Cut Costs Like AvonNot Home Depot

There is a difference between being prepared to make difficult choices and arbitrarily hacking away at the connections that form the lifeblood of an organization

Posted on Dynamic Strategies: August 27, 2008 1:41 PM

A subtle tension that many senior executives get just plain wrong in a downturn has to do with the distinction between making resource allocation decisions that necessitate some painful choices, and making decisions that fundamentally undermine the culture and values of an organization.

All too often, when the numbers look bad, managers who seem to possess certain qualities of ruthlessness, toughness and a 'take command' persona are handed the reins, without really thinking through the cultural, symbolic and organizational consequences of the decisions they are making. It seems natural—after all, when the news is grim, why wouldn't you turn to someone who generates the comforting feeling that waste will be rooted out, efficiency promoted, and that a more 'shipshape' organization will be the result?

The subtlety is that there is a difference between being prepared to make difficult choices and arbitrarily hacking away at the connections that form the lifeblood of an organization.

Consider, for instance, the contrast between Andrea Jung at Avon and Bob Nardelli at Home Depot. Jung, who had presided over six years of growth and success at Avon, had to confront the struggles of stalled growth and investor disenchantment. The company missed earnings two quarters in a row and needed fast, difficult, transformation. As she herself later described,

One of the most memorable pieces of advice came from a friend, Ram Charan, during a period in 2005 when Avon was really struggling…On a Friday night at nine o'clock, Ram came into my office, looked right at me and said, "They all love you. But in about 90 days, if you don't turn this thing around, they'll have to fire you. So, if you don't go home tonight as if you were fired, and come back on Monday as if Heidrick brought you in as a turnaround queen, you aren't going to make it. But if you can take your 13 years of equity and relationships and still be as fresh as if they took you out and put you in a new company, doing the tough stuff to your own people and your own strategies, you can be one of the best leaders going forward. That's the decision you have to make."

So that's the key: Fire yourself, hire yourself. That advice completely changed me.

Despite the need for tough choices, involving cutting staff (30% of her own hand-picked managers were let go), changing marketing programs, reversing course on investments she had previously advocated making, Jung never lost sight of her deep understanding of what Avon is all about. She recently described the heart and soul of the company as "empowering women one woman at a time to learn how to earn."

When she speaks about this passion in public, you can feel the emotional energy, the intensity. It wasn't about being soft or ignoring reality—rather, about re-igniting the ability of the company to achieve its purpose.

Mr. Nardelli, in contrast, didn't seem to have a passion for the heart and soul of Home Depot at all. While he clearly made interventions that were absolutely necessary, ranging from establishing a more rigorous strategy process to bringing the company's IT infrastructure up to state-of-the-art standards, he seemed to overlook what made Home Depot a cherished partner to the do-it-yourselfers and contractors who formed the core of its customer base.

The original Home Depot strategy depended on extremely knowledgeable service staff who would go that extra mile for customers and who could really help them understand how to accomplish their own goals. In the name of efficiency, Nardelli cut coverage, replaced quite a number of the experienced old-timers with part-timers, and put the whole organization on a tight, numbers-driven, almost military program. Again, many of his changes were for the better—yet the cultural, network, and experience losses eventually caught up with the company and Nardelli was replaced.

Conventional wisdom is not altogether wrong—there is no escaping the need to react to economic pressure. In a downturn, you will need to cut costs somewhere. You will need to make changes that you might prefer not to make. You will need to limit expansion moves and try to rein in costs like employee benefits, pensions and health care. The difference lies in whether you do these things with a clear understanding of what makes your organization unique, what keeps your people engaged, and why customers do business with you.

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