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Right Action Begets Right Action

The right action of which I speak is the right management, right planning and right leadership action necessary to run a profitable business that will fund the rest of our altruistic notions.

17 August 2007
You may remember Malden Mills, the maker of Polartec who suffered a catastrophic fire in the mid-90s and made headlines for spending millions protecting its employees and the town from economic disaster. At a time when American business was becoming known for looking for every possible opportunity to move their plants to Mexico and China, Malden Mills’ owner Aaron Feuerstein believed wholeheartedly that if he could just keep the company growing enough to create new opportunities for workers displaced by lower labor rates and new technology, he could keep his manufacturing in the United States.
 
Hindsight, of course, is not 20/20 (why do people always think it is? Hindsight is still cluttered by the filters of our interpretations, the information we’ve allowed to get in, and the information we’ve refused to process. But I digress). Malden Mills went through three rounds of bankruptcy, and ultimately was sold to private equity group Crysalis Capital Partners, L.P. in early May of 2007. For now, they’ve negotiated a 3 ½ year agreement with the unions to keep the two U.S. plants open and the workers employed.
 
All profiles of Mr. Feuerstein indicate he is a deeply ethical man, and I can’t find any evidence of people observing him to be less than intelligent or astute. But still, everyone wondered why he was spending so much money – and (hindsight again) putting the whole company at risk of bankruptcy. Some believed Feuerstein was a folk hero, and some believed he was a self-righteous fool, but the truth was more complicated than either view.
 
In an article in Fortune Magazine presciently titled Not a Fool, Not a Saint, author Thomas Teal wrote, “It's here he (Feuerstein) has shown his real genius. Any idiot with a strong enough stomach can make quick money, sometimes a lot of it, by slashing costs and milking customers, employees, or a company's reputation. But clearly that's not the way to make a lot of money for a long time. The way to do that is to create so much value that your customers wouldn't dream of looking for another supplier. Indeed, the idea is to build a value creation system of superior products, service, teamwork, productivity, and cooperation with the buyer. Reduced to its essence, that means superior technology and superior employees.” (p. 203).
 
This description of value creation is at the heart of the concept of branding, and it’s the heart of branding that business still does not understand well enough. As I’ve mentioned before, branding is far more than an expensive ad campaign and protection of an image. Branding is the alignment of all the elements of an organization to create a compellingly consistent experience for customers.
 
From what I can tell, what Feuerstein failed to master in the coming years was the alignment of leadership and management with the business drivers necessary to complete their recovery. His subsequent bankruptcies have been generally blamed on overbuilding following the fire. But why did the overleveraging occur?
 
Most companies use debt to finance operations, and it’s smart to do so. Under-leveraging can cause a company to increase its equity without successfully investing in its long-term value. The decision to use debt for the purpose of growth (which was Feuerstein’s stated goal) should have been accompanied by strenuous management planning and research, challenging their own ideas, and developing a plan for the most bulletproof operational deployment of debt they could develop. It should also have been accompanied by divestment of any non-performing units to ensure the debt injection wasn’t wasted shoring up ventures that lacked adequate potential.
 
I don’t know that these things weren’t done. I’ve searched for creditable case studies on the internal operations of Malden Mills between 1996 and 2006 and I haven’t found any. Excellent planning and execution don’t provide ironclad guarantees of business success in a world that throws healthy doses of chance at us on a regular basis. But the potential for success is bestowed much more liberally on those businesses that know how to plan and align than those that don’t.

This is the point at which Branding 3.0 begins. Branding 2.0 is being hailed as the flowering of brand’s promise, but it’s still pretty superficial out there. The ingredients necessary to achieve a brand’s promise (or, in the case of Malden Mills, recovery) don’t have to do with public recognition or warm fuzzy feelings. The ingredients are those necessary to create staying power.

(1) Building a leadership and management group from the best ingredients you can find (inter-personal and professional skills required),

(2) crafting or refining strategy so the focus is clear, unarguable, and can be communicated like a virus throughout the organization,

(3) making sure the business organization (department alignments, roles and responsibilities, and physical space) is designed to serve the strategy so no policy worms or hidden agendas can develop enough power to nudge the organization off its course,

(4) establishing metric and incentive controls to drive performance according to the needs of the strategy – again, mitigating the influence of undermining agendas and the less-sinister-but-just-as-deadly blight of uninformed action, and

(5) having the skill and discipline to lead and manage (both are necessary) the organization to achieve its goals.

The Fortune article had it right. To “create so much value that your customers wouldn't dream of looking for another supplier. . . to build a value creation system of superior products, service, teamwork, productivity, and cooperation with the buyer” is the promised land for corporate America. It’s not sexy. It doesn’t get you dinners at fancy restaurants and tickets to major league sporting events by media salespeople. It’s not easy. It requires tremendous discipline. But for organizations who know how to get their management in alignment with their vision of success, it creates two compelling opportunities.
 
First, profit. Which leads to (second) the ability to do the right things for the employees and communities who rely on your business for financial well-being. Yes, right action begets right action. But this saying is too often interpreted solely in its altruistic sense. The right action of which I speak is the right management, right planning and right leadership action necessary to run a profitable business that will fund the rest of our altruistic notions.

 

Teal, T. (1996). Not a fool, not a saint. Fortune, (Nov. 11, 1996) 134, 201, 201 203.

(c) Andrea M. Hill, 2007

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