Good to Great or Good to Gone?

Lessons from 14 Years at a Fortune 100 Company that No Longer Exists

Life’s lessons aren’t so hard.

It’s the refresher courses that’ll kill ya!

Tim Hinrichs

I worked for a Fortune 100 Company that no longer exists. For 14 years I was on the playing field, at Warner Lambert, enjoying successes and taking hits. On one hand, it was a great place to work; I was given challenging assignments, and I learned a great deal. On the other hand, my team was not playing to win, and that's not fun. The marketplace was changing, and our strategy was not. After investing in non-productive assets throughout the 90s, I was there in 2000 when we were unable to fend off a hostile takeover bid from Pfizer.

Corporate death by a thousand cuts, as it were.

In the analysis that follows, forgive the critical view; it's the only way I know to share what I learned. Fortunately I have help. Jim Collins, in his book, Good to Great, analyzed many companies that, filtered through his criteria, became "great". Unfortunately, Warner Lambert was featured, not as a great company to emulate, but as what Collins called a "comparison company".

JIM COLLINS & GOOD TO GREAT

A business professor at Stanford University, the book, Good to Great, involved 21 MBA students and is the result of 5 years of research. The book is instructive to anyone who wants to shift, in any area of life, from good to great. In the book Collins offers no opinions, only findings from an in-depth study of 28 rigorously selected public companies. Half of those companies made the leap from good to great, and outperformed the other half – called Comparison Companies - and the general market for at least 15 years.

After identifying the 28 companies, the work centered on discovering, what’s in the black box?

What triggered the transformation, and how were great results sustained for many years – in every case to include the leadership of more than one CEO?

After a quick summary of his findings, I will relate them to my own experience and internal observations as an employee of Warner Lambert. Any quotes are taken directly from the book.

Inside the Black Box: FIRST WHO, THEN WHAT

Greatness begins at the top. The book identifies 5 levels of leadership:
    1)  Highly capable individual
    2)  Contributing team member
    3)  Competent manager
    4)  Effective leader
    5)  Level 5 executive

Level 5 leaders possess all the qualities of the first four levels, and add something unexpected but undeniable in the findings. “They build enduring greatness through a paradoxical blend of personal humility and professional will.”

According to the research, “Rock Star”- high visibility leaders that come from the outside often achieve great results. But those results rarely endure beyond their own tenure. In fact, there is a negative correlation between high-visibility leaders and enduring greatness.

Level 5 leaders focus first on their executive team; getting the right people on the bus, and then in the right seats. After that is done, they collectively figure out their vision for the future.

Inside the Black Box: CONFRONT THE BRUTAL FACTS

Level 5 leaders are not optimists nor pessimists. They confront the facts as they are. Collins tells of Admiral Jim Stockwell, who was shot down in Vietnam in 1965. For 8 long years he was the Senior American Military officer in Hanoi Hilton. As a prisoner of war he was tortured more than twenty times. Never did he have the certainty of eventual release. He lived constantly with the knowledge that he may never see his family again. “He shouldered the burden of command” and tried to help other prisoners survive. “At one point he beat himself with a stool and cut himself with a razor, deliberately disfiguring himself. He did this to avoid being videotaped as an example of a well-treated prisoner”.

No one can endure torture indefinitely, so he set up rules that helped himself and fellow prisoners endure and survive. After x minutes under torture you can say certain things, etc. His entire goal was simply to survive, to endure until someday it would all end and he would get out.

When asked who didn’t survive, his answer was clear, “The Optimists. They were the ones who said, we’re going to be out by Christmas. And Christmas would come, and Christmas would go. Then they’d say, we’re going to be out by Easter” etc.  Eventually the optimists “died of a broken heart.”

Admiral Jim Stockwell survived by confronting reality. He was eventually awarded the Medal of Honor, and deserves our gratitude.

Inside the Black Box: THE HEDGEHOG CONCEPT

There are foxes, and there are hedgehogs. Foxes are cunning. They try to eat hedgehogs, but never succeed. Hedgehogs' solutions are simple, not cunning. But they're just as smart. Hedgehogs take a “complex world and simplify it.” Einstein, for example, was a hedgehog who reduced years of math and research into a simple and memorable formula. What could be more simple than e=mc²?

When interviewing Cork Walgreen, Jim Collins asked repeatedly to explain what he did to lead Walgreen to greatness. He pressed Mr. Walgreen until, finally in exasperation, Cork said, “Look, it just wasn’t that complicated! Once we understood the concept we just went straight ahead.”

What was Walgreen’s concept?

“The best, most convenient drugstores, with high profit per customer visit.”

That’s it – A simple concept that led Walgreens to outperform Intel, GE, Coca Cola and Merck for many years. To fully appreciate this simple formula, read the book, and compare Walgreen’s results with those of Eckerd Drug.

To find a hedgehog concept within yourself or within any enterprise find the answer to these three questions:

    1)  What are you deeply passionate about?

    2)  What can you can be the best in the world at?

    3)  What drives your economic engine?

There is an important distinction in question #2:

Do not ask what you are determined to be best at – ask what you have the ability to be the best at.

Inside the Black Box: A CULTURE OF DISCIPLINE

There has never been a time when innovation was more important than it is in 2015. Most companies lose their ability to innovate as they mature and grow. Bureaucracies are typically developed to create and enforce systems. But if you build an organization from the ground-up with a culture of discipline, creativity and innovation can survive organizational growth.

A culture of discipline evolves around people who are in the right seats, focused on the hedgehog concept, and who are accountable for delivering on organizational goals. With a culture of discipline, an organization doesn’t need as many layers of management. People know what to do, and they’re too busy doing it to get bogged down in too many meetings.

Abbott Labs had such a culture. The results? Beating the market for many years, and producing 65% of its revenues from products younger than 4 years. Abbott was also the most profitable in their industry, with by far the smallest headcount-to-revenue ratio.

Inside the Black Box: TECHNOLOGY AS AN ACCELERATOR

Not one of the good to great companies defined their hedgehog concept around technology. But each thoughtfully applied technology to their hedgehog concepts to accelerate results. A few examples:

Kroger was the first to experiment with scanners, and linked the technology to their entire cash flow cycle. This enhanced their ability to build and manage superstores, but technology was not an enabler.

Nucor was willing to invest up to 50% of their corporate net worth on new technologies that others saw as “risky”.

Walgreens pioneered use of satellite communications and computer network technologies, both linked to their hedgehog concept. This placed them a decade ahead of their competition.

Wells Fargo was an early adopter of ATMs, and was first to offer the buying and selling of mutual funds at an ATM.

Warren Buffet explains why he invested $290 million in Wells Fargo: “They stick with what they understand and let their abilities, not their egos, determine what they attempt.”

WARNER LAMBERT – MAY IT REST IN PEACE

Warner Lambert defined itself as a $7.5 billion multinational drug company with diversified interests. I worked for one of those interests; one of two consumer products divisions. Our job was to fund R&D for the drug division, a fruitful model as they discovered Lipitor, the best-selling drug of all time. When I started, our division did about $750 million, and there was bold talk of shooting for a billion in sales. But never did we even come close to $800 million. Over the next few years that goal faded away, as we surrendered to mediocre results.

Our business model was designed for the 1960s, and was a lot like the domestic car industry of that era: Build mediocre products, get distribution, and create demand with lots of TV advertising. Warner Lambert boasted throughout my 14-year tenure that we outspend all our competitors on advertising. To fuel that spend, we diluted our products, and over-relied on a steady stream of new products.

QUICK BRAND REVIEW

Our division manufactured and distributed Rolaids Antacids, Halls Cough Drops, Trident and Dentyne Gum, and Certs Breath Mints.

Halls Cough Drops was our greatest success, with market-dominating market share north of 50%.

Rolaids Antacids in 1986 was #1 in the category, but not for long. Because of mistakes made over the next several years, market leadership migrated to Tums, a competitive product. Tums is made of a quality grade of calcium; good enough that it was often recommended as a chewable calcium supplement. Years later, Rolaids was forced to switch to a calcium formulation, but never succeeded in competing as a calcium supplement. Today Tums remains the dominant leader in this category.

Certs Breath Mints was once available in as many as 20 flavors. Millions were spent advertising the brand, but two problems with Certs were never addressed:

1.       Mediocre Quality. Flavorings are expensive ingredients, so we “optimized” Certs to taste good – with just enough peppermint to freshen your breath for a moment, but not enough to build rabid fans.

2.   Awkward Positioning. Lifesavers, Altoids, and other competitors were positioned as tasty and fun – even strong. We spent tens of millions each year advertising Certs as a breath freshening mint. 

TV ads often showed a guy turning away and sneaking into his mouth a Certs Mint, then turning back and kissing the girl. The inadvertent message: Eat Certs, but don’t share them. And don’t let anyone know you use them!

 People got the message. I could offer a friend a Lifesaver, and they'd happily accept it. Have an Altoids? Sure! But try offering someone back in the day a Certs Breath Mint. You could not do it without giving offense, or at least making it awkward: oh do I need it? I always had samples, and shared Certs at every opportunity. Over the years, though, I nearly stopped sharing them.

Seldom was it appreciated. Always was it awkward. I wrote a memo in 1992 about this phenomenon, and sent it to our Certs Brand Manager. Of course nothing was changed. The lights were on, but apparently no one was home.

Good to Great Note – First Who, Then What

Brand Managers work closely with ad agencies, and have a great influence on the messaging. Rather than meticulously selecting the right people and getting them into the right seats, we tended to churn brand managers. For these important positions we paid entry-level salaries, recruited out of college, offered job experience, and let them go for higher-paying marketing jobs elsewhere. We had a new Certs Brand Manager nearly every year.

Trident, Dentyne and Other Gum Brands comprised our largest category. We took pretty good care of Trident over the years. But most of our gum brands don’t exist anymore. In this category we introduced 2 or 3 new brands every year. Most of them achieved distribution, and failed to sell more than once to the same consumer. Within 18-24 months of launch they were discontinued - if not by us, then by our retail partners.

Wrigley was (and still is) the dominant market leader in chewing gums, and they deserve it. Our struggle was always for the #2 position. Of all the many products that came and went, one stands out in memory, Cinnaburst.

Wrigley’s Big Red had long since taken over our Dentyne as the best-selling sugared cinnamon gum. Cinnaburst was introduced in the early 1990s specifically to challenge Big Red. One problem with sugared gums is that they don’t hold their flavor as long as sugarless varieties. Cinnaburst had great taste, which lasted far longer than Big Red, thanks to tiny capsules of liquid cinnamon. These capsules varied in thickness, creating a time-released flavor effect. Cinnaburst was tested in two markets, and the results were more than promising. Repurchase was the highest we’d ever seen, and when we finally released it nationally I had it on the shelf in my key accounts within a few weeks. It looked like we were finally playing to win. National distribution followed, with great penetration.

But we soon discovered a problem. Turns out that what we shipped was different from what we sold. The production version of Cinnaburst had a diluted flavor. And “time-released flavor crystals” were replaced with “flavor crystals”. To reduce cost of goods, someone made the same not-so-brilliant decision we always made: Dilute the flavor. Water it down. Squeeze every penny of cost out of our products, and spend the savings on advertising.

Gone forever was the best chance I’d seen yet to win the #1 spot in the category.

Good to Great Note – Hedgehog Concept

To churn customers who’ve seen your ad, tried your product, and find it unworthy of repurchase, has always been a bad idea.

This is a good place to introduce the first half of the hedgehog concept for my division of Warner Lambert – Remarkable Products. Remarkable is a great word; it implies something that is so impressive, even surprising, that a user cannot help but talk about it. Who needs to advertise when your customers will do it for you – more effectively than you ever could – for free?

For the second half of our Hedgehog Concept, I must go back to 1986, and talk about my first 15 months on the job. Forgive the personal reference, but I cannot prove the efficacy of the Hedgehog Concept without first telling my story.

I began employment with Warner Lambert in April of 1986. It was a big deal to me, as I felt trapped in another industry, and this new job opened up a whole new world to me. I called on generally 4 types of stores that typically sold our products, convenience stores (C-stores), supermarkets, drug stores, and mass merchants like Kmart. Some were controlled by the chain’s headquarters, while other stores were free to make buying decisions in the store.

I noted quickly that every store had some of our products. Not one of them had more than a handful. But to fix it was not my training. My job, I was told, was to show the latest new item, and to sell in a temporary display. These temp displays were made of cardboard, large displays for the floor, small displays for the counter, hopefully next to a cash register.

Temporary displays are costly. Not only are products discounted, cardboard is expensive. When most of the product was sold-through, the cardboard was thrown away, and remaining product filled the regular shelf location, delaying its reorder at full price. Despite the economics, our brand managers produced temporary displays constantly, and we were compelled to sell them.

We were also compelled to hurry out the door and get to the next store. It was expensive to call on a store. But rather than try to maximize our productivity in each store, our mandate was to swing as many doors as possible.

It made no sense to me. Temporary displays are sold once and thrown away. But permanent distribution – with a tag on the shelf to hold the spot – was reordered constantly. And yet my job was to ignore huge gaps in permanent distribution, and focus on one-hit distractions.

Because it was easy. Because it was expected. Because it’s what we’d always done.

But it was a bad idea. As soon as I understood it, I began transforming my territory, one store at a time. Instead of spending 10 to 15 minutes in each store, I spent 3 hours or more. Instead of 8 to 10 calls a day, I got 2. But in those 2 stores each day I moved the needle. My first focus was on convenience stores that could make buying decisions. When I walked into one of these stores I could find only 6 to 10 of our items on the shelf. When I walked out the whole display was transformed. It was better organized, and there were tags in place for 55 to 60 of our items. Wholesalers would then fill the empty spots, and we were in business.

I did it day after day for nearly a year. I learned how to sell my program, and was never denied; after all, I was improving the whole set – usually 12 feet of candy, gum, and mints. Sales of every category increased when I was done, so store managers appreciated the effort.

After my c-stores were done I turned to the 12-15 grocery stores in my territory that could make buying decisions in-store. These were more of a challenge, so I took a data-driven approach to close the sale. I developed an irresistible rationale, and won each sale. Every independent grocery store in my territory was reset according to my desires.

My territory was only about one third of the market reporting area, and the other two territories were still focused on temporary display and sales calls per day. Let the results speak for themselves:
    Sales to each direct-buying wholesale distributor were up over 20%
    Our share of the gum market climbed from 16% to 26%

The market was never the same, and the transformation lasted for many years.

Good to Great Note – So for my division of Warner Lambert, what was the Hedgehog concept?

Remarkable products with quality distribution

That’s it. Little need to advertise, no need to churn failed products every year, and no temporary displays - no icing - until after the cake is ready, and permanent distribution is achieved.

I am as embarrassed as I am proud of my early success. Proud of the achievement. But embarrassed that I was so ineffective internally. I could not sell my program to my colleagues, let alone to upper management. In 1996 I had the unexpected opportunity to spread the word. I commuted that year nearly every week to the home office in New Jersey. I was part of the team that division leadership called on for research and recommendations. They used us to prepare for the third restructuring of our 500-person salesforce in 7 years.

You’d think I would have found a ready audience for my ideas. 

I didn't.

As it turned out this was our last chance for the company to get it right. 

We didn’t.

I was a Senior Manager in the new organization when Lipitor was released in 1997. A year later Lipitor hit the $1 billion mark in sales, and Warner Lambert became a prize to be won. In the year 2000 Pfizer bought Warner Lambert in what was then the largest hostile takeover ever in the pharmaceutical industry. For analysis at that level I refer you to Jim Collins, and his book.

I close with the help of Jack Canfield and Winston Churchill:

Everything you want is on the other side of fear.

Success is not final, failure is not fatal: it is the courage to continue that counts.

May nothing stop you.