Wanted: Level 5 Leaders, experience preferred

I recently read in the New York Times about Hewlett-Packard's decision in their new CEO, Meg Whitman. This blog reminded me a lot of the concept of a level 5 leader that Good to Great speaks of. Leo Apothecker, was recently outed by the board of directors at HP because he poorly communicated a very significant strategy change. In announcing the possibility of a spin-off PC company and also the decision of closing their line of portable mobile devices, many members of the board were left questioning whether or not the software, WebOS, which was recently purchased by HP, would continue to be used. Because of the significant misunderstanding, poor financial decisions were made which caused additional problems. It seems to me that the major problem was a lack of a top level leader. Inability to properly communicate strategies leaves a company blindsided without vision. A level 5 leader is someone who properly shares his vision with the entire company and is able to communicate, with faith and realism, potential problems and can receive and apply feedback from the company.

Mr. Apothecker lacked the ability to paint the picture of his vision for the HP board which left a lot of people questioning his ability to lead the company to success. As a result, Meg Whitman, former CEO of EBay during a large transition period, was appointed to lead the company as CEO. I believe that she has a lot more of the level 5 leadership qualities that will result in more strategic decisions within the company. She wants to retain some of the strategies that Mr. Apothecker implemented, strategies that the company was already working towards. She also seems to have put more of the right people on the bus, people that can help her better understand what strategies to pursue. She says that her biggest goal to save the American Icon that is HP. She wants to retain its image. She was chosen because she was a member of the board and came from within the company. This is a strategy that many company pursue, to hire from within. Other companies have an idea that bringing big CEOs from outside companies can help transform a good company to great. Jim Collins states otherwise. Saying that more often than not a good company can transform into a great company by being led by a person from within the company that is passionate about that company and cares more about the image of the company than their personal image. It seems to me that Ms. Whitman cares more about the image of HP as an American icon than she does about her personal image.

Its everywhere

The entire concept of strategy is very interesting to me. Standing out from competition and creating new niches and profit pools is fascinating. I have begun to realize that there is an definate art to making strategic choices that result in profitable increase. Today I went to the mall looking for a dress for a wedding I will be attending. I detest shopping for dresses! But while enduring this mundane shopping trip I realized something about profit pools, they exist everywhere. Whether or not companies are actually following the profit pool method to increase profitablity, companies are constantly searching out new ways to essentially make money. That is always the goal, to make more money. This was very evident on my recent mall visit. Walking into department store after department store I saw many examples of how these companies have tapped into profitable value chain activities. A department store is typically thought of as selling clothing. One would imagine that this is where profits emerge. But retail sales actually bring in only a small part of revenue. Many department stores offer credit cards. By offering credit cards many department stores make money off of merchandise margins and by offering credit cards the company builds a closer relationship to its customer. They often offer incentives for starting a line of credit, such as large discounts or money back. Through offering credit cards, customers usually spend more and the stores can charge large interest rates. As a result many department stores make a large portion of their profits through the accrued interest. Loans don't seem like they would be a normal value chain activity for a department store, but through developing this profit pool many department stores have become much more profitable.

Many department stores are struggling to compete with specialty and discount stores. Although department stores are looking for profit pools to tap into, they still struggle from the competition of discount and specialty stores. A difficulty for department stores is that they have lost a lot of market share to the specialty and discount retailers. Stores like Nordstrom and Bloomingdales have a strong brand loyalty and have been very profitable. This could be because they are very strong niche brands, while stores like Macys and JCPennys don't have as strong of a niche and are often found competing for market share with retailers like Kohls and Target. As competition increases department stores like Macys are looking to change their brand image. Macys has begun a new campaign to establish a more trendy and hip image in hopes of attracting younger customers and growing its market share.

As I searched for that perfect dress, which I did eventually find, I recognized the importance of strategic planning. Although I was focused more on finding a dress than on the store I shopped in, I realized how competitive the department store industry is. Because of the competition of other department stores and of specialty and discount retailers it is very important for these companies to create deep profit pools and to differentiate themselves from the competition by offering better brands, better customer service, a more enjoyable shopping experience, and better prices.