SUMMER, 2002
There's a difference between bigness and growth. Let's look at some examples...
When AOL and Time Warner came together in the biggest corporate merger ever, execs touted the "synergies" between new and old media. "These two companies are a natural fit," said Time Warner's chairman Gerald Levin. ''This merger will launch the next Internet revolution," said AOL's chairman and CEO Steve Case.
Reality has been so different. In the first quarter of this year alone, AOL Time Warner reported the biggest quarterly loss in U.S. history -- $54.2 billion!
And in the University of Michigan's latest Customer Satisfaction Index, AOL's rating of 59 (out of a possible 100) was lowest of all companies in the web portal category.
According to Wharton professor Gerald Faulhaber, the merger has been a "big distraction...for AOL because they lost their focus." In addition, the merger has been marred by a culture clash between AOL and Time Warner divisions and people. As one observer put it: "It was like trying to mix oil and water."
So what's ahead? "Demerging would be a solution," says Faulhaber.
Vivendi was originally founded in 1853 to provide water to French cities. By the 1980's, it had lost its focus and began diversifying into construction, real estate, refrigeration, funeral homes, health care, cell phones and waste management on an international scale. Bigger is better, right? Wrong...by 1995, Vivendi was losing money and loaded with debt.
Then, French business icon Jean-Marie Messier became Vivendi's CEO. His vision was to make Vivendi a media, entertainment and high tech conglomerate. Messier went on a massive buying spree. Messier paid $34 billion for Seagram. (Seagram had already moved into media with acquisitions of Universal and Polygram. Its losses spiraled and the group's share price plummeted, forcing the sale to Vivendi, which then sold off its profitable booze business!) Messier paid $6 billion for one publishing company and $2.2 billion for another. He paid $10+ billion for USA Networks, and $1.5 billion for a 10% stake in the EchoStar satellite.
Last month, Messier was ousted, leaving behind over $18 billion in debts. That was in advance of Vivendi reporting a $12 billion loss for the first half of this year. Maybe it should've stuck with water.
When Jacques Nasser became Ford's CEO in 1999, he had visions of recasting Ford from an old-line manufacturer to a diversified consumer products and services provider. Nasser dove headfirst into e-commerce ventures, recycling, quick- service operations, and even the retail side of the car biz.
While Nasser reached for the stars, Ford was hurting on earth. Its quality slipped, its productivity slumped, new vehicles were delayed and profits plunged. Then, of course, there was the massive recall of the Explorer's Firestone tires.
Altogether, with sales in the tank and costs mounting, Ford lost nearly $6 billion in 2001. By October, Nasser was history.
Now, Ford is looking to sell off many of Nasser's acquisitions and get back to the business of designing and building better cars. It won't be easy or quick...new products are the lifeblood of the auto business, and Ford's product "cupboard" is nearly bare. Nasser was too busy focusing elsewhere. "He seemed to lose sight of the main objective -- engineering and building good cars and trucks," said Gerald Meyers, a business professor and former Ford exec.
New CEO William Clay Ford Jr. -- great grandson of company founder Henry -- put it simply: "We took our eye off the ball."
McDonalds certainly isn't in dire straights. But it is an example of the difference between bigness and growth.
When Ray Kroc opened his first McDonalds in 1955, he stressed a company policy of "Quality, Service, Cleanliness and Value." Kroc was also a fan of growth and expansion. By 1963, the 500th McDonalds was opened and the chain's billionth hamburger was sold.
But after his death in 1984, McDonalds' expansion accelerated. In the '90s, McDonalds added nearly 1,000 restaurants in the U.S. alone in some years, as well as expanding even more rapidly around the world. Now, there are more than 30,000 McDonalds worldwide.
Do they still offer "Quality, Service, Cleanliness and Value"? Not according to a national phone survey conducted earlier this year by fast food consulting firm Sandelman & Associates. The survey rated chains in 12 categories ranging from food quality to cleanliness. Of 77 large and small fast food chains included in the survey, McDonalds finished dead last.
Meanwhile what little revenue growth McDonalds has had is simply the result of adding more locations. Same-store sales have slumped, often cannibalized by new stores opened close-by. Early this year, McDonalds reported its sixth-straight quarterly earnings decline.
Ray Kroc would not be pleased.
Radio -- like McDonalds -- has experienced a decline in customer satisfaction, manifested in lower cume and time spent listening.
Prior to the Telecom Act of '96, stations focused on growing their shares through better strategy and execution. Since then, companies have focused on growth through acquisitions, not product improvement. Radio hasn't developed a meaningful format innovation since '96!
The quest (and need) for excellence is too often lost when stations are part of large clusters. Instead, individual stations are often lost in the shuffle, subject to ill-conceived strategies from On High. For example, in Detroit, WWWW was once a legendary and highly successful Country station. But Clear Channel switched to it to "Alice" a few years ago, and recently made it "The Drive," with much the same music. Expect ratings to decline further...Who cares about it anymore?
In contrast, an example of a successful standalone station is our client KZIA in Cedar Rapids. Rob Norton, Eliot Keller and Eric Hansen put all their heart, soul, energy and imagination into that one station. As a result, KZIA is the "giant killer" in that market...check the book: KZIA is #1. Again. I have no illusions about radio returning to the "good old days" prior to '96. But now that consolidation appears to have run its course, it's time to refocus our energies and objectives...
Let's be better. Not just bigger.