What makes some companies thrive while others struggle?
Photo: Lexcelsior. Source: Animal Photos
We see lots of examples in the marketplace: Facebook created the dominant digital social network, while other platforms—MySpace, Friendster—never took off. Costco has grown as a discount club while Wal-Mart struggled. Johnson & Johnson has succeeded across a range of health-care businesses, while others faltered—brought down by scandals or shrinking markets. What’s the difference?
It comes down to management. Successful companies need visionary leadership—leaders that create a sense of community where their people have a chance to grow and develop, to try out new ways of doing things, where workers know that someone takes a genuine interest in them—not only as workers, but as people, too.
The military has a phrase for this: “officers eat last.” The higher ranking you are, the further back in the chow line you’re supposed to stand. The brass may represent the brains, but the enlisted folks are the brawn. Without enlisted men and women, there’s no need for officers. The attitude of those on the front lines is critical to any mission’s success. And morale can’t be commanded. It has to be nurtured.
Photo: Mary Vogt. Source: Morguefile
But leadership isn’t enough. To succeed on the battlefield, a unit can’t just believe and trust in its commanders. It also has to be going in the right direction. Having the right strategy is critical. Steve Ballmer was seen as a visionary leader at Microsoft. But they missed to boat on mobile applications and devices. Their software become over-engineered with “feature-creep” that made it confusing and difficult to use. And they focused on their desktop platform for too long. During his tenure at the helm, Microsoft became a wealth-destroyer.
Leaders inspire their people to outperform because they present a vision that’s bigger than themselves. But they need to be going the right way. Proctor & Gamble had a vision for where they wanted to go when they acquired Gillette. They paid a very high price, and the market was skeptical that the acquisition would be successful. But P&G used its expertise to create an ecosystem of shaving products around the already-dominant shaving brand, and the merger created value for everyone: consumers, employees, and shareholders.
An important investment theme is quality. When investors look for quality companies, they need to look beyond the bottom line: return on assets, cash-flow management, financial structure. Those metrics are important, but they’re not enough. We need to look at people across the firm to see if they’re inspired—and inspiring others—to move in the right direction.
Douglas R. Tengdin, CFA
Chief Investment Officer