A-B & Dell turn perfect storms into survival stories

Sunday, June 26, 2005
St. Louis Post-Dispatch Business
"Massive turmoil is the perfect time to make major changes that reflect the company's capabilities"


In late 2003, I gave a presentation to the presidents of 63 metal fabricators. At the beginning of that presentation, I defined a perfect storm as business results that are significantly worse than your most pessimistic forecast.

I then asked them to raise their hands if their company was going through a perfect storm or had gone through one in the last two years. All but two raised their hands.

Those companies were being hammered by the recession and competition from China. They were in a tough industry. Even before the perfect storm hit, some had only marginal profitability. Those companies were worried about surviving.

I told them that a perfect storm is the perfect time to make major changes. A lot of people hate change. So major change doesn'tt happen in an organization until the pain of change is less than the pain of not changing. During a perfect storm, people welcome change because they understand the consequences of not changing

Perfect storms allow companies to take the two steps necessary to thrive. First, senior management must develop a strategy that reflects the company's capabilities, its passions, and its brutal competitive realities. Then management must get everyone working together to implement the strategy. These changes require culture change, different incentive systems, and different people. Implementing these changes can create the storm’s silver lining. Anheuser-Busch in 1976 and Dell in 1993 are examples of companies that are qualitatively better than they would have been if their perfect storms had never happened.

In 1971, the year Philip Morris bought Miller Brewing Company, A-B outsold Miller by five to one. However, Philip Morris's money and brand management skills changed the industry. By the end of 1976, Miller was on course to pass A-B in 18 months.

August Busch III decided he wouldn't allow that to happen. He appointed Denny Long as his chief operating officer. Together, they hired sophisticated and aggressive young marketers and dramatically increased the marketing budget. A-B targeted 21- to 27-year-old beer drinkers and changed every element of its marketing mix, including sponsoring 80 percent of the professional sports teams in America. A-B'ss wholesalers geared up for war with Miller. Then A-B introduced Bud Light.

The result? By 1987, A-B's stock had increased by more than 900 percent, and it outsold Miller by two to one. A-B's market share today is eight points higher than if Miller had never challenged them.

In early 1993, Michael Dell was 28 years old. He was the CEO and largest stockholder of Dell Computer, which had a market value of nearly $2 billion. Dell Computer was filled with other young senior executives, who were rich from stock options. The culture was undisciplined and arrogant.

Then Dell introduced a portable computer that quickly failed. At the same time, Compaq launched a price war.  Dell's CFO resigned over questionable foreign-exchange trading. Dell's stock fell 72 percent in six months. Wall Street questioned whether Dell would survive.

Michael Dell used this perfect storm to transform his company. He hired gray-haired senior executives and brought in consultants from Bain for strategy and Fleishman-Hillard for public relations. They implemented disciplined systems. Sales and marketing went from Animal House to corporate..  Dell‚'stock today is up more than 180-fold from its 1993 low.

Companies don't have to wait for a perfect storm to take action. Waiting until the storm hits makes it easier to make major changes.

But the costs increase dramatically. Anheuser-Busch, Build-A-Bear Workshop, and Spartech, three St. Louis companies I greatly admire, currently face challenges they could use to make major changes before the full impact of the storm hits.
A-B's primary challenge is a resurgent Miller Brewing Company, which for the first time in 20 years has effective marketing. Also, distilled spirits are gaining share with younger consumers.

Maxine Clark, the ‚ Chief Executive Bear at Build-A-Bear, is one of the leading marketers in St. Louis. But Build-A-Bear cut its second quarter profit outlook by about 45 percent, and its same-store sales are expected to be flat vs. 12.9 percent growth in the same quarter last year. The stock fell from the mid-30s to the low 20s.

Spartech, a leading producer of specialty plastics, grew profits by 30 percent annually in the 1990s. It had a compelling strategy of acquiring complementary companies formed by the World War II generation. The stock fell over 50 percent in 2000 and has been erratic since then. On May 9, Spartech announced the retirement of Bradley Buechler, after 14 years as CEO. After five weak years, Spartech needs new CEO George Abt to revise its formula for growth.

Commodity industries in the United States declined for decades but are doing great today. High demand from China has led to shortages and high prices. But companies in these industries are simply in the calm at the center of the storm. They need to take aggressive actions now so they survive and thrive when the shortages ease, prices decline, and the storm resumes with full force.

Taking those aggressive actions is not easy. But answers do exist. Your company can emerge stronger than ever. And you and your people who make it happen will look back on it with pride for the rest of your lives.

 

 

Bill Finnie, a business consultant and adjunct professor at Washington University, writes about the do's and don'ts for success.

E-mail BIll This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

The St. Louis Post-Dispatch and William C. Finnie share the copyright on this column. Individuals and their organizations may use these columns for their internal use. Publication for use outside of your organization, however, requires written permission from the St. Louis Post-Dispatch or William C. Finnie.