Kaptain Karl's Test: an Icahn-like Inventory of Enterprise Performance
A prior post looked at Carl Icahn's (Kaptain Karl) views on enterprise performance, which he found broadly deficient through too many nice guys moving up the hierarchy thru political management rather than focusing on what their companies needed to do to perform and create value. Or at least that's my reading-between-the-lines interpolation (the video is posted, please feel free to review it).
For several years now I've been tracking those companies which make the headlines for performance problems (and occaisional successes - unfortunately the former dramatically out-number the latter). But stop and consider for a moment...since the beginning of the year how many companies have made major earnings announcements and executive changes based on strong earnings and positive strategic outlooks ? We have whole industries just beginning to go through major transformations after, literally, decades of denial.
What names come to mind for you ? How about Dell, Wal-Mart, JP Morgan, Citigroup, Microsoft ? And more ? We're talking here about the bluest of blue-chip companies that not to far back, say 3-4 years, were the poster children of doing it right. All the bizz schools, trade press and general business press were lauding these folks for the strategies, operational execution, delivered customer value and postitive outlooks. Why just yesterday the WSJ had a major front-page story on MSFT's struggles with innovation ( Behind Microsoft's Bid To Gain Cutting Edge ).
Let me offer up a chart (actually two) that's a snapshot that gets updated and refreshed from time-to-time, of companies and their status. Take a look and see what you think. Suggestions and emmendations (in the comments) would be welcome.
The categories (somewhat arbitrary but best judgement) are Criminal Malfeasance, Bad Leadership/Malfeasance, Bad Leadership/Poor Performance, Adjustment Failure/Internal Agendii, Internal Friction/Adjustment-Innovation Failure. The numbers in parens (x) are sequences show a (1) means that's the first entry while as a company evolves it might move to a different column, or even the next chart on good-performance.
Each company is its' own individual case. In fact we ended up starting a detailed review sequence of HD and have several posts starting with Nardelli's dismissal and working on up to a suggestion of Six Major Strategic Initiatives. In their case the executive change was a good thing and they appear to be doing the right things but the jury is still out. Far out actually. And some of the entries are probably dated, both good and bad. But some are not. For example Chuck Prince took over a badly faltering Citi which was facing serious charges and had major performance problems. He seems to have cleaned those up but at the same time, and despite the spinoff/sale of many of the acquired operations, Citi still isn't either getting the most out of any division that I can tell. And certainly not getting the sum is greater than the parts synergies. Ditto for Time-Warner. And so on and so on.
The other side of the coin is those enterprises showing either improved or sustained performance. Frankly that was a lot harder a chart to build - perhaps because my sampling method was based on headlines ? Anyway the categories are Strugglers & Stragglers, Recovery Road, Renewal & Growth, Sustainers and Next Big Thing (NBT) Potentials. The last category is more a list of industries which show significant promise for the future from now to the near-term to much farther out. So, for example, right now we don't see any major industry coming forward with the same sorts of major structural innovations that lead to the origination and creation of the Pharmaceutical or Electronics & Computer Industries. On the other hand there are several going thru huge transformational re-builds as the underlying technology changes, e.g. Telecom, Consumer Electronics and Entertainment. As before feel free to argue with my candidates and placements.
For example the initial entry for Dell(1) was in the Sustainers category because their strategy and business model looked sustainable in their niche (business PC supplier) but also extensible to other major product lines (Servers, Printers, Services (?), Communications, Consumers) and geographies (Europe, LA, Asia/China). That's turned out not to be true. And worse yet their core value proposition, like HD's, was heavily dependent on good value (low price for decent functionality) combined with superb customer service. When Dell began cutting customer service expenses several years ago and getting very bad feedback on product quality they weren't just facing a cost management and margin problem. They were depreciating their fundamental soft asset - Service & Support - and the trust of their customer base. Rather like HD under Nardelli. Again Michael Dell may be starting to turn things around. Contrawise Chuck Scwab's return to Schwab led to a complete reset of strategy, offerrings, and execution. Hence Schwab's migration from a company with performance problems to Recovery Road.
But, at the end of the day, it's applying the Kaptain's test of enterprise performance and value delivery that determines classification. And profit, return and general appeal - the test questions: would you want to work for which companies ? And put money in which as an investor ? Take it to Buffett's Test - imagine yourself an owner, then which are targets and which to be avoided ? Which are opportunities with the right re-working ?