Tom Hall Interview on Keeping Your Business Focused During the Summer

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Strategy is really pretty simple Start with the answers to two basic questions.

Here’s the first question. “What will set us apart?” Another way to ask this one is: “What will we be known for?”

Wal-Mart is known for low everyday prices. Amazon is known for a huge selection and good prices. Atkins and Pearce is known as a great American manufacturer of specialty textiles.

Now, here’s the second question: “How will we make money?” Without answering this question you may have a wonderful idea, but you aren’t likely to have a successful business.

Wal-Mart makes money by offering those everyday low prices. They make a profit through savvy purchasing and a religious devotion to eliminating costs.

Amazon offers selection and good prices by using technology to streamline operations and improve the shopping experience. And Amazon also leverages its technology by selling technology and logistics services.

Atkins and Pearce invests in research and development so they can continue to meet the needs of their customers. And they cultivate a stable and productive workforce, so they can deliver on what R & D promises.

You’re not done when you answer those two key questions. You need to simplify your explanation so anyone can understand it.

That takes work. You have to keep trying it in new ways until it’s crystal clear.

A clear and simple strategy is easy to implement. It helps you make choices about what to do. It tells the people who work for you what’s important. It helps concentrate effort, expense, and innovation on the right things.

Then you put it in practice. And you stick with it, unless you need to change.

Sticking with a strategy that’s working is a key to long term competitive advantage and profitability. You get good at what you do. Your customers learn what to expect. And the people who work for you hone their skills and share their ideas.

That’s what we learned writing Ruthless Focus. You need a simple strategy that defines your business clearly. And you need to stick with that strategy until it quits working.

This isn’t rocket science. It isn’t even sophisticated theory. But it is what companies who have been profitable for a long time do to stay that way.

Ruthless Focus: how to use key core strategies to grow your business has many examples of how companies have used simple core strategies to create long term success.

They’re an exception. Most companies, even big ones, don’t last nearly that long.

In 1955, Fortune Magazine published its first list of the top 500 companies ranked by gross revenue. Today, only eleven of them are still on the list.

The sad truth is that very few of the companies that disappeared succumbed to some irresistible force. Instead, they abandoned the core strategy that brought growth. There are three common reasons why.

They want to grow faster. Chico’s FAS made their own line of clothes that Baby Boomer women wanted to buy. When they focused on that strategy, things went well.

Then they decided they could grow even more by diversifying. They purchased or started businesses that sold undergarments, that sold to younger women, and that sold different styles of clothes.

By 2005, Chico’s wasn’t quite sure what it was doing. CEO Scott Edmonds told analysts that: the company was looking to “clarify our focus.” Within two years the stock that had traded around $50 per share had sunk below $10.

Anything that distracts a successful company from its core mission can create a problem. At Home Depot, the focus shifted to pursuing efficiency with disastrous results.

Between 1986 and 1996, Home Depot delivered forty consecutive quarters of record results. The strategy was simple and based on founder Bernie Marcus’ phrase, “Love the customer.” Home Depot did that by providing vast selection and great service, in part by giving local store managers a lot of autonomy.

But when the board brought in Bob Nardelli as the new CEO, focus shifted to improved operating efficiency. The board expected that shifting from loving the customer to loving the numbers would bring greater profits.

Nardelli delivered on the efficiency. The only problem was that, in the process, he shredded the culture and cast off the people who had made Home Depot successful.

Some companies, like Chico’s or Home Depot, get in trouble when they shift focus from a successful core strategy to something they’re sure will do better. But there are companies that get in trouble for more human reasons.

Sometimes a new CEO wants to make his or her mark. Often, that means abandoning the very things that have worked in the past.

When Ron Allen became CEO of Delta Airlines in 1987, he took the helm of one of the world’s great airlines. Delta was the clear choice of business travelers. It had come through deregulation in better shape than the competition. And it had some of the best employee relations in the industry.

There hadn’t been a strike for almost fifty years. There hadn’t even been a union vote for thirty. And, in 1983, Delta employees actually chipped in to buy the company’s first Boeing 767 as a thank-you to management for their handling of deregulation

Allen changed just about everything. A decade later, the company had gone from being the premier airline for business travel, with great employee morale, and a solid balance sheet, to being just another struggling airline with labor problems.

The lesson seems clear. If you’ve got a strategy that’s working for you, don’t shift your focus to something else.

You’ll find more details on these and other lessons in Ruthless Focus: how to use key core strategies to grow your business.

Toyota focused ruthlessly on continuous improvement and quality. Because they did, they grew.

In 2009, Toyota officially became the world’s largest automaker. It wasn’t long afterward that there was more news about Toyota’s problems than there was about Toyota’s success.

There were problems with sticking accelerator pedals (the largest automotive recall in history) and what Toyota called “floor mat entrapment.” Various recalls covered almost every Toyota model from Avalon to Venza. Production and sales were halted on some models.

As if that wasn’t enough, governments in the US and elsewhere accused Toyota of covering up problems. Soon the president of the company was on television, apologizing in front of a legislative committee.

Things were bad on the business front, too. There were massive fines. And Toyota announced that it had posted its first loss in 60 years.

What happened? How did one of the most revered companies in the world go from hero to villain so quickly?

The answer is actually simple. Toyota shifted its focus from continuous improvement and producing high quality automobiles to growth.

Production jumped 60 percent between 2000 and 2008. There were some years where the increase in Toyota production was larger than the total production of auto companies like Chrysler.

Somewhere along the way, Toyota shifted its focus and made growth the main goal. That created the Growth Paradox.

The Growth Paradox is that a ruthless focus on growth is often the worst thing you can do if you seek long term growth. That’s what happened at Toyota.

The company’s success was rooted in the way production lines worked. First line supervisors were the key. Toyota’s supervisors were expected to be coaches and mentors.

That’s a role it takes time to grow into. Pushing production meant increasing capacity beyond what the number of qualified supervisors could handle. Quality suffered, but no one was aware of it for a while.

Testing of new cars was not as thorough as it once was. So more problems slipped through.

Toyota’s system for gathering information about problems and customer complaints was not up to the challenge of more, and more frequent, problems. And executives, pushed for more growth, had little incentive to point out problems.

When Toyota maintained a ruthless focus on continuous improvement and quality, the result was incredible growth. But when Toyota began to focus on growth itself, problems increased.

Toyota isn’t the only company that’s had this problem. Companies as different from Toyota as Chico’s and Marriott have created hard times for themselves when growth became the primary objective of strategy.

Will Toyota get its mojo back? The odds are that they won’t.

According to a study by the Corporate Executive Board, only about an eighth of companies who hit a stall like Toyota’s ever recover. It will take a lot of hard work.

Toyota will have to unwind the results of the emphasis on growth. That means looking hard at who got promoted and how people got rewarded.

And Toyota will have to refocus on continuous improvement and quality. That won’t happen quickly. The changes that brought Toyota to this place took time, so will the change back.

There’s an important message here for all of us. If loss of focus on core strategy can happen to Toyota, a company often described as “obsessive” and “cult-like,” it can happen to any company.

The story of Toyota’s focus on continuous improvement and quality is told in detail in Ruthless Focus: how to use key core strategies to grow your business.

The surprising answer may be “no,” especially when you’re starting up. Consider how things went for Enterprise.

Today, Enterprise is the largest car rental company in the world. But it didn’t start out with a strategic plan. It didn’t even start as a car rental company.

When Jack Taylor came home from World War II, his first success was starting a business delivering packages for department stores. Business was good, but the hours were horrendous and Jack had a growing family.

Arthur Lindburg stepped back into the picture. Lindburg owned the local Cadillac dealership. He had tried several times to hire Jack. This time Jack said, “Yes.”

Taylor didn’t join Lindburg because it fit a strategic plan. He wanted to make good money and still have time for his family.

Soon Jack Taylor was the sales manager for the dealership. Other dealerships kept trying to hire him away from Lindburg. He had the opportunity to purchase his own dealership. And he was thinking about starting an auto leasing company.

Taylor chose the leasing company. It wasn’t part of a grand strategic plan. He thought it was the best opportunity.

He didn’t want to work for another dealership. Plus, he thought that leasing had a bigger upside than owning his own dealership.

Back then you could only own one dealership in one town. Jack figured he could set up leasing operations in lots of places. Plus he wouldn’t have to carry car or parts inventories.

He came up with a bunch of his own money, made a deal with Lindburg, and started Executive Leasing in the basement of the Cadillac dealership. It was a great success. But Taylor noticed something interesting.

His leasing customers kept asking him to provide rentals for friends or relatives who came to town on business. It seemed to be happening more and more.

The reason was the explosion of domestic air travel. More people were flying to distant towns. When they got there they wanted to rent a car. That wasn’t part of any strategic plan, but Jack Taylor knew an opportunity when he saw one.

He named his rental company “Enterprise” after one of the carriers he flew off during World War II. By the end of the 1960s, Enterprise was very profitable, but far smaller than the major players in the industry.

Those companies had the resources to pay for expensive airport locations. Enterprise was stuck in the local rental market.

Then, the courts ruled that auto insurance companies should provide loaner cars for their customers whose cars were out of service. Since then, the local auto rental market has grown faster than the airport market.

All along, from the days of Executive Leasing, Jack Taylor wanted his company to provide excellent and distinctive service. That was the core strategy.

Because he was clear about how he was going to compete, Jack Taylor could spot the opportunity in changes around him. He could spend his energy and resources on ways to do things better.

That led to one of the most effective management training programs in the world. It’s led to compensation and promotion that are tied to a very simple measure of customer service.

All the way along there was a simple strategy. That strategy guided operations. It helped opportunities stand out from the crowd. Enterprise succeeded with a ruthless focus on a simple core strategy.

You’ll find more details on the strategy of Enterprise and more than twenty other companies in Ruthless Focus: How to use key core strategies to focus your business

Then Tom sent a questionnaire to 586 CEOs of fast-growing companies. He asked two simple questions.

One was: “What do you believe is the single most important business strategy that influenced the rapid growth of your company?” The other was “Where did this idea come from?”

When he got the answers back from the CEOs, including luminaries like Michael Bloomberg, Tom discovered that most of what he had assumed was simply wrong. Fast-growing business used simple strategies that usually grew out of the founder’s experience. They chose a core strategy and focused ruthlessly on making it work.

The strategies the fast-growing businesses used were straightforward and easy to explain.
• Wal-Mart offers everyday low prices to customers by using savvy purchasing and rigorous cost-cutting to make a profit.
• For Ritz-Carlton, company strategy is embodied in the phrase: “Ladies and gentlemen serving ladies and gentlemen.
• Amazon uses technology to offer customers great prices and a great shopping experience.

The strategies of the fast-growing businesses usually grew out of someone’s experience.
• Tom Stemberg used his experience selling groceries through warehouse stores to define how Staples would succeed.
• John Ferolito and Don Vultaggio are self-described “beer guys.” When they launched Arizona Iced Tea, they used everything they’d learned from twenty years in the beer distribution business.
• The five founders of Catalina Marketing combined their experience from the supermarket, packaged goods, and scanning technology industries to come up with a better way of distributing the coupons shoppers

Fast-growing companies chose a core strategy and worked hard to implement it. Ruthless Focus describes five basic strategies.

Nucor and Zara’s are very different companies. But both use technology to gain competitive advantage. AAON, a manufacturer of a “semi-customized” roof air conditioning units, and Scott BBQ in Hemingway, SC both set themselves apart with unique offerings.

When fast-growing maintained a ruthless focus on strategy and the bottom line, they kept growing. When they focused on other things, they got into trouble.

Take Chico’s. When the company maintained a ruthless focus on offering unique clothing that baby boomer women wanted to wear, they thrived. When they shifted their focus to starting businesses in other market segments and chasing growth for its own sake, things got hard.

Home Depot is another great example. For years they grew by offering their customers great selection and great service, based on Bernie Marcus’ “love the customer” mantra. When the board and Bob Nardelli shifted focus to improving efficiency, Home Depot became a very different company.

They myth of the start-up with a proprietary idea, a sophisticated business plan, and venture funding is just that, a myth. Companies that maintain growth and profitability for decades focus ruthlessly on simple strategies and business basics.

Ruthless Focus: how to use key core strategies to grow your business includes details on more than twenty companies, including those mentioned here