary Twinkie, is closing its doors after 80 some years is all the rage these days.
Along with that news is the argument about why they are closing their doors. There are so many claims and counter-claims running around that it’s starting to sound like the beginning of a bad detective movie. Hostess is dead! Whodunit?
Some people are claiming that union demands killed Hostess, others that tripling the CEO’s pay did the job. More than likely, what really did the job was the death of a thousand knives: a series of cascading errors that put them in the position where their demise was inevitable; it was just a question of what specific event finished them off.
Of course, to really understand what happened, we then have to ask the question, “How did the cascade get started? What happened, or didn’t happen, what changed or didn’t change, to make the vulnerable in the first place?”
Here we can see the power of organizational culture at work. Specifically, we can see what happens when two cultures that were tightly aligned drift apart from one other.
When Hostess was founded in 1930, it was a product of the culture of the time: created by people living and working in that time period. The foods it sold were the foods of the day, the things people wanted. Over the years, Hostess became very successful selling twinkies, Wonder Bread, and the like. They weren’t just the best thing since sliced bread, they were the sliced bread!
Culture, of course, is the residue of success: the accumulated lessons an organization learns over time about how to successfully navigate the world. Those lessons can be hard to unlearn. Sometimes bankruptcy will do it, but not always. In the case of Hostess, they went bankrupt in 2004 and spent the next five years in Chapter 11 bankruptcy protection. When they emerged from Chapter 11 in 2009, however, they had apparently failed to learn some lessons, specifically:
1. Sliced bread was no longer quite the rage it had been in 1930.Indeed, today artisan breads, local breads, and the like are extremely popular. Wonder bread is no longer the first choice of many parents.
2. The dessert market changed. Twinkies are not so cool or fun anymore. They are the object of jokes and experiments to see how long before the go bad, or how much oil can one absorb, and so forth. They are not a school lunch staple as they were even 30 or 40 years ago. Same for Hostess cupcakes, ding-dongs, and the rest.
Are there additional factors? Sure. Supposedly Hostess never really modernized its distribution system and it’s not at all clear how much their internal management ever adopted modern goal-setting and motivational techniques. Fundamentally, though, what killed Hostess is the same thing that almost killed IBM in 1992: their market changed; their culture did not. Unlike IBM, Hostess didn’t have the same willingness to confront unpleasant realities and make necessary changes soon enough.
A nervous looking man in a suit slips furtively through the streets of an unnamed city. He comes to an office building and, checking to make sure that he isn’t being watched, slips inside. There, another man greets him.
“Do you have the plans?” the second man asks.
“Do you have the money?” replies the first.
Perhaps they haggle for a moment, but then the second man hands over the money and the first man hands over an envelope. The second man glances into the envelope.
“I see you kept your word.”
“You earned it,” replies the first man as he turns to leave.
“No,” says the second, as he pulls a gun and shoots the first man, “I bought it.”
“I betrayed my company for you! I proved my loyalty.” gasps the first man, as he falls to the floor.
The second man looks down at the body on the floor and says, “The man who betrays one master will assuredly betray another.”
If this scene sounds familiar, it probably is. Some variation of it appears in hundreds of movies, from James Bond to WWII action films to fantasy adventure. The trope is a simple one: a man betrays his country, company, organization, or teacher. The person to whom he sells out reaps the rewards, but never believes the traitor’s protestations of loyalty to his new masters. Eventually, it ends badly for the traitor.
Now, if this scenario were only a work of fiction, there would be little more to say. Unfortunately, the fictional part is the end: in real life the disloyal person is rewarded and given every opportunity to betray his new masters.
This is the short version of an article that was accepted for publication by the Journal of Corporate Recruiting Leadership. The full version will probably be out in a month or two.
It’s not enough to say that if you want to keep the best people when the economy improves, you just need to communicate more. It matters what you say and how and when you say it. Communication occurs in the context that you’ve created over time, and how your communications will be received will depend a great deal on that context. If you want to keep your best people, then you need to do your homework. (Or, conversely, if you want to recruit someone else’s key people, find companies that did not do the homework suggested in this article.)
I recently had the CEO of a certain business very proudly tell me that she was so busy looking for clients and helping her staff deal with the economic crisis that she didn’t even have time to sleep. Was she serious? Yes, she was. Were things actually working out for the business? That was less clear, however it didn’t matter. They were Taking Action, and that’s what really counted.
When we’re feeling stressed, the instinctive response is to take action. Taking action feels good; it provides an outlet for our energy and a feeling of accomplishment. It just may not actually be useful. Sometimes it really is better to follow the advice of the old joke, “don’t just do something, stand there!” After all, if you take the wrong action too frequently, you may well find yourself without the time, money, or energy to take the right actions.
Now, it’s certainly true that sometimes the toughest problem is just to get started. It’s sometimes the case that taking some action is better than taking no action at all. However, it does help if the actions being taken are those that have at least some chance of moving the business forward. It helps even more if the CEO can clearly evaluate the success or failure of each action and adjust course as necessary. That’s hard to do when you aren’t sleeping.
A lack of sleep leads to more than just a desire for an extra cup, or ten, of coffee. There is a reason why athletes want a good night’s sleep before a big game and why legendary investor Jesse Livermore stated that one his secrets of success on the stock market was being well rested. Lack of sleep interferes with motivation, judgment, and planning. It makes one more reactive, less able to stop and look before leaping. Worst of all, lack of sleep very quickly degrades a CEO’s ability to recognize a losing strategy and replace it with one that might work.
As anyone who has taken a first aid class recently will recall, the first thing you need to do in an emergency is evaluate the situation. That’s difficult to do when sleepy. Part of that evaluation involves determining how quickly you need to act. Even if there’s a wall of flame rushing toward you, a few seconds of thought can still make the difference between life and death: caught in a massive forest fire, firefighter Wagner Dodge stopped and thought. He survived the fire while those around him were engulfed. Wagner Dodge had only seconds to come up with an innovative solution to his problem. The good news: he did. The bad news: he had never developed strong bonds of trust and loyalty with his team. Under pressure, they ignored him and perished in the flames.
Today, many businesses are still facing the financial equivalent of that wall of flames. Instead of stopping and thinking, they are leaping into action. In many cases, those actions are not working out so well. The CEO who isn’t sleeping isn’t helping her company or herself. She is, however, giving herself the opportunity to undermine her own credibility with her staff. The longer that goes on, the more likely they’ll give up on her at just the wrong moment.
So what should a CEO do?
Build up a reservoir of trust and reinforce it daily. Help employees understand your decisions. Invite employee feedback, ideas, and suggestions.
Build and maintain loyalty: this is the worst time to cut employee benefits or have an opaque layoff policy. As demonstrated by IBM’s Tom Watson or HP’s Hewlett and Packard, building employee loyalty makes a tremendous difference in tough times. Without it, they won’t follow you when you most need them.
Don’t just react to the crisis. Stop and think. Brainstorm solutions with others. Find someone who will give you unbiased feedback. Take full advantage of the eyes, ears, and brains around you.
Take care of yourself. Exercise and sleep are critical to maintaining perspective and functioning effectively under pressure. Despite the failing equipment around them, even the Apollo 13 astronauts took the time to sleep before attempting their return to Earth.
Anticipate success. Never pass uncertainty down to your team members.
Many companies will survive the current economic tsunami. Fewer will prosper as the economy turns around. It will be those who know when to stand there before they act who will be in the second group.
It’s the end of the world! There’s clearly no chance that the US will escape from the current economic downturn. Doom is at hand.
More and more people are telling me that they no longer listen to the news. They are finding the steady drumbeat of negativity too depressing. Their response is to shut out the noise.
Now, there’s something to be said for that approach. After all, if you don’t listen, you don’t have to pay attention to how bad things are. On the flip side, you might also miss something useful. Back in 1910 or so, legendary stock trader Jesse Livermore always read the newspapers, no matter how bad things were. When the economy finally turned, he was ready. Inside a year, he went from a million dollars in debt to a million dollars in the black. During the Great Depression, IBM’s Tom Watson always stayed current on the news: when conditions changed, his swift actions made IBM a huge success.
Perhaps ignoring what’s going on is not the best course of action, especially for CEOs and other business leaders.
The fact is, though, it is hard to listen to the news without feeling discouraged. It’s even worse in a world where the news is always on, as close as our computer or cell phone. Being tough and bucking up only works for so long. Eventually, even the toughest will get tired: a steady diet of discouraging words can undermine anyone’s confidence in a variety of subtle or not-so-subtle ways. So if the answer is not playing ostrich, and it’s not toughing it out, what does work?
The most important thing is to reframe excessively negative news into something more neutral or even positive. This is actually less difficult than it sounds, mainly because the news frequently appears worse than it actually is. In Edwin Lefevre’s classic, “Reminiscences of a Stock Operator,” he observes that the news media is always most excited and positive at the top of the economic cycle, and most dire and pessimistic at the bottom. Lefevre’s book was written in 1923, and his observation remains true today. Just because it’s easier to get the news doesn’t mean that the psychology has changed.
In a recent news report, one economist was claiming that hyper-inflation and total social collapse is just around the corner. Is that likely? I’m no economist, but I have to wonder how many people today remember “Dow 36,000?” James Glassman’s book was published at the height of the Internet boom: in October 1999, just a few short months before the market crashed in March 2000. Today, we’re hearing the equivalent of Dow 3600. The predictions of a rosy future stretching into forever were loudest, and most believable, at the top; what does that say about the news today?
What then is the best way to listen to the news and keep your outlook positive? There are several strategies used by master stock traders and other business leaders:
·Be contrarian: it’s always most euphoric at the top and grimmest at the bottom.
·Look for the hidden opportunities. When it looks like we’re doomed, that’s when things are turning.
·Don’t listen to every news broadcast or read every paper or website. Hearing the same stories over and over reinforces the feeling that you’re getting new information. In fact, you’re getting the same information, and it’s all usually from the same original source.Hearing something through multiple channels “tricks” us into giving it too much credence.
·For some reason, negative news frequently sounds logical and good news foolish. Stop and take a larger perspective. Don’t let your point of view become narrow.
·Each day, set aside some time to get away from the computer. Shut off the TV, put down the newspaper. Do something fun. Give yourself perspective.
·Don’t be afraid to act. It’s easy to get stuck looking for the perfect move. Sometimes, the important thing is just to move. Once you’re moving, it’s amazing how much more positive the news becomes.
While it’s certainly true that we can’t control the economy, we can control how we react to it. You can be sucked into the doom and gloom, or reframe and seize the opportunities that are out there. Tom Watson chose the latter. What’s your choice?
A great deal has already been said about the plane landing in the Hudson River last Thursday. What’s amazing to me is how many people have ascribed to luck the happy ending to what could have been a major disaster.
Was luck involved? Certainly!
It was lucky that the plane went down at a time of day when there was very little commercial shipping on the river.
It was lucky that the ferries were out at the time the plane went down.
It was lucky that the particular pilot just happened to have the necessary and appropriate training to recognize what had happened and not panic. Instead, he remained calm and relied on his training to glide a passenger jet down to the river.
As the old saying goes, luck is when 10,000 hours of preparation meets a moment of opportunity.
The lack of shipping and the presence of ferries wouldn’t have helped much if the pilot had lacked the skill to bring the plane down safely. It’s doubtful that he ever really believed that all that time he spent training, flying, and in a simulator would matter, other than for his own growth and development. What are the odds of a double-bird strike? What are the odds that just the right person was in the right place at the right time? Who could have known what would happen?
No one.
And this is the lesson for businesses. It’s easy to see what skills and knowledge are useful today. No one knows what skills or knowledge will prove useful tomorrow. Trends can change in a metaphorical heartbeat. When businesses cut training and development, or restrict the courses an employee can take (refusing to pay for a course unless a “clear” business need exists), that business is focusing entirely on the problems of today. It is not creating a workforce that is ready for the problems of tomorrow. Ready, in other words, to face unpredictable situations, unexpected problems, and unplanned for or unlikely circumstances.
On the other hand, those who have had the opportunity train and develop their skills, who have the freedom to explore their interests and learn the things that may or may not be obviously useful, are the most likely to come up with a good solution to an unexpected problem.
In the end, luck really does favor the prepared mind.
Despite claims to the contrary, lack of regulation does not cause people to commit crimes or engage in foolish actions. Nor is the presence of regulation a guarantee that people won’t violate the law or do something stupid: remember Long Term Capital Management for a perfect example of the latter. Just as no lock can keep out a thief who is determined to rob your house, regulation will not stop someone who is determined to cheat: remember Enron? How about Bernie Madoff? Regulation will, however, provide the grounds to prosecute those who do cheat. Attempting to prevent all forms of cheating merely overburdens the system.
So, if this is true, why do we have the toxic financial mess that has shaped the news for the past several months? After all, didn’t that come because of a lack of regulation on Wall Street? Well, not exactly. While better regulation might well have prevented things from getting as bad as they have, the lack of regulation is not the cause, in much the same way that the lack of a safety belt does not cause an accident; however, the use of safety belts reduces the harm caused by an accident.
What then is the cause? Sure, we’ve all heard the news about subprime loans and toxic mortgages. But those instruments had to come from somewhere. Wall Street tycoons? It’s easy to think of Wall Street as being dominated by wealthy investors who are making millions by selling bad loans, but even that’s not true. The vast majority of people on Wall Street are people just like everyone else: working men and women whose job it is to make money. Quite simply, just like any other employee in any other company, folks on Wall Street go to work each day and worry about paying the bills, taking care of their families, and doing their jobs.
Here’s the problem: what do you do when you are told to make money and the financial markets aren’t offering up opportunities? You can’t go to your manager or your investors and say, “Sorry.” That’s not what they want to hear, and if your goal in life is to keep your job, you are not likely to go there. Instead, you get creative. Just like any employee in any job, you look for an innovative solution to your problem.
Now the fact is most people are not evil. Most people will not knowingly and deliberately break the law. If there are clear regulations telling people not to go somewhere, they usually won’t go there. But if there are no regulations, or if the existing regulations are honored in the breach, that’s a different story. It’s not that people will set out to cause harm or do stupid things, it’s that focused on the short-term needs of solving their particular problems, they are easily blinded to the larger ramifications of their actions. Regulations, optimally, map out the territory: they define the box in which people should work. They prevent you from falling off a cliff and taking everyone else along with you.
So then is the cause of the problem people just doing their jobs and the financial meltdown all a tragic “oops?” No again. The problem is that the cause is not what we have but what we don’t have.
Each bull market, each economic boom, is carried forward by some form of leadership. In the 1950, it was the electronics boom. In the 1960s, it was companies like IBM and Polaroid. In the 1990s, Cisco, Intel, Microsoft, Amazon.com, Yahoo, etc. Technology leadership leads to a flowering of innovation, and a flowering of innovation leads to technology leadership. Improvements in technology lead to greater productivity and a stronger economy.
What about the bull market that ran from 2003-2007? Volumes have already been written about how little “boom” this economic boom packed. Although we did see some technological innovation during this period, for example Google, Taser, the iPod, and GPS (a technology with its roots in government spending – we’ll come back to that), for most part what we had was a commodities boom. The problem with commodities is that they don’t fundamentally change the world in the ways that technology does. They don’t leave behind a world of greater productivity or improved communications.
Now, there are many reasons cited for the commodities bubble of the past few years: China, OPEC, developing countries, etc. Let me suggest a different, and more basic, reason: there wasn’t anything else. The small amount of innovative technology we saw during that period was hardly enough to drive an economy or a stock market. But people still needed to make money; investment had to go somewhere, and it went to commodities and mortgages.What happened to the innovation?
Over the past hundred years, almost every economic boom and bull market had its roots in government spending on either innovation or infrastructure. Without providing an exhaustive list, a few highlights include: railroads at the start of the twentieth century: government investment in land and track; automobiles in the 1920s: government investment in transportation technology during WWI; electronics in the 1950s: government investment in radar and military technology in WWII combined with the development of the transistor; mainframe computers in the 1960s: investment in computer technology as part of the space program; biotech in the late 1980s: government research grants in life sciences; and, of course, the Internet, which started life as ARPANet: another government program.
Quite simply, the government investments that formed the seed of so many prior booms didn’t exist: the money wasn’t there. The argument is often, and loudly, made that low taxes are a boon to the economy because people get to keep more of what they earn and this stimulates growth. While there is a nugget of truth in this, in that if taxes are too high to being with, then lowering them will have the touted benefits. However, it is also a fact that the economy grew more under Bill Clinton than under George W. Bush. Was this despite the higher taxes during the Clinton presidency, or because of them? The traditional answer is the former; the truth, I believe, is closer to the latter.
If taxes are taken too low, then something has to give. Typically, what gets cut is basic research. Even the wars in Iraq and Afganistan are not producing remarkable new breakthroughs in technology; at least, if they are, those breakthroughs haven’t become commercial yet. For the most part, it seems as if these wars are being fought with refinements of existing technology or off-the-shelf equipment.
Some level of taxes, therefore, provides the fuel for investment in innovation and infrastructure that generates the next economic boom and bull market. This is a rather different perspective on taxes than what is traditionally said. When taxes are being funneled into the economy, they lead to growth. Taxes are an investment. Now, I don’t have exact numbers on this, but when taxes are reinvested, the money we pay in taxes is returned fivefold in our 401Ks. When taxes are cut to the bone and there is no money to invest in the future, the money we save is taken tenfold from our 401Ks. Now, again, the exact numbers are open to debate; however, I will venture to guess that most of us have lost far more in our 401Ks and IRA accounts this year than we gained in the previous two years, and far more than whatever we may have saved in taxes over that same time period.
Unfortunately, when the economy is booming, people tend to assume that it will never end: just look at any bull market in history for an example of that behavior! All markets are driven by fear and greed, and the latter dominates at the height of a boom. People start thinking about all the money they are paying in taxes; they start to see that as money being taken away, not as the price we have to pay to keep the boom going. Like fear, greed causes behavior that people would never imagine that they could possibly engage in… until they do.
Regulation provides the framework and the controls to keep the economic engine operating within tolerance. Just as a governor on an engine keeps it from redlining or stalling, regulations on economic behavior help to prevent the type of meltdown we are now experiencing. Like an engine, the governor causes a small amount of overhead; there is some loss of power. That loss is the price we pay to avoid catastrophic failure. However, regulations alone can’t do prevent all forms of failure; we need an ample supply of legitimate and economically safe ways of making money to prevent widespread fraud and abuse. On the other hand, we can’t entirely do without regulation because no matter how good things are, there will always be Enrons and WorldComs. Fear and greed both lead to illogical behavior; it’s vital to have the fences in place so that the economy won’t run off the cliff in a panic or fall victim to excessive greed.
Once we’ve prevented the economy from crashing, or at least made it less likely, we can get the engine running at capacity. Taxes feed innovation which feeds the economy: taxes are, in short, an investment in our own future. It’s time to recognize that investments are more than just something we put into a 401K and forget about. Regulation, taxes, and innovation: they are all connected. Mishandle one, you break the others.
Stephen R. Balzac, "The Business Sensei," is a consultant and professional speaker. He is the president of 7 Steps Ahead, LLC, a consulting firm helping businesses get unstuck and transform problems into opportunities.
