Act of monumental stupidity

Gosh, now here is a real candidate for the Business Bloop Award!

Presenting the second most powerful woman in the world (shame on you Forbes magazine), the one, the only (I hope), Irene Rosenfeld, chief executive of Kraft, a food company.

Having told British MPs that talking to them would be "A waste of her time", she has been rightly pilloried in the UK Press.

That, in the long term, may return to haunt her, but it isn't the real story. The real story is the insight this provides into the way in which this woman's "ignorant or arrogant" (I quote The Times, below and title) approach is going to reduce shareholder value in the long term. If Warren Buffet has his radar switched on, and if he has Kraft holdings he should sell, NOW, or otherwise avoid. Why?

Here is a quote from The Times, Ian King, 28th May 2011 -

Two months ago, to coincide with the latest Select Committee hearing, The Times prepared a detailed investigation into Kraft’s stewardship. With the co-operation of some of Mrs Rosenfeld’s leading lieutenants, we revealed that more than 120 of Cadbury’s top 160 executives had left since the takeover.

Many of them said that Kraft was a hidebound, bureaucratic company that reminded them of Cadbury a decade earlier.

That culture, along with the management departures, is now starting to have an impact on Cadbury’s performance. Kraft’s latest figures revealed that Cadbury’s sales have shrunk in all key regions aside from some emerging markets where the business ought to be performing much better. Kraft has proved to be as lousy a custodian of Cadbury as many people feared it would.

Very simply, Kraft is exhibiting exactly the results we have long predicted in this Excellence Quartet series of blogs for any such takeover where a company with low Comparative Competitive Strength (but substantial financial mass) sets out to acquire companies with greater Competitive Strength in the naive belief that it will strengthen its own position. There are two, almost inevitable, results.

First, the Lowest Common Denominator effect - the acquirer rarely understands what has made its target outperfom its own figures, so instead of learning, it applies its own (usually lower) managerial, operational and quality standards so that performance within the newly acquired business quickly slumps to its own level of capability. Kraft have done this in record time.

Second, the Market Quality Dilution - the acquirer soon finds that profitability is not what it had expected (see the first effect), especially when the loan cost of the acquisition is loaded onto the target's balance sheet, and then does the only thing it knows how to do, it cuts delivered quality, value for money, to its customers. That has already started, and soon Cadbury's market share will start to plummet.

So, Irene, you qualify for the Business Bloop Award three times -

First, the wrong acquisition for the wrong reason - trying to conceal the really weak Comparitive Competitive Strength of Kraft by "cooking the balance sheet" through opportunistic M&A. You aren't the first "leader" to use this ploy to distract attention from the lack of internal competence within a business, but like other super arrogant CEO's, e.g. Fred Goodwin, there will be tears before bedtime

Second, you have missed an enormous opportunity to learn how to raise the Comparative Competitive Strength for the whole of Kraft, and that in the long term, will seal its eventual doom as it is slowly yet inevitably eaten alive by its competition.

Third, by behaving in such a really silly way with British MPs, you have drawn attention to yourself, rather than Kraft - and the more people look, the more they will see.

There is a famous song about "Irene" - but I won't be seeing her in my dreams, she really is a nightmare.

Business Bloop Award is brought to you by Steve Goodman and Tony Ericson partners in Achievement Coaching International where we help businesses to learn different thinking to enable different actions that deliver the different results thatMake a Big Difference.. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at "Exceeding Expectations", "You're having a laugh ... seriously?" and "Capitalism or ... Common Sense".

Bloop Award - 2009 Winner Reaps the Whirlwind

In April 2009 we awarded Bloop of the Month to National Express for the shambles it made both failing to run the East Coast line as a viable business, and then on its messy expulsion. We asked whether there had been a triumph of ego over competence and whether anyone had attempted to properly assess the Competitive Strength of the business before or during the debacle.

Well, it is “Told You So” time again – from The Times on 6^th May 2011

Yesterday National Express admitted that it may not have a future in the railways.

The admission by the company’s chief executive follows the recent failure of National Express to make the Department for Transport shortlist for a new East Anglia franchise, the London Liverpool Street-based operation that it currently operates.

The East Anglia rejection means that National Express has only one train franchise left — the smaller c2c commuter service between London’s Fenchurch Street and Southend. ………..

Questioned on the comments made in a statement to the London Stock Exchange, Mr Finch told The Times: “This is a reflection of the reality. Not so long ago this company had nine rail franchises. It will soon be left with one.”

Mr Finch conceded that the failure to upgrade its management systems to the EFQM European benchmarking standard (my bold emphasis) demanded by the DfT meant that National Express had effectively “disqualified itself” from retaining the East Anglia franchise. “We scored badly on the DfT’s management modelling. Others scored better,” he said.

As we repeatedly point out in our Excellence Quartet blogs, it is a fact, proven by the most robust research, that companies that win Excellence Awards massively outperform the average in every financial dimension. These awards encompass not just operational competence but also management and staff commitment, attitudes, behaviours and values. Modern business leaders are beginning to understand the real significance and impact these “intangible” human factors have on the potential survival and prosperity of their business.

Recently they have come under pressure from a major "activist" shareholder, Elliott Management, who have accused the board of "lacking drive and ambition". We don't believe this is the real problem. What is totally clear that the current management of National Express are as uninformed as their predecessors since they point to this massive loss of business opportunity and shareholder value – not being able to run your core business is an enormous and truly shocking failure, make no mistake – as being down to a “Compliance Failure”! They are demonstrating that they see EFQM scoring merely as “some form of benchmarking” – rather than a fundamental understanding of the most powerful value adding way to run a business. This shows that they cannot even spell the word “Quality” let alone understand its commercial value. For any business leadership in 2011, such ignorance is almost as astounding as believing that Elvis is Alive.

National Express is a business that we had thought could be rated as Comfortable, at best. It is now clear from its leadership attitudes, behaviours and values that its Comparative Competitive Strength is at the bottom end of Constricted – the gateway to The Abyss. Any potential investor will need to be very cautious indeed – if the same attitudes, behaviours and values permeate the organisation this is a very high risk environment.

So we award our first business Bloop Award of 2011 to National Express – the company that can demonstrate, right from the very Top, that it really does not understand the significance of Quality.

If you have not yet found out why Quality matters, read more of our blogs (the links are in the right hand column) or contact us at Business Breakthrough Coaching.

(Click here to read the 2009 article)

Business Bloop Award is brought to you by Steve Goodman and Tony Ericson partners in Achievement Coaching International where we help businesses to learn different thinking to enabledifferent actions that deliver the different results that Make a Big Difference.. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish regular articles using a recent business/financial topic to highlight different perspectives and conclusions to those obtained by conventional thinking and techniques. You can read the other three blogs at "Exceeding Expectations", "You're having a laugh ... seriously?" and "Capitalism or ... Common Sense".