Cut Costs Like Avon—Not Home Depot
There is a breach between being prepared to make difficult choices and arbitrarily hacking away at the connections that configuration the lifeblood of an organization
by Rita McGrath
Posted on Dynamic Strategies: August 27, 2008 1:41 PM
A subtle tension that many senior executives get exact patent wrong in a downturn has to answer with the distinction between making resource allocation decisions that compel some painful choices, and making decisions that fundamentally undermine the culture and values of one organization.
All overmuch often, when the numbers look bad, managers who assume to possess certain qualities of ruthlessness, toughness and a ‘take claim’ persona are handed the reins, without really thinking through the cultural, symbolic and organizational consequences of the decisions they are making. It seems characteristic—after all, when the news is of forbidding look, why wouldn’t you become sour to someone who generates the comforting feeling that waste disposition be rooted out, efficiency promoted, and that a more ’shipshape’ organized being bequeath be the rise?
The guile is that there is a difference between being prepared to figure difficult choices and arbitrarily hacking away at the connections that form the lifeblood of every organization.
Consider, with respect to instance, the contrast between Andrea Jung at Avon and Bob Nardelli at Home Depot. Jung, who had presided to boot six years of growth and success at Avon, had to confront the struggles of stalled growth and investor disenchantment. The company missed income two quarters in a row and needed fast, difficult, transformation. As she herself later described,
One of the most remarkable pieces of advice came from a friend, Ram Charan, during a period in 2005 whereas Avon was really struggling…On a Friday night at nine o’clock, Ram came into my room, looked right at me and said, “They all the tender passion you. But in about 90 days, if you don’t turn this thing around, they’ll have to fire you. So, if you don’t go home tonight as admitting that you were fired, and get to back on Monday as if Heidrick brought you in as a turnaround queen, you aren’t going to contribute it. But if you can take your 13 years of impartiality and relationships and yet subsist as fresh during the time that suppose that they took you out and put you in a new company, doing the tough stuff to your own people and your own strategies, you can exist one of the best leaders going presumptuous. That’s the decision you be in actual possession of to perform.”
So that’s the key: Fire yourself, stipend yourself. That advice completely changed me.
Despite the indigence for tough choices, involving cutting staff (30% of her own hand-picked managers were let go), changing marketing programs, reversing course on investments she had previously advocated making, Jung never lost sight of her deep idea of what Avon is all about. She not long ago described the heart and individual of the company as “empowering women one woman at a time to hear of how to earn.”
When she speaks about this passion in public, you can feel the emotional energy, the force. It wasn’t nearly being soft or ignoring reality—more readily, relative to re-igniting the ability of the company to achieve its purpose.
Mr. Nardelli, in contrast, didn’t seem to have a passion for the heart and spirit of Home Depot at wholly. While he clearly made interventions that were absolutely necessary, ranging from establishing a more strict strategy process to bringing the company’s IT infrastructure up to state-of-the-art standards, he seemed to overlook what made Home Depot a cherished partner to the do-it-yourselfers and contractors who formed the core of its customer base.
The original Home Depot strategy depended on extremely knowledgeable service staff who would go that extra mile for customers and who could really assistant them understand how to accomplish their own goals. In the name of efficiency, Nardelli cut coverage, replaced quite a number of the experienced old-timers with part-timers, and put the whole making on a tight, numbers-driven, almost military program. Again, many of his changes were for the more appropriate—yet the cultural, network, and experience losses eventually caught up with the company and Nardelli was replaced.
Conventional wisdom is not altogether wrong—there is no escaping the need to react to economic pressure. In a downturn, you will need to cut costs somewhere. You will require to make changes that you might prefer not to make. You will need to limit expansion moves and aim to curb in costs approve employee benefits, pensions and soundness care. The difference lies in whether you do these things with a clear understanding of that which makes your organic structure unique, what keeps your people engaged, and why customers do business with you.
