CREATING A CULTURE OF CHANGE, INNOVATION AND PROFITABILITY
Culture in terms of a business is defined as the ideas, customs, and behavior of an organization. A company’s culture directly affects its reputation, valuation and hence profitability. In an era where social media reigns supreme and reputations can be made and destroyed by the careless release of ‘news’, special attention should be given to how a business is portrayed, seen by the public and what the effects are on financial results and profitability.
A company can re-invent itself and thrive on change. There have been many successes over the years. A prime example is Apple, now valued at over $1 Trillion (the first company to achieve this). Many great companies have been acknowledged for their results over the years: GE, Microsoft, Walt Disney, Boeing, Pepsi to name a few. However, over the years there have been cases where businesses re-invented themselves, grew and achieved results beyond expectation. Let’s look at three examples:
- Walgreens – Walgreens was a restaurant chain with over five hundred restaurants. Charles ‘Cork’ Walgreen transformed the company from the hospitality business to drugstores. Walgreen made the announcement at a planning meeting and set a target of five years to re-invent the business. He never wavered and remained committed to his vision. From 1975 to 2000, Walgreens outperformed the stock market by over fifteen times. Today, Walgreens has over 9500 stores and over 400 healthcare clinics. Annual revenue is a staggering $131 Billion.
- Kimberley-Clark – Darwin Smith was the CEO of Kimberley-Clark for 20 years. During his tenure, stock returns were over 4 times the general market. Two months after becoming CEO, he was diagnosed with cancer and given less than a year to live. Instead of living out his last year peacefully, he decided to rebuild the company whose stock had been outperformed by the market for the past twenty years. He decided to sell the paper mills and change the core business to consumer products. The announcement was called stupid and analysts downgraded the stock. In the next twenty years, Smith turned the company into the world’s leading paper consumer goods business. Smith died 25 years after his cancer diagnosis. Today, Kimberley-Clark has 43,000 employees and its net worth is $38Bil.
- Gillette – Colman Mockler was the CEO of Gillette from 1975 to 1991. During that time, Revlon made two aggressive bids for the company. Had Mockler accepted the offer, shareholders would have made an immediate 44 percent return on their shares. Instead, Mockler turned the offer down as he believed that he could turn Gillette into a great company. He invested in research and development and innovation. The new systems (which became Sensor and Mach 3) turned the business around. In 1999, Gillette was valued at $43Bil and the brand was worth $17Bil. In 2005, Procter & Gamble purchased Gillette for $57Bil.
Why have these companies succeeded where others have failed?
They all have the same traits in common:
- Dynamic leadership. All three men were humble men who believed in their company and people. They led by example.
- A willingness to accept change to the extent of re-inventing themselves.
- Financial achievements which outperformed all expectations.
It has become common to see companies which have been running at a loss for over ten years, release a statement that the company will never make a profit and yet given a valuation of ten times revenue. This is not sustainable. Eventually, the well will run dry and those businesses will no longer exist. There is no substitute for solid fiscal dynamics and profitability. Arbitrary and often optimistic valuations are fine but not a substitute for cold hard cash in the bank.
A bold visionary approach is required. An approach which requires a solid business foundation, a willingness to innovate, adapt and execute. This culture starts at the top and filters down to the various layers of leadership. One person cannot do it all, but it takes one person to make a start.
What is the winning formula? Humility and Drive.
When Darwin Smith finally retired, he was asked to comment on his winning formula.
His reply was: “I never stopped trying to become qualified for the job”.