Book Review of The Greatest Business Decisions of All Time by Verne Harnish

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Genre: Management & Leadership
Author: Verne Harnish
Title: The Greatest Business Decisions of All Time (Buy the Book)

Summary

The Greatest Business Decisions of All Time details what Verne Harnish and the editors of Fortune magazine deem the 18 greatest business decisions ever made around the globe. Some of them, like Apple’s, were made recently, and some, like Eli Whitney’s, were made over 100 years ago. More than creating a great product, these decisions mainly concern each company’s human capital.

The majority were counterintuitive and deemed illogical by affected parties. They all involved a certain level of risk, and many of the executives risked everything in favor of their gut conviction that the decision would be successful. After the decision transformed the company, most companies then had to fend off imitators.

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All the decisions certainly have one thing in common: despite the scoffers, hardships, and delays, they were absolutely worth it. The 18 decisions are below:

  1. Ford: Henry Ford doubles wages
  2.  Apple: Bringing back Steve Jobs
  3. Wal-Mart: Saturday morning strategy meetings
  4. Samsung: “Foreign sabbatical program” for top employees
  5. General Electric: World-class internal training center
  6. Intel: Making microprocessors a household name
  7. Toyota: Total quality management
  8. Boeing: Risking it all on the jetliner
  9. HP: “The HP Way” management philosophy
  10. Tata Steel: Layoffs that paid off
  11. Johnson & Johnson: Tylenol recall
  12. Zappos: Free shipping for shoes
  13. 3M: Paying employees to daydream
  14. Microsoft: Bill Gates takes off a week to think
  15. Nordstrom: Easy return policy and customer service
  16. Eli Whitney: Big promises and an early assembly line
  17. IBM: “Operation Bear Hug” and focus on customers
  18. Softsoap: Blocking competitors’ material flow

What do these decisions have in common and how can one best imitate the success that these decisions led to? Below is a list of important ideas that anyone faced with an important business decision should keep in mind.

  1. Go all in: The most important thing about nearly all of these decisions is that none of them take half measures. Whether it’s Toyota’s total commitment to high quality manufacturing, Boeing betting everything on jet travel, or Tata’s aggressive buyout and layoff program, the decisions with the greatest payoffs always come when all the chips are pushed out on the table.
  2. Focus on the customer: Several of these firms saw great success by aggressively following the seemingly obvious principle that the customer is always right. Zappos and Nordstrom turned seemingly too generous shipping and return policies into customer loyalty and market share. IBM turned around its declining business by reaching out directly to its customers to better reform and tailor its business. No one ever failed by paying heed to those who actually give him money.
  3. Develop a strong culture: Many of these companies succeeded by radically differentiating themselves through particular business philosophies and practices. GE essentially opened its own business school to their rabid focus on efficiency and beating the competition. “The HP Way” revolutionized the relationship between management, employees, and customers. All of these prove that a defined and coherent culture leads to success.
  4. Develop and retain expertise: A strong company culture is crucial, but you still need raw talent. Samsung and GE developed employee expertise through unique, targeted programs that gave them a competitive advantage, either through external global experience or an intense internal training regime. Apple learned the hard way what happens when you let talent get away and by reversing that decision, became one of the top companies in the world.
  5. Reward your employees: Treating employees well can have huge dividends, as several of these decisions illustrate. HP’s constructive work environment and employee focus clearly played a huge role in the company’s success. Ford’s decision to double employee compensation: rated the best decision in the book: vastly improved the quality of its workforce, and in the process cut down on turnover, raised productivity, and created a whole new market for its products.
  6. Promote unstructured thought: Genius often strikes when you least expect it, and companies do well by giving some leeway for creative distraction. 3M set aside 15% of each employee’s time for independent projects and quickly reaped rewards in the form of innovative new products. Similarly, Bill Gates isolated himself for a week to simply think and ultimately came up with several important ideas that have greatly shaped Microsoft.
  7. Gather data: A lot of the decisions covered in this book came as the result of courage and guts, but an empirical focus should not be completely abandoned. Toyota systematized its manufacturing processes, gathering data on each step to find out where chokepoints and defects most often occurred, greatly improving the quality of their products. In its efforts to improve customer service, IBM gathered hundreds of data points to better identify the strengths and weaknesses of the company.
  8. Shareholders aren’t everything: Many of the companies in the book succeeded by avoiding the purely bottom-line driven thinking that dominates modern business. This includes the efforts to improve customer and employee experience mentioned above, but also extends to ethics. Johnson & Johnson undertook an expensive recall despite shareholder protest, and in the long run was able to build the company’s public trust and reputation.
  9. Corner the market: When an opportunity to dominate your market knocks, you have to take advantage decisively. Eli Whitney and Intel gained near market saturation through aggressive government contracts and marketing respectively. Softsoap bought up the entire market of a key product input, ensuring their brands primacy for years.
  10. Take a small loss today for a big gain tomorrow: Finally, many of these decisions indicate a strong orientation toward the future. Having the courage to take a hit now is difficult, but Tata Steel and GE did so with unpopular layoffs, as did Nordstrom and Zappos with unprofitable customer service schemes, as well as Ford by doubling its payroll expense. Ultimately, however, these moves paid off in the long run, thanks to patience, dedication, and stability by the decision makers.
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For leaders who might want a “checklist” to use to evaluate their own operations, perhaps the list below will be helpful.

  1. When faced with a major issue, do what is right for the customer and your brand will survive. (Johnson & Johnson)
  2. Leaders should take one week per year in solitude to think, consider and re-imagine their firms future. (Microsoft)
  3. One way to compete is to control the supply of key resources and materials needed for production. (Softsoap)
  4. Extreme obsession with customer service is an effective and differentiating business strategy. (Nordstrom)
  5. There are times when currently successful strategies must be replaced to prepare for a different future. (Boeing)
  6. Companies can be effectively turned around by an emphasis on extreme focus and the pursuit of new opportunities. (IBM)
  7. Meetings with all employees weekly creates energy, accountability, teamwork and rapid course correction. (Wal-Mart)
  8. Standardization and orientation around repeating processes lifts productivity rapidly. (Eli Whitney)
  9. Put employees before shareholders through a unique management philosophy that instills teamwork, trust, and risk taking. (HP)
  10. Focus on paying employees properly and giving them the tools to succeed is essential to success. (Ford)

Introduction

This book details what Verne Harnish and the editors of Fortune magazine deem the 18 greatest business decisions ever made around the globe. Some of them, like Apple’s, were made recently, and some, like Eli Whitney’s, were made over 100 years ago. More than creating a great product, these decisions mainly concern each company’s human capital.

The majority were counterintuitive and deemed illogical by affected parties. They all involved a certain level of risk, and many of the executives risked everything in favor of their gut conviction that the decision would be successful. After the decision transformed the company, most companies then had to fend off imitators. All the decisions certainly have one thing in common: despite the scoffers, hardships, and delays, they were absolutely worth it.

Apple: Let’s bring back the guy we ran out 11 years ago

Apple is highly regarded for its innovative products and being the most valuable company in the world in recent years. With the help of co-founder Steve Jobs, the company pioneered the personal computer and was the first to implement current industry standards like straightforward icons and the computer mouse.

In 1985, the company was soaring, but CEO John Sculley, whom Jobs recruited himself, made Jobs feel unwelcome at his own company, and Jobs split with Apple.

In the following years, Apple’s wide range of underwhelming products and bloated supply chain led to the company’s downturn. Their management and board of directors were deficient and constantly changing. In 1996, CEO Gil Amelio convinced the board that acquiring Jobs’ software company, NeXt, would be a valuable investment for its software and would boost employee morale and creativity.

Amelio knew the creativity would come mainly from the return of the co-founder. Jobs quickly became the “informal adviser” to Apple, which eventually led to his roaming the halls conversing with employees and making suggestions. He was neither an employee nor a major shareholder at this point, but employees could sense his attempting to take over once again.

Board member Edgar Woolard observed unpromising current CEO Amelio and decided to spearhead his dismissal. Woolard and Jobs schemed a plan to help Jobs regain power by leading the board decision to fire Amelio, then replacing all the current board members with new handpicked members. Jobs quickly received the title of interim CEO, which lead to inevitably dropping the “interim.”

The decision paid off, as Jobs quickly rejuvenated Apple via removing the divisional structure, firing thousands of middle managers, hiring a logistics executive, and discontinuing under-performing products. There is a certain level of enthusiasm that only a founder can bring to a company. Jobs brought that contagious energy, which led his employees to create an empire that gives Woolard the satisfaction that he made a great decision.

Zappos: Getting consumers to buy shoes without trying them on

Zappos emerged during the dotcom boom in 1999 and quickly experienced defeat from the plethora of competitors vying for market share. CEO Nick Swinmurn’s goal was that Zappos would become the “Amazon of shoes.” Before it could do that, it needed to generate some income quickly. In a desperate attempt to differentiate, Zappos decided to offer free shipping on all orders, and a service even more unusual: free returns.

Swinmurn did not base the decision on complex spreadsheets, but a gut feeling.

Zappos wanted their customer service to stand out among online shoe stores, and the company eventually stood out as having the customer service to beat. Zappos does pay high shipping and return costs, since up to 40% of all Zappos orders are returned, but the repertoire and marketing they gain with the customer makes up for it. Not only did free shipping and free returns save Zappos, it shifted management’s attention to Zappos’ real core competency: customer service.

Zappos expanded in accordance to its core competency. To better guarantee when and how shoes would reach the customer, Zappos decided to become a brick-and-mortar store and carry a large inventory. They now have much better control and flexibility since they recognized the need to control the entire retail value chain, from warehousing to filling orders to shipping.

As their popularity and success grew, executives at Zappos decided to abandon their shoe sales-only mentality and expand into other products like handbags and clothes. The factor that would tie the company together would be its goal to provide the best customer experience of any company.

Zappos is still thriving off its customer service model. Despite Amazon’s acquiring the company in 2009, it has protected its unique, close-knit culture. The culture is so defined that Zappos advises other companies on how to build their culture and create a thriving customer service. The simple decision of free shipping and returns created priceless advantages that will be gracing the feet of Americans for years to come.

Samsung: Tell their star performers to pack their bags

“Samsung is paying $100,000 to send our rising stars to live in another country?” “Hardly anyone goes on international business trips for even two days, much less one year!” “Why are we sending them to an emerging country versus one where we already have clients?” “How could they possibly contribute more in a foreign country than they could in Korea where they are comfortable?”

Samsung chairman Lee Kun-Hee received many pessimistic comments similar to these when he unveiled his radical new program to fund promising young talent to serve year-long sabbaticals in countries around the globe. Chairman Lee had no choice but to make a dramatic decision, since he was facing problems like static culture and a rigid hierarchy, which produced uninspiring electronics sold at tiny margins.

The program worked by handpicking the brightest employees and sending them abroad to be immersed in another culture.

Since 1990, 4,700 employees have become “Regional Specialists” by living and absorbing the culture in 80 distinct countries across the globe. The program begins with a three-month “boot camp” to prepare employees with language, social, and physical skills pertaining to each country. Their mission was simple: learn the culture, meet people, make contacts, and write a report on what you find.

Park Kwang Moo was one of the early program participants and an example of why Samsung has continued the program for over twenty years. Park spent a year “living, eating, and drinking” with the Russians, and compiling an 80-page report about his observations.

Even though the report mostly detailed Russians’ drinking habits and idiosyncrasies, his boss loved it. The boss knew that Park would be able to secure a deal in the future if Samsung ever needed it. The company secured many deals and was the bestselling brand in Russia less than ten years later.

The regional specialist program has been praised and many parties have attempted to duplicate it. Sea Jin Chang, a professor at the National University of Singapore, quoted that the decision “was pivotal in transforming Samsung into a global powerhouse.” Harvard Business Review called the decision the company’s “most important globalization effort.”

Samsung noted that it brought in fresh ideas from abroad, especially information about emerging markets and their unique corporate practices. In 2011, Samsung ranked the 17th most valuable brand in the world. It is likely that the once scoffing executives are now the first to attest to the significance of this great business decision.

Johnson & Johnson: Caring more about the consumer than the stockholder

Tylenol pain reliever is a medicine cabinet staple in households across the United States, but the ever-present medicine came close to extinction in 1982 when multiple cyanide-laced bottles left seven dead. Calamity hit on September 30, 1982 when two healthy people from Chicagoan suburbs unexpectedly died. Authorities linked the incidents to Extra Strength Tylenol, which both victims took shortly before their deaths.

A widespread panic erupted, partly spurred by firefighters and police officers driving around neighborhoods proclaiming via loudspeakers that residents should stay away from the drug. The death toll grew to seven. The bestselling painkiller’s lifespan was quickly dwindling, facing halting sales and substantial lawsuits.

Johnson & Johnson’s CEO James Burke knew the company needed to take swift action to protect its bestselling product.

Burke’s plan included recalling all 31 million bottles of Extra Strength capsules across the country, introducing innovative tamper-resistant packaging, and publishing 40 million coupons. He also created a “crisis team” to hold press conferences, buy advertisements, and answer phone calls.

Though the 60 Minutes is known for slamming business executives, Burke appeared on the show to clarify the situation and future plans. The CEO said his decision-making was based on his personal credo that a leader’s first responsibility was to those who use Johnson & Johnson’s products and services.

His plan did not have widespread approval at first. Not only did the J&J executives argue that a recall would cause a general panic, the FBI objected as well. Burke decided to fly to Washington, D.C., to meet with the FBI and FDA to emphasize that this could become a nationwide calamity.

The at-first skeptical agencies approved the recall after finding out that a copycat planted strychnine in Tylenol capsules in California. The biggest recall in retail history was underway and ultimately cost $100 million.

Johnson & Johnson’s plan was a huge success. Tylenol regained its market share and the New York Times noted, “For the maker of the popular red and white capsules, it is almost as if nothing ever happened.” Burke’s steps to reconciliation are widely regarded as “the gold standard of crisis management.”

Despite opposition, Burke stuck to his credo, which paid off in a big way. Burke’s friend Tom Murphy confirmed the CEO’s beliefs in the statement, “He really believed in that stuff. Everyone came before the stockholders. The stockholders came last.”

3M: Paying our employees to daydream

3M is a conglomerate corporation, synonymous with many innovative products like masking tape, Scotchgard, sandpaper, and Post-It Notes. The company produces over 55,000 products and is constantly creating new ones, which can be partially explained by its objective that 30% of revenue must come from products less than five years old.

A separate decision made by CEO William McKnight has been the real impetus for the large number of products and continued success of the company. McKnight’s rule states, “regardless of their assignment, 3M technical employees are encouraged to devote up to 15% of their working hours to independent projects.”

McKnight had traditional views on management until he observed an employee creating an innovative product based on auto-body shop employees’ complaints about the painting tape they used. That innovative product was masking tape and helped launch 3M into success. When the CEO formally stated the 15% rule, the public began to realize 3M had great potential and ingenuity.

Not everyone bought into their philosophy, especially since employees were more viewed as machines than humans during that time. 3M battled against its larger competitors and stuck with its 15% rule as it evolved. Many years after 3M developed its 15% rule, scientific studies emerged confirming the company’s decision.

The central finding was that employees are better motivated intrinsically, and external forces can reduce innovation.

3M’s philosophy paid off and led to many well-known innovative products like Scotchgard fabric protector and Micropore medical tape, as well as improved many internal processes. In 2009, while other companies were crumbling, 3M launched more than 1,000 new products. Many other companies have taken note of 3M’s strategy and implemented their own innovation-fueling programs. Most visibly, Google allocates 20% of engineers’ time to work on personal projects.

The key takeaway of 3M’s decision is the trust that the executives have bestowed upon employees when giving them “free time.” Instead of having a tight grip on every move, the employees have been empowered to improve the company through their own creativity. The company has found that the key to success is relinquishing control.

Intel: Why should I care about my microprocessor?

As the age of the computer spread, consumers chose specific computers because of size, brand, and whether it completed a task. The consumers may have been aware of the components of the inner hardware, but they certainly did not know or care who manufactured those components.

That is why Intel CEO Andy Grove’s decision was considered so radical when he suggested that Intel spend millions, and eventually billions, on advertising to promote its product that contains the brains of the computer—the microprocessor. This decision launched Intel to become one of the most recognized brands in the world.

Since its inception in 1968, Intel aimed to be the leader in developing semiconductor memory. By the mid-1980s, the company had two-thirds of the market for microprocessors, but aspired to have more. Intel also faced challenges since their microprocessors were constantly evolving and improving, but no one cared to buy the new state-of-the-art chip.

CEO Grove implemented a marketing test to see if he could change consumer misconceptions. The test was successful. Sales of the new microprocessors shot up, and their PC makers began requesting more improved chips to manufacture their computers.

To further promote their microprocessors, Intel created a logo with its new tagline “Intel Inside” and provided discounts to PC makers who put it on the bezel of the PC and in any advertisements. This partnership with their direct customers blossomed, and Intel continued to publish many newspaper and television ads, while being advertised by PC manufacturers.

The numbers prove this business decision’s success. Sales worldwide increased 63% in the first year of Intel Inside. European brand awareness among PC buyers rose from 24% to 94%. Billions of Intel Inside stickers have been place on PC’s and elsewhere.

Their jingle is instantly associated with Intel. The company’s market share jumped to 80%. The ad campaign to encourage customers to care about their microprocessors paid off and further enforced Intel’s market leadership in the semiconductor industry.

GE: Laying off 100,000 but spending $50 million on “some training center”

When Jack Welch became the General Electric’s youngest chairman and CEO, he faced many quandaries within the struggling company. He made the decision to lay off over 100,000 employees and restructure the company to align with his vision. One of the central ideas of his vision was to create a world-class internal business school for GE managers, which led to “Crotonville.”

Welch did not establish Crotonville; it was founded by former CEO Ralph Cordiner over twenty years earlier.

It is a 53-acre retreat where thousands of GE managers went to learn to take control of their own operations with profit-and-loss responsibility. It was successful for some time, but it eventually evolved into a place where anyone could go, and even a place of punishment for underperforming employees. It had barren accommodations that, according to Welch, felt like a “roadside motel.”

Barely two weeks into his administration, Welch began to reform the institution. He had a radical new direction for GE, and he knew Crotonville would provide the perfect opportunity to share his messages with key executives and explain his decisions.

The first step in Crotonville’s reform was to fix the physical plant by committing $50 million to modernize it. Next, he went on to fix the institution’s perception by stating that attendance would be by invitation only. It became a prized assignment that employees would work toward.

Welch shifted the focus of the classes to be on leadership, and brought in lecturers from Harvard Business School as well as existing GE employees. Classes often discussed case studies from GE and the executive classes proposed solutions and ideas to Welch himself.

This decision did not resonate with everyone at GE. Executives did not understand why he would lay off 25% of the GE workforce, yet invest millions in what they deemed “nonproductive” assets. They derisively called it “Jack’s Cathedral.”

The critics were wrong. Crotonville served as an valuable instrument to inform employees directly, inspire employees to work harder, and become dynamic managers. Today, 90% of GE’s top managers are promoted from within. Crotonville also helped gain new customers, as they would offer classes for their management team in exchange for purchasing product.

When Jack Welch retired in 2001, GE renamed Crotonville the John F. Welch Leadership Development Center. As of 2012, some 10,000 students come through its doors each year, and half are from abroad. It is safe to say that Jack Welch’s vision of a world-class school became a reality.

Microsoft: Bill Gates takes off a week to think

While Jack Welch of GE utilized a huge facility at Crotonville to revolutionize the company, Bill Gates did it all by himself by simply taking a week-long retreat. Gates packed up stacks of emails and employee-composed proposals, left friends and family, and retreated to the serene shores of Hood Canal. Gates found that he could study there the most comfortably and without distraction.

Gates could have used the time to go on a relaxing vacation, but he decided it would be most beneficial to devote that time to work.

Instead of ignoring the stacks of proposals and emails, Gates chose to read them and carefully consider each one. While he at first solely focused on Ph.D. theses and scholarly papers, he then focused on internal projects and employees suggestions.

Early on, he read all employee submissions and responded to them all, as well as passed on the papers to a range of executives and engineers. Then the numbers multiplied until he required assistants to filter submissions.

During his “Think Week” time, Gates made many important decisions that shaped Microsoft into the success it is. In his seminal “Internet Tidal Wave” memo to executives, Gates identified the threat and hope of the internet and discussed how Microsoft should position themselves around it.

He identified Netscape as a prominent competitor that Microsoft would want to beat. Another hit was born during Think Week when Gates approved Xbox Live. Think Weeks were an effort for Gates to be ahead or at least not far behind. While many CEO’s would say they do not have time to take a week off to brainstorm, Gates would argue that he did not have time not to.

Softsoap: If we cannot beat our competitors on price, we will block their material flow

In a world of traditional bar soap, Robert Taylor realized that soap could be presented in a more striking and gentle form and birthed the idea for liquid soap. Taylor was already the CEO of a $25 million a year bath product company named Minnetonka, but knew consumers would buy into a liquid soap that could be placed in a beautiful dispenser on a vanity.

He introduced the Incredible Soap Machine through department stores, but consumers vied for a mass-market liquid soap that could be purchased in grocery and drug stores. Softsoap was then born in 1979, and within three and a half months, the company was selling so much that it could not keep up with demand.

Since a Minnetonka product was more cheaply produced by an enormous competitor and then discontinued before, Taylor knew that it was just a matter of time until competitors easily replicated Softsoap as well. Taylor quoted that the competitors were “trying to cost us right out of the business.”

Taylor made the radical decision to set up a conference with Calmar, the company that manufactured all the plastic pumps for Softsoap.

Taylor proposed to buy 100 million pumps from Calmar that year, which would prevent the competitors from buying the pumps, since other manufacturers did not make the pumps they would need.

Though it was a risky decision, the gamble paid off. Sales of Softsoap continued to accelerate, and Minnetonka kept its Number 1 position in the liquid soap market. When some of the competitors eventually did make it to market, Softsoap already had established brand power, which allowed them time to adjust to the competitors.

Softsoap held the Number 1 position again shortly after the competitors emerged. Eventually, Taylor decided that he would rather focus on more profitable lines of business like fragrances, and he had the perfect offer to sell Softsoap to Colgate-Palmolive for $75 million, only eight years after he created the product. The $75 million probably more than covered the cost of 100 million pumps, and Taylor’s satisfaction was priceless.

Toyota: They were not always the king of quality

Before Toyota was the high-quality super producer of automobiles that they are today, Toyota was a struggling Japanese company trying to sell underpowered, overpriced minicars in a foreign market. After observing that small cars were popular in the U.S. but only made by European manufacturers, Toyota saw it as an opportunity and quickly launched their “Toyopet” sedans after little research and preparation.

The Toyopet had dismal quality and an expensive price tag, and their disappointing sales figures of less than 2,000 cars in three years reflected it. Toyota had to make the shameful decision to suspend U.S. operations.

Discouraged, Toyota persevered and made the decision that would revolutionize the company into the success it is today. It hired famed consultant W. Edwards Deming, the father of total quality management. Deming trained managers and engineers on how to improve quality, which he believed would reduce expenses while increasing productivity and market share.

Deming taught Toyota to treat production as a system and continually identify, analyze, and correct defects. Toyota listened to the advice and revamped its manufacturing system to improve its processes with the goal of reducing processing defects, customer claims, and rework by 50%.

The Deming principles were highly effective, and Toyota implemented a sedan called the Corona that was specifically engineered for Americans, and it sold well.

Domestic car companies like GM and Ford began to take notice and began to emulate Toyota. The company kept progressing and producing new models, and grew to be the largest automobile company in the world. They are known for their vast collection of historical data, which they analyzes in order to learn from prior mistakes. Toyota is now committed to “the relentless pursuit of perfection” as it says in their commercials, and that is paying off in a big way.

Nordstrom: “You bought that five years ago? Sure, we’ll return it!”

Everett, Elmer, and Lloyd Nordstrom were three brothers who started a small shoes business named Nordstrom right before the Great Depression hit their town of Seattle. With many businesses going bankrupt and consumers who could not afford new shoes, the Nordstrom brothers made the radical decision to implement a super-liberal return policy. Regardless of whether the purchaser has the receipt, worn the item, or damaged the item, Nordstrom takes anything back.

The return policy is the key element of Nordstrom’s obsession with customer service that has helped the company blossom.

The only rule that new hires are told to follow is, “Use good judgment in all situations. There will be no additional rules.” The return policy may seem like a money hole, but research studies show that liberal return policies more than pay for themselves.

The policy encourages people to buy more, since consumers know they are not stuck with it forever if they do not like it; it also signals high quality merchandise. Another surprisingly powerful effect is known as the endowment effect, which states that consumers cherish items more after they are purchased and value them more the longer they are owned.

To further boost revenues, Nordstrom experiences success because of specific sales goals, commission based salaries, and internal sales competitions. Nordstrom has also developed a complex information technology system to keep track of customers and identify those who may abuse the return policy.

Whether it be running across the street to buy a customer’s needed size from a competitor, or refunding a customer for shirts they shrunk, Nordstrom has developed a customer service empire that all started with the decision to have the most liberal return policy possible.

Tata Steel: Layoffs that paid off

Tata Steel began in socialist India in a small town that revolved around the steel plant. At Tata, workers were guaranteed jobs for life, as well as jobs for their children. The company did not have to worry about inefficiency or low sales, because the socialist government told them what to make, how much to make, who to sell to, and how much to change.

The problem came when the socialist government switched to capitalism, and Tata had to face deregulation, privatization, and opening up to international trade. With capitalism came facing strong competitors, who were much larger, cheaper, and better. Tata Steel was producing about 100 tons of steel per man-year, while an efficient competitor made 1,000. Tata needed to make a change and make it quickly.

When Tata executives went to examine changes they could make, they did not even know the number of employees at the company.

After investigating for three months, Tata discovered it had 78,000 employees, and thousands of those were unnecessary or excessive positions like paint and ice makers, dairy farm employees, and chauffeurs. Tata needed to find out how to get rid of lots of people quickly, while facing obstacles like company image, a benevolent history, union negotiations, and being the only major company in the town.

CEO J.J. Irani meticulously developed a master plan, the Early Separation Scheme (ESS). The plan gradually eliminated over 30,000 employees by offering an exit package that guaranteed a full salary for the rest of their working lives until the normal retirement age of 61.

If they died before then, their families would keep receiving the payments. The generous offer raises the obvious question: What is the point of giving up the workers and still paying them their salary? Tata’s labor costs did decline immediately, because they were no longer paying those employee’s retirement benefits, payroll tax, or annual salary increases.

The lower labor costs combined with over $1 billion of new investment turned Tata Steel into a far more efficient, globally competitive firm, while maintaining their mantra of caring about their employees.

Boeing: Risking it all on the jetliner

It is hard to imagine a time when Boeing was not at the forefront of commercial airplane manufacturing, but Boeing primarily created military aircraft before the 1950s. Boeing succeeded at military aircraft and could have easily continued to specialize in that, but CEO William McPherson Allen imagined more. Despite having few contacts in the commercial aircraft industry, Allen made the great decision to risk the company on the development of jet travel.

In contrast to the present noisy, uncomfortable, slow-moving, piston-engine aircraft, the transatlantic jetliner would bring speed, convenience, and comfort. When Boeing built a prototype for the plane, it also served as a jet tanker, and secured generous aid and a number of orders from the government.

Right before their product was about to launch, Boeing discovered that a competing manufacturer, Douglas, had created their own jetliner.

Many airlines placed orders first with Douglas, but Boeing revamped its design and began securing orders from giant airlines. Boeing then launched a successful advertising campaign where they persuaded the flying public to get on board with the slogan, “If it ain’t Boeing, I ain’t going.” The maiden commercial flight of the Boeing 707 was on October 26, 1958, and the airline industry has not been the same since.

IBM: Turns out, customer focus is important.

In the early 1990s, IBM’s mainframes were becoming obsolete, the company was quickly losing market share, and its stock price was plummeting. Its board of directors brought in a new CEO, Lou Gerstner, to solve the problems, which they thought would be done by breaking up the company.

Instead, Gerstner identified the major crisis as the lack of customer orientation at the overly bureaucratic company and made the decision to implement “Operation Bear Hug” to fix it.

Operation Bear Hug began when Gerstner met with a group of top customers and explained IBM’s renewed devotion to their needs.

Through his meetings, he was able to identify IBM’s strengths and weaknesses from premiere CEO’s like Bill Gates. Then, he instructed fifty top executives to visit a minimum of five big customers over three months, and report their findings to the company. Gerstner understood that listening to customers was the key to improving fortunes of a company with a still powerful but diminishing market presence.

Operation Bear Hug immediately changed the direction of IBM. They accomplished Gerstner’s goals of IBM’s becoming more customer-focused, learning more about the realities of market, and understanding the caliber and idiosyncrasies of his leadership team.

Through focusing on customers, Gerstner discovered the need to provide technology solutions, which led to the creation of their flourishing, high-margin consulting practice. The CEO discovered that breaking up the company was not needed, and now IBM is one of the most valuable companies in the world.

Wal-Mart: Saturday Morning Magic

Since they started in 1962, Wal-Mart’s Saturday morning meetings have helped transform one small grocery store into 10,000 plus stores fifty years later. Founder Sam Walton had the idea to have his store’s workers arrive early each Saturday to review the past week’s sales figures and discuss how to improve. They also discussed employees’ ideas about customer services and new products to sell.

Even as the number of stores grew, the salaried employees were still required to meet, discuss, and plan the next week’s strategy. Walton regarded it as a great way to distribute information about the business to employees and well as analyze competitors’ actions. To invigorate the employees and excite them to attend, the company started bringing in guest speakers, who included Oprah Winfrey, Peyton Manning, and Bill Clinton.

The benefits of the decision were enormous. Employees felt valued, which relayed to how they valued the customers. When Wal-Mart started, Kmart was a big competitor, but Walton used Saturday morning meetings to analyze what competitors were doing and how do it even better. Today, Kmart barely even exists, while Wal-Mart is producing sales of about $47 billion annually. Walton’s decision became Saturday morning magic.

Eli Whitney: The cotton gin was not his most important discovery.

There are many misconceptions that surround Eli Whitney. He did not invent the cotton gin; he invented a version that would work with short-staple cotton. His cotton gin business was not actually profitable, so the entrepreneurial Eli Whitney made the decision to find a completely new industry to enter.

He knew the U.S. government badly needed guns, and the American gun makers were too slow to ever be able to supply enough for the military. He decided to create a system to allow unskilled workers to use interchangeable parts to create guns quickly and affordably.

Whitney took a huge risk on his invention by promising he would produce 10,000 muskets for the government in two years, with no money, factory, employees, nor machines. His idea to use unskilled employees worked, because he created tools that would fashion the work uniformly and prevent the workmen from making errors.

Each worker would specialize in doing one specific task, and they would use waterpower rather than muscle power.

Those ideas had been executed before, but never on a large-scale endeavor like gun making. Whitney had huge challenges like building the factory near a river for waterpower, designing brand new machines, and taking ten years rather than two, but he persevered and delivered the 10,000 guns.

Whitney’s system was highly successful for making guns, but he deserves high praise because more than anyone else, he made the American system famous. It shaped our world by enabling unskilled employees to work in factories, advancing the use of pre-made parts, and spurring the concept of the assembly line. Clearly, Eli Whitney did much more than “invent the cotton gin.”

HP: Putting trust before profit

In a world of “the shareholder comes first,” Dave Packard and Bill Hewlett knew that was far too constricted. Instead, the HP co-founders decided to create “The HP Way,” which was a management philosophy built around a fundamental respect for their employees. Packard and Hewlett had no revolutionary products, but it was the way the company functioned that made HP recognizable, especially considering institutional morality was a foreign concept before HP.

The HP Way is not a set of rules, but a compilation of corporate principles to maximize employee productivity and customer satisfaction.

An example of a corporate principle is “HP people contribute enthusiastically and share in the success that they make possible.” HP still had objectives, but instead of solely concerning financials, they also encompassed people, organization, specialization, teamwork, and community involvement.

Employees did not have to worry about mass lay-offs and could feel secure in their jobs. Packard and Hewlett aimed to strip signs of hierarchy by knocking down walls and routinely roaming the halls. Though they did not focus on the bottom line, it increased hugely as the company was united by a common purpose.

The Single Greatest Business Decision of All Time: Henry Ford Doubles Wages

Henry Ford is best known for creating the assembly line, but the author deems the single greatest business decision of all time to be when he doubled his workers’ wages in 1914. What prompted the wage increase was the extreme success of the assembly line.

Its high efficiency was great for producing Model T’s, but not great for employee morale. The annual labor turnover was 370% and 10% of Ford’s 15,000 employees would be absent each day. The long work hours and low task variety zapped motivation.

Henry Ford knew it was time for a radical change and shocked the country when he announced plans to double wages, reduce the hourly workday, and spend an additional $10 million annually to improve productivity and work conditions. The next day, an army of 12,000 job seekers appeared at the plant gates in search of the exciting salary.

The salary was divided into two parts: automatic wages and profits that they had to earn. Employees earned profits after working for six months; they also had to be married or supporting a family. Ford ensured that his profit-receiving employees were leading “clean, sober, and industrious lives” by mobilizing an army of 200 investigators to make house calls. Ford did not simply want to improve their financial status, but their moral status as well. He believed “every man should make enough money to own a home, a piece of land, and a car.”

Though skeptics believed the wage increase would cause inflation, the Five-Dollar Day turned out to be an excellent investment.

Within a year, turnover fell from 370% to 16%, productivity was up 40% to 70%, and the number of replacement workers hired would fall from 53,000 to 2,000. Between 1914 and 1916, profits doubled from $30 million to $60 million. Ford continued the pay policy, and saw a correlation between his policies and the economic boom of the Twenties.

His employees’ increased purchasing power not only reflected in Ford automobiles sold, but also in the buying power of people his employees bought from as well. It also spurred the highly significant Minimum-Wage Act of 1938. This decision affected people in the present, and it continued a ripple effect that extended into the future. Apple’s Chinese factories have doubled wages recently in an effort to boost productivity.

Conclusion

Apple, Zappos, Samsung, Johnson & Johnson, 3M, Intel, GE, Microsoft, Softsoap, Toyota, Nordstrom, Tata Steel, Boeing, IBM, Wal-Mart, Eli Whitney, HP, and Ford all made bold, yet innovative decisions that are still spurring success within their companies today.

Their legacy is inspirational. While all eighteen business decisions were extraordinary, Ford’s is deemed the greatest business decision of all time because it combined the decisions’ common elements of risk, ingenuity, and compassion to provide a model for future employee standards and revolutionize American business.

HookedtoBooks.com would like to thank the Titans of Investing for allowing us to publish this content. Titans is a student organization founded by Britt Harris. Learn more about the organization and the man behind it by clicking either of these links.

Britt always taught us Titans that Wisdom is Cheap, and principal can find treasure troves of the good stuff in books. We hope only will also express their thanks to the Titans if the book review brought wisdom into their lives.

This post has been slightly edited to promote search engine accessibility.

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