Reflections on the Demise of Borders—Is there a lesson to be learned?

I was saddened to hear of the long-awaited bankruptcy filing by Borders, the book seller, last week. They will be closing the Mt. Prospect (Illinois) store where I have spent many evenings slowly exploring their many shelves for book, periodical and music titles of interest. I usually found what I wanted, and Borders probably has me on a list somewhere as a good customer—or at least oft-present. I found their stores pleasant places to visit with an unhurried atmosphere, helpful staff and thousands of on-hand and colorful titles. I liked them much better than their competitor although they looked a whole lot alike. Pure and simple, Borders was book store before anything else. And what made it a pleasant place may have ultimately been their Achilles' heel. I understand they grew from the Walden chain that populated mall spaces for many years and at one time they had over a thousand stores. They started as book stores, but as often happens in such situations; they likely found that they had evolved into a pretty large book merchant that also had a bunch of stores. As they grew, they would have started to exercise significant power over publishers and large distributors, and newly-hired company marketing experts surely began to use such foreign terms as "sales channels," "virtual," "branding" and "brick and mortar."  Pretty heady stuff. At some point in time it is likely that Borders had to make a business-changing decision—what are we: a book merchant or a chain of book stores? Based upon their decision, the next actions and the future would be quite different. For example: If I am a book merchant, I recognize that the book stores are merely a single sales channel for the core-merchandising business. That channel must perform to set standards, or be modified, shunned or closed.  In this case, marketing is a more important function than chain operations. If I am a chain of book stores, I must operate my chain in an effective & profitable manner, get books from the best outlets and sources available (including the Borders' book buyers, or not), survive with lower margins and broaden the product line to appeal to (and leverage upon) my walk-in customer. [Their coffee was pretty good.] In this case, chain operations rein as the top company function. Now I have never studied Borders and know nothing of their internal operations (other than as a customer), but I sense is that they came to that fork in the road and "took it," as Yogi Berra used to say. And since being a bookstore was in their DNA, they became a chain of book stores by default. This is somewhat supported by the fact that a decade ago Borders gave up control of its "virtual" (internet) sales channel to Amazon for a couple of years before they realized its error. (Borders who?) Those of you who interface with Wilkening & Company or regularly read these pages know that I am a strong believer that every company should develop a brief one-page statement of strategy (intent) that unambiguously states four truths about the direction of that company: Products or services to be offered; Customers to be served; What the company would like to be known as now, and 3-5 years from now; and How will we know we have won? While I was not there, I sense that if someone on the Borders' Board of Directors had asked the CEO to rigorously decide (and defend) whether Borders was a book merchant or a bookstore, there would not have been a bankruptcy filing last week. And, I could still go to my favorite book store in Mt. Prospect and rummage through the titles. If such a Board meeting happened, I wish I had been there! I hope Borders survives in the long run, but my interest is academic for they closed my bookstore.

How to Price Those Unique Multi-Role Jobs

How do you pay a unique and multi-role job? That is one of the biggest challenges that faces a company when it comes to the equity and effectiveness of its compensation practices. But first, what type of job are we talking about? We see these in the real world all of the time. They are those unique jobs filled by one person who will often tell you they are wearing "two hats." For example, I have seen an executive fill the jobs of both top sales officer and top engineering officer for a manufacturing firm. Or in a lower-level job, a single incumbent was both warehouse manager and also purchasing agent. But, do not confuse these with a senior job where multiple functions generally report—like a chief operating officer or top logistics officer. Those are single-task jobs. Multi-role jobs are common in smaller companies where the firm may not have the critical mass to have two discrete executives or managers to fill as many important jobs, and assigns second-job tasks to someone with available time or who has the knack (or desire) to do the second job. Notice we are using the terms "first" and "second" jobs here. These are also often seen in family-run firms and are frequently used with family members to create a job of some importance (and perceived value) while a family member is being mentored or learning the ropes of the business (under close oversight), or both. Of course, sometimes, a job is created for a family member that is an eclectic collection of tasks that adds up to something perceived to be enough to keep them busy or interested. We often come across these types of situations when approached by a client to determine company and job pay competitiveness for both salary and annual incentives. So how should determining the right pay practice for these unique jobs be approached? First, you want to determine what the incumbent really does. What is on their business card and what they actually do can be quite different. Also, their definition of the job (say CFO) can be quite different from that of the rest of industry. Usually, an hour of talking with the incumbent will give you a true picture of the job—title aside. Second and in concert with the first above step, find out where they spend their time. This will tell you what the first (primary) job actually is. Do not fall into the trap of going along with the argument that one person can completely do two real jobs. Generally without exception, one of the two jobs will get short shrift. Be sure to find out which one it is. Then, determine the market pay for their first job, or the one they actually do. We have discussed this process in the past, but generally we suggest two approaches: A) using title matching versus market data or B) a reliable guide chart profile method of job sizing (and market data linked to the profiling method used). Both are reliable and the data is readily available for both salary and annual incentive. By the way, you will find that in about a third of the cases the incumbent will suggest that because they wear "two hats" they should be paid the salary (and bonus) of both of the two jobs they fill combined. I generally reserve a broad smile and a hearty laugh for such debates. They always lose. Also be prepared to consider another pay strategy. I have seen truly conscientious executives who really try their best to do two jobs when there is no alternative to the situation. In such a case, you might consider adding an extra 10-15% to the salary when no salary premium exists. But a better solution is to make an upward adjustment in any annual incentive or bonus payment as recognition. But watch out for these true overachievers burning themselves out in the name of the company & loyalty. If you are analyzing such a "two-hat" job, you can provide your CEO with some organizational advice along with your pay recommendations. If you observe that one of the two real jobs is not getting the attention it requires you should tell the CEO.  Further, if someone is over their head in either or both jobs, a gentle nudge to the top executive will likely be much appreciated. Do you have executives or managers on your team that wear two hats? Do you know what they really do, and the basis for their current pay? If you do not know, you should.

Will Your CEO Be In Tomorrow Morning?

"There is an old Wayne Gretzky quote that I love: 'I skate where the puck is going to be, not where it has been.' And we've always tried to do that at Apple. Since the very, very beginning. And we always will."  --Steve Jobs

The recent news regarding Steve Jobs' continuing health problems sent a shudder through the financial markets and investors alike. Steve Jobs is the co-founder and long-time Chairman and CEO of Apple, Inc. He is largely the face and chief strategist of the famed computer maker. On January 17th he announced that he would be taking a leave of absence from his operating duties as Apple's CEO to focus on his health. In 2009, he had an organ transplant as the result of a bout with cancer. Tim Cook, Apple's COO, will assume Jobs' day-to-day responsibilities. We all hope Mr. Jobs will soon return. The CEO position is a unique position in a company and the economy. It is the single crossroads where company strategy, policy, values and governance come together, and are uniquely embodied in one person. The CEO is often the face and voice of the company to all constituencies. Mr. Jobs may be the best example ever created of the position's value and its inherent risk. Hence, the sudden loss of the CEO and the planning for CEO succession and transition is crucial to any enterprise. Succession planning is one of the primary responsibilities of the Board of Directors and is often managed and evaluated within the Compensation Committee. Succession plans, in our experience, are often two-dimensional documents that discuss how to handle a routine and orderly transition of executive power within the company at the departure of the CEO or other key executive. Most companies have or claim to have a succession plan. Some are very good; others are nothing more than a fill-in-the-blanks exercise. Some companies do not have a plan for CEO succession (or say they plan to do it in the coming year after other more pressing priorities are handled). Where does your company stand on this spectrum? Let's try a little exercise today: Your CEO has abruptly called the Board Chair and informed the Chair that he or she would ask for (and take) a leave of absence for health reasons beginning tomorrow morning. How would your succession plan stand the test of such an abrupt and disorderly leadership transition? To address this issue, we suggest that the Board (or its appropriate committee) roll up its sleeves and honestly answer the following 4 questions regarding its CEO succession plan and its support infrastructure: Do you know everything the CEO does and directly touches today? Is it fully documented and what tasks, relationships or transactions would fall through the cracks if the CEO exited tomorrow? A CEO has often selected an executive who should become CEO when they leave. Is that selection known and agreed upon by the Board? Is the named executive really up to the job—tomorrow morning or have you accepted the CEO's choice out of consensus or courtesy? When will that person be ready, if ever? How does the Board plan to oversee a new or "rookie" CEO? Will Board processes or Committee assignments and responsibilities need to change? Will a Board member need to mentor the new CEO? Who? Does your CEO (and other members of the senior executive team) participate in a full annual health evaluation? An annual physical is a common perquisite for a senior executive and is good way to protect the executive, while also protecting the interests of the shareholders. So why is this important? Consider what could happen if your CEO unexpectedly departed tomorrow and the transition was indecisive and/or their replacement is perceived to be a step down. What will your investors think? If they perceive that the event has increased their investment risk, they will have lost value and will perhaps look for a better place to put their money. What will your bankers think? Again, if they perceive their risk has increased, your cost of capital will begin to rise. What will the executive team think? You have likely spent much time and energy developing, binding and retaining your top executives. That can all evaporate with appointment of a weak CEO replacement or indecisiveness by the Board. In my personal experience, it takes about six months to begin losing key players when that happens.   What will employees think? Employees often look up to the CEO as their leader. They will watch very carefully the Board's decisions and rapidly (and accurately) evaluate the future of the company. A bad choice or Board indecisiveness will dim that evaluation. [See point above] What will customers think? If you own an Apple product, you have probably begun to wonder if the brand will continue to be the leading industry technology/application innovator—without Steve. That is a direct challenge to market share. In short, effective CEO succession planning is important to both reduce and manage company real and perceived risk, and retain the other company key players who will drive your company successfully into the future. If your company does not have a succession plan for the CEO and other top executives, you are very vulnerable and ought to do something about it starting today. Feel free to use the above outline as a starting point.

Get Off To A Quick Start For The Year

It has long been my belief that one of the primary reasons that companies and individuals fail and are generally unable to meet their annual goals is because they waste the first half of the year. Wait, how can anyone waste six months? Well, it is not really wasting the time but it is more accurately a lack of urgency and focus. "Hell, I have the whole year to hit my numbers." It is an insidious process, and the results are often quite predictable. What can be done in January to avoid this trap? We assume that yours is like many other well-run companies that have a series of sales, profit or other goals assigned to individual or groups of sales reps, managers or executives. Normally, such goals are defined on an annual basis and achievement is typically measured at year's end—for purposes of both recognition and pay. But, often little emphasis or focus is placed on the year's goals, early in the year. We believe the solution for a "quick start" is as simple as the source of the problem—remove the built-in 6 to 9-month cushion. In short, break your year into four 3-month "years"—with a beginning, an end—and a performance expectation or goal for each of the four discrete "years" (yes, we mean the quarter). But to make it work you must have more than a calendar and a pencil, you must also reinforce the importance of each quarter ("year" that is) by changing your feedback and recognition processes. For example try this: Tell your sales force and management team that the "world" comes to an end every three months; no more waiting around (or, more accurately milling around) until nearly the end of the calendar or fiscal year before getting serious. And, you can make the cycle every month if your business demands it! Have your finance department measure sales, profit contribution and or other denominated goals against quarterly expectations at the end of every week and month. Make sure your key contributors and managers have the results in their mailbox within 48 hours of the end of the period. Call them directly to talk about their results—and do not accept "BS" excuses for under achievement. They will eventually learn to anticipate your rapid feedback, questions and hot buttons. Be transparent and broadly post quarterly results for all to see. There is nothing like a little recognition (good or bad) to pep up the coffee break discussion. Finally, link achievement throughout the year to sales rep, manager or executive pay. Perhaps, you should add a 15% bonus on top off the annual incentive or bonus for anyone who makes and exceeds their goals for both the first and second quarters. To be effective with such a program, you need to start immediately. You have plenty of time to be rolling and measuring by the end of February. Do not accept any administrative or IT excuses about too much work or scads of elusive data taking weeks to track down. Make them solve the problems immediately—the newly-developed (faster and better) reporting processes will also pay great dividends to the company in the areas of business development, customer service and competitiveness. Some will argue that this approach cannot be used in a business that lives and dies on the big order, with a sales force (and support processes) built to expect and handle "lumpy" demand. How can one "quick start" in such a big-order business environment? Try this: Identify all of the "closable" big orders (say the top 50 known for the year at January 1st); Ask your sales force and management team for each closable order to— Identify the probability of closing the business this quarter—and the yield in revenue and profit to be achieved; Ask what must happen to close the business as scheduled, and then supply what is needed to your field operators (information, support, products, pricing...) to get the job done; and Expect a 15-minute weekly briefing from each seller on Friday morning regarding each closable deal—closing date, next steps, schedule revisions (accelerations, we hope) and abandonment. Encourage the sales force and executive team to close as much big stuff as possible early in the year. And then require them to add 50 more new big orders by year end (as one goes off the list a new prospect goes on). If done correctly, everyone loses sight of the year end. Of course, these processes can become exercises in deception and half-truths if the company and senior-executive team allows it to happen. Again, transparency does wonders to avoid this. As you can see from our description of the above "quick-start" tools and processes, there is nothing technical or tricky here. It is merely the consistent application of pressure to perform and book business starting the day after New Years'. If you let your sales force slack off in the beginning of the year, your chances of being successful as a company will go down dramatically. So, do not let it happen—it is within your control. Get ready for an exciting spring this year.