Executive Times

Volume 10, Issue 5

May 2008

2008 Hopkins and Company, LLC

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Stumble

If we trip on the sidewalk, we could end up with a scrape, bruise, sprain or a break. If we’re like the most successful executives, our stumble may put us off balance for a bit, but we recover balance and momentum quickly and stride ahead. The opportunities to stumble seem to be increasing for executives in most organizations. Long supply chains and high transportation costs are wreaking havoc for some, entering new markets while facing recession at home can be perilous, and any lack of strategic clarity can cause an organization to drift. On that happy note, this issue explores some of the ways in which these challenges are being managed, and presents some hope that a stumble will not lead to disaster. As you read this issue, think about your preparedness in facing those things that might trip you up on your chosen path to success.

Fifteen new books are rated in this issue, beginning on page 5. Two books are highly recommended with four-star ratings; twelve are recommended with three-star reviews; and one book is rated with a two-star recommendations. Visit our 2008 bookshelf at http://www.hopkinsandcompany.com/2008books.html and see the rating table explained as well as explore links to all 273 books read or those being considered this year, including 28 that were added to the list in April. If there’s something missing from the bookshelf that you think we should be considering or if there’s a book lingering on the Shelf of Possibility that you think we should read and review sooner rather than later, let us know by sending a message to books@hopkinsandcompany.com. You can also check out all the books we’ve ever listed at http://www.hopkinsandcompany.com/All Books.html.

Unrelenting

General Electric Company’s annual meeting on April 23 came two weeks after the company announced weak first quarter results that led to the largest one day selloff of company shares in twenty years. It came as no surprise to many observers that CEO Jeffrey Immelt tackled the performance results head on in his comments to shareholders at the meeting, and reinforced his unrelenting efforts to continue the strategy and produce improved results. Here’s an excerpt from his remarks (http://www.ge.com/investors/events/shareholder_address_2008.pdf): “We have built a stronger GE. That is good, because we are in a very difficult environment. We are in the toughest economy since 2001 and the worst housing crisis since the depression. … While I am confident about the economy long term, we could see even more difficult times ahead. GE has not been immune. We had a tough first quarter 2008, below last year and our own expectations. … We are disappointed that we will not hit our 10% earnings growth goal, particularly after we said that we could. This has triggered a tough reaction and it should. I can assure you that we look in the mirror and ask ourselves some very tough questions. We do this every day. But we will not let others define our future. We are a performance Company. We learn from our successes and failures to get better. Meeting our financial commitments is important to our investors and our culture. We are making the appropriate changes in our operations and planning processes to ensure that we deliver for you. … We will continue to be tough minded on performance. Since I became CEO, 60% of our top 185 leaders are new. You must be a high-tech, global, customer-oriented leader to play on this team; and you must perform with integrity.

This is not a company that makes excuses. What we are is a great company that had a tough quarter. I think it is important to separate this quarter from the underlying strength of the Company. …This Company is very strong. What should you think about the stock price? Over the past five years, earnings have nearly doubled, but our price to earnings ratio has declined 50%. Our PE ratio today is about the same as it was in the early 1990's. One driver of the lower PE ratio is our exposure to financial services. And we will continue to trim our exposure to the most volatile pieces of this industry. But we have great financial service businesses that drive high returns and outperform the competition. When you think about the company today, there are many reasons to invest. Even our reduced earnings growth estimate should still exceed the S&P 500. We have a dividend yield of 4%. And, at our current PE ratio, there should be upside as we perform. Investors have been very patient. We run GE based on your trust. But you don't want me to be CEO of your company if I don't have the courage of my convictions. This Company needed to change, and we are improving it every day. My belief in this Company is unshaken. We have the right team and we have the right strategy. From here it is all about execution … solid earnings, organic growth, expanding returns, generating cash. And we will deliver for you. We believe in our strategy, and will not turn back.” When Immelt made this comments, he was certainly aware of what his predecessor Jack Welch had to say on CNBC (http://www.msnbc.msn.com/id/24163368/) about what he would do if the company missed earnings targets again: “I’d be shocked beyond belief, and I’d get a gun out and shoot him if he doesn’t make what he promised now. Just deliver the earnings. Tell them you’re going to grow 12 percent and deliver 12 percent. … Jeff has a credibility issue. He’s getting his ass kicked.” Ouch. For the second quarter, will we see the company achieve the promised earnings target, or will Immelt have to file for an order of protection from his predecessor?

How unwavering would you be to your strategy when faced with surprising negative results? When your critics include the person who put you in your job, how would you react? How clearly do you separate for those with whom you work the poor outcomes from the good processes and strategy? How quickly can you recover from a setback?

Unchained
Those who think that running a complex conglomerate like GE with assured predictability has become impossible may observe that the many organizations that rely on business partners to complete their supply chains may also be impossible to run without surprises. Boeing announced on 4/9 (http://www.boeing.com/news/releases/2008/q2/080409b_nr.html) that it has pushed back the first flight of its 787 Dreamliner from 2Q2008 to 4Q2008 and first delivery is now planned for 3Q2009. These changes were the result of “a comprehensive assessment of its supply chain and production system capabilities.” We read in the current issue of Chief Executive how companies are dealing with supply chain challenges (http://www.chiefexecutive.net/ME2/dirmod.asp?sid=&nm=&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&id=92315D1776A7437DAC40E49A81A1CD74&tier=4): “Boeing’s problem with its supply chain is emblematic of a challenge all U.S. companies now face: managing supply chains that are longer and more convoluted than ever before. For any given product, raw materials can be sourced in Africa, refined in India, produced in China, assembled in Mexico and finally distributed in the U.S. Today, however, the biggest problem—faced not only by manufacturers but also by service companies like restaurants—is the rising cost of the supply chain. This is not necessarily because of the manufacturing piece of the chain, which can be performed in low-wage countries such as China, but because of the rapid rise in transport costs. … ‘Businesses will continue to span supply chains across the globe,’ avers Dan Brutto, president of UPS International. ‘However, rising fuel costs are driving companies to move away from a “one-size-fits all” approach to transportation management and toward implementing a multi-modal strategy that reflects product value, life cycle and handling characteristics at stock-keeping unit level. The side effect is that supply chains are becoming more agile and more closely matched to strategic business plans.’ … Companies need to look at the supply chain ‘holistically,’ affirms Rajan Penkar, vice president of global solutions and implementation for Atlanta, Ga.-based United Parcel Service Inc. Managing the supply chain is not just about manufacturing, but the entire landed cost of the product, including transportation, distribution and inventory. … Part of the problem in today’s global business environment is that supply chains can be 10,000 miles long. Not only does that increase the risk of something going wrong— earthquake in China, political turmoil in Indonesia, shipping accident in the Pacific, longshoreman strike in Long Beach—somewhere along those 10,000 miles, but with oil prices pushing $100 a barrel, transport expenses tumble out of control because at every mile more energy is being used. … Yossi Sheffi, director of the Massachusetts Institute of Technology’s Center for Transportation and Logistics … asserts… ‘The main problem in supply chains is that many more things can go wrong because there are many more participants, and it takes more time to get something to market. Furthermore, you have to forecast the need of the consumer weeks or months ahead of the buying period, and by the time you make the stuff, ship, store, ship again, store again, get it to the store shelf, the consumer wants something else.’” Managing complex supply chains appears to be like herding cats, and those companies with long and complex chains are likely to face frequent surprises.

How well-informed are you about the business processes and risks you face because of your links to an array of business partners? How much of your business results depend on their actions? How predicable can your results be when you are unaware of what others are doing? When others stumble, do you get hurt?

Unending

Good to Great guru Jim Collins has an article in the May 5 (the 500) issue of Fortune titled, “The Secret of Enduring Greatness” that provides hope for those executives trying to recover after a stumble. (http://money.cnn.com/2008/04/18/news/companies/enduring_greatness.fortune/index.htm?postversion=2008042113) Here’s an excerpt, “Just because a company stumbles - or gets smacked upside the head by an unexpected event or new challenge - does not mean that it must continue to decline. Companies do not fall primarily because of what the world does to them or because of how the world changes around them; they fall first and foremost because of what they do to themselves. … It doesn't matter what lens we look through - the lens of those that go from good to great, the lens of zero to great in exciting new industries, or the lens of those that prevail in adversity and last 100 years - one lesson stands out: Whether you prevail or fail, endure or die, whether you make it onto the Fortune 500, and whether you stay there, depends more on what you do to yourself than on what the world does to you. … When you've built an institution with values and a purpose beyond just making money - when you've built a culture that makes a distinctive contribution while delivering exceptional results - why would you surrender to the forces of mediocrity and succumb to irrelevance? And why would you give up on the idea that you can create something that not only lasts but also deserves to last? The best corporate leaders never point out the window to blame external conditions; they look in the mirror and say, ‘We are responsible for our results!’ Those who take personal credit for good times but blame external events in bad times simply do not deserve to lead our institutions. No law of nature dictates that a great institution must inevitably fall, at least not within a human lifetime. That most do fall - and we cannot deny this fact - does not mean you have to be one of them.” Whether Collins is right or wrong, he brings hope to those executives trying to avoid a permanent fall.

Is what you’ve created likely to last? Does it deserve to last? Will you and your organization be one of the survivors? What are you doing to make that happen?

Follow-up

Here’s an update on stories covered in prior issues of Executive Times:

Ø In the January 2006 issue of Executive Times we noted how Disney CEO Bob Iger was disassociating himself from his predecessor, Michael Eisner. Here’s what The Economist said about this in the 4/17 issue (http://www.economist.com/business/displaystory.cfm?story_id=11058438), “Mr Iger's management style is said by many to have unlocked Disney's creativity. ‘There was already creativity inside Disney, but Bob removed the barriers to it,’ says Peter Chernin, chief operating officer of News Corporation, a rival media group. ‘Michael Eisner was all about his own creativity,’ says Stanley Gold, a former Disney board director who led a campaign to oust Mr Eisner in 2004, referring to the way in which the former boss meddled in the detail of Disney's parks and movies. In contrast, he says, ‘Bob pushes creative decisions to the people below him.’”

Ø Many issues of Executive Times encourage a clear articulation of corporate strategy to keep everyone aligned with what fits and what doesn’t fit the company’s planned approach for achieving success. One of the best articles on this topic appears in the current issue of Harvard Business Review titled, “Can You Say What Your Strategy Is?” by David J. Collis and Michael G. Rukstad. (http://harvardbusinessonline.hbsp.harvard.edu/hbsp/hbr/articles/article.jsp?ml_action=get-article&articleID=R0804E&ml_issueid=BR0804&ml_subscriber=true&pageNumber=1&_requestid=67288) Here’s a grabber on why to read it: “Can you summarize your company’s strategy in 35 words or less? If so, would your colleagues put it the same way? It is our experience that very few executives can honestly answer these simple questions in the affirmative. And the companies that those executives work for are often the most successful in their industry.”

Legacy

Unwavering
Some individuals are unwavering in focus. Few can match the intensity of Jerry Zucker, founder, chairman and CEO of The InterTech Group. A self-made billionaire with more than 350 inventions and patents, Zucker died in late April of cancer at age 58. We read after his death (http://www.charleston.net/news/2008/apr/14/zuckers_family_urges_continuation_works/), “Friends said much has been made of Zucker's wealth, but he only considered it something that helped him achieve his goal of helping as many people as possible. … Even in his final days, he worried more about helping others than his own dwindling health, Synagogue Emanu-El Rabbi Robert Judd said. 'He shared with me his worries that he hadn't done enough, that he didn't do enough to leave the world in a better state than he found it. … There is no doubt he left the world a better place,' Judd said of Zucker. 'It's now our duty to carry on the work Jerry began.' … 'In honor and memory of my father, I challenge each of you to do something to make the world a better place,' eldest son Jonathan Zucker said.” Jerry Zucker gave away millions in quiet ways to help people around the globe. His unwavering focus on helping others provides a role model for all.

Latest Books Read and Reviewed:

(Note: readers of the web version of Executive Times can click on the book covers to order copies directly from amazon.com. When you order through these links, Hopkins & Company receives a small payment from amazon.com. Click on the title to read the review or visit our 2008 bookshelf at http://www.hopkinsandcompany.com/2008books.html).

Title (Link to Review)	Author	Rating	Review Summary	Purchase
Life Class	Barker, Pat	***	Ambitions. Suffering art students in London find the real lessons in life come outside school, especially with the onset of World War I. Fine descriptive language and realistic dialogue.
The Ghost War	Berenson, Alex	***	Power. Second novel reprises John Wells, whose post-heroic job is at a CIA desk. He jumps at a chance to return to the field as the author riffs on power, and Wells’ character develops, albeit with a return to his heroic exploits.
The Silver Swan	Black, Benjamin	***	Justice. Second mystery novel from John Banville using a pseudonym reprises Garret Quirke, Irish pathologist, who broods along trying to solve a murder and see that justice is done. Read on a sunny day to offset the gloom.
The Brief Wondrous Life of Oscar Wao	Diaz, Junot	***	Family. Finely written debut novel features nerdy Oscar de Leon and his family in the USA and the Dominican Republic, including their troubles under the regime of President Rafael Leónidas Trujillo.
The Gathering	Enright, Anne	****	Falling. Superb novel uses the occasion of the death of the narrator’s brother to present a freefall experience of the lives and losses of a large Irish family, the memory, the drink, England, and more.
Pop! Why Bubbles Are Great for the Economy	Gross, Daniel	***	Infrastructure. Lively and counterintuitive argument on how some bubbles have left behind usable commercial infrastructure, and so can be good for the economy.
20^th Century Ghosts	Hill, Joe	***	Fresh. There’s a sense of wonder that permeates each of the 14 stories in this collection, most of which contain an element of horror or science fiction, and plain good writing.
Ellington Boulevard: A Novel in A-Flat	Langer, Adam	***	Real. Set in a changing New York neighborhood, we find a likeable cast of characters living life to the fullest in relationships and in real estate.
Freedom For the Thought That We Hate: A Biography of the First Amendment	Lewis, Anthony	***	Liberty. A lively and interesting presentation of the two hundred year history of the first amendment, how it has been interpreted, and what it means today.
The Education of an Accidental CEO	Novak, David	***	Likeable. Light and pleasant wisdom from a CEO who doesn’t take himself too seriously, and seems very comfortable with being who he is, and proud to share what he’s learned with readers.
The Thing About Life Is That One Day You’ll Be Dead	Shields, David	***	Captivating. Whether you’ve been thinking about death or not lately, this far from maudlin book becomes captivating as Shields presents biological facts and personal anecdotes.
Windy City: A Novel of Politics	Simon, Scott	***	Affable. A Chicago political love story featuring an alderman who finds himself as acting mayor. Good diversionary and funny entertainment in a serious political year.
Touch and Go: A Memoir	Terkel, Studs	***	Memories. Terkel’s writing style has the same rhythm as his speaking style, and it’s easy to listen to and understand his presentation of his memories as a form of history, with lessons for all.
The Geography of Bliss	Weiner, Eric	**	Xanadu. Often funny anecdotes of author’s search for the source of happiness in those places where people are known to be happiest.
The Bush Tragedy	Weisberg, Jacob	****	Junior. Shakespearean quotes begin each chapter of this reflection on George W. Bush, with heavy doses of superb writing and amateur psychological insights into Bush’s behavior, especially family relationships.

2008 Hopkins and Company, LLC. Executive Times is published monthly by Hopkins and Company, LLC at the company’s office at 723 North Kenilworth Avenue, Oak Park, Illinois 60302. Subscription rate for first class mail delivery of the print version is $60.00 per year (12 issues). Web version subscriptions are $30.00 per year. Single issues: $10.00 print; $5.00 web. To subscribe, sign up at www.hopkinsandcompany.com/subscribe.html, send an e-mail to executivetimes@hopkinsandcompany.com, call (708) 466-4650, or fax to (708) 386-8687. For permission to photocopy or e-mail Executive Times, call (708) 466-4650 or e-mail to reprints@hopkinsandcompany.com. We will send sample copies if requested. The company’s website at http://www.hopkinsandcompany.com/archives.html contains the archives of back issues beginning in the month after the issue date.

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