Since everyone else is making money writing books on leadership, I figure I ought to get in on the gravy train too, so I am starting to compile my own list of essential leadership qualities. I have the first three all set:
1. The Enron Principle: An effective leader must keep his hands out of the company cookie jar
2. The Toyota Principle: An effective leader must keep his hands off the hired help
3. The Raytheon Principle: An effective leader must not pawn someone else’s work off as his own
You might want to check out Mark Graban for the juicy details of the Raytheon and Toyota debacles.
I am now ready to add the fourth: The Furniture Brands Principle, which will read something like "An effective leader must not have the worst business strategy in the industry."
The furniture industry is probably a better laboratory for examining manufacturing than the automobile industry, since it is pretty straightforward, and not so wrapped up in emotions. Their history is a lot like the automotive history. The furniture companies took a pounding during the depression and a lot of them didn’t make it. During WWII, they made a lot of other things for military uses; after the War they reverted back to furniture, and had what amounted to a license to print money when it seemed that the whole country was rushing out to buy a three bedroom ranch in the suburbs and needed a table and a couple of chairs to put in it. Since the U.S. Army Air Corps had seen to it that there was not a factory left standing in either Europe or Asia to compete with the U.S. furniture manufacturers, there was no one putting much pressure on the American companies, except each other.
Like the auto industry, life was good for furniture company owners and managers – their only discomfort stemmed from the occasional dislocated shoulder from patting themselves on the back too hard for being such great managers. Finally, the Asians and Europeans dug themselves out of the rubble, started making just about everything, including furniture, and life in the American furniture business began to get complicated.
Having to actually compete with someone, the American ROI management scheme came unraveled. The furniture makers saw two choices – get lean or shut down the factories and start importing everything. I have written about a couple of them that opted for the high road of lean and are doing pretty well. Stanley and LaZBoy are both getting things moving in the right direction. Furniture Brands, on the other hand, chose to roar down the low road of outsourcing at breakneck speed.
Their web site is interesting. For one, they have brief bios of their four top execs, and the CEO and the COO make it a point to cite their strong church affiliations (establishing their adherence to Leadership Principles 1 through 3, I presume). The Accountant and the Lawyer make no such religious claims, and you can interpret that however you choose. No matter – it is what they have been doing the other six days of the week that are of interest.
Says Chairman and CEO Mickey Holliman, "Part of the change in culture at Furniture Brands has been in shedding the manufacturing mindset that has kept us focused on capacity utilization, backlogs and other operational issues." You bet he’s changing the culture. No better way to shed a manufacturing mindset than to toss all of the manufacturing people out on their ears. He goes on, "In the course of our transformation to a true sourcing and marketing company, we have closed 31 of our 57 domestic manufacturing facilities. In 2005 alone we closed eight finished goods facilities and ten smaller support plants." Closed another one earlier this week, too. Chalk up another 278 manufacturing mindsets changed, Mickey.
Now there just may be another Leadership Principle to learn here, besides the bad strategy one. On November 9, 2004, Lynn Chipperfield (religious affiliation unknown) from Furniture Brands testified before the International Trade Commission in a hearing on a petition filed by some of the high road manufacturers who stayed in the U.S. They accused China of ‘dumping’ and wanted sanctions placed on imports from China. Furniture Brands, working hard on changing those manufacturing mindsets and bringing all of their stuff in from China, didn’t like the idea since the new tariffs would hit them pretty hard.
That’s OK, but Chipperfield told the Commission, "Furniture Brands is the largest residential furniture manufacturer in this country." Not two months later, the annual report came out in which Mickey said, "I have frequently pointed out that we are not really a manufacturer." Now maybe Chipperfield still had one of those unchanged mindsets, and didn’t know the new game plan, or maybe Chipperfield was speaking with a forked tongue. I don’t know. Either way, the ‘sourcing and marketing company’ misrepresented itself to the Trade Commission in order to skew the laws of the land toward importers and against manufacturers.
At any rate, the whole thing is not working out so good, and it promises to get worse. While lean manufacturers like Stanley and LaZBoy are making good money and moving in a positive direction, net earnings at Furniture Brands over the last four years since Mickey has been changing mindsets have gone from 4.8% to 3.9% to 3.7% to 2.6% – pretty poor to begin with and now almost non-existent. Sales over that time have been flat – even down a bit. I guess it would have been really bad had Chipperfield not gone off to Washington to spin tall tales.
But Mickey’s real problem is about to unfold, and it is going to come from Australia, of all places. Before long, though, Australia will be the least of his worries when an avalanche of new competitors come at him from all sides. Don’t be fooled by all this "shrimp on the barbie’ stuff – Aussies are not simple minded. American companies have moved furniture making to China, and so have many Australian companies. It didn’t take long for the Australians to notice a lot of Americans around, like the small army from Furniture Brands, and to get to thinking …
Hmm … if the American furniture is made here … and our furniture is made here … ours and theirs must cost about the same … and the cost to get these chairs and such to the U.S. is the same … Eureka! we can sell our furniture in America for the same price Furniture Brands can!
And of course, the Chinese minds started whirling the minute Mickey showed up …
Hmm … the Americans can’t stop us from violating the patents on their technical products when there are detailed engineering specs, there is no way they can stop us from cloning artistic, fashion stuff like furniture … and we can put it on their shores for exactly the same price as Furniture Brands!
So it looks like bad news all the way around for Mickey and the rest of the folks at Furniture Brands. They bailed out of manufacturing instead of getting lean like their old competitors, and now they have given away their competitive advantage against all of the global manufacturers. I guess it never occured to them that anybody can build a plant in China – the Chinese never meant to give Furniture Brands the exclusive franchise. It turns out that just about everyone else in the furniture business had a better idea than Mickey’s. That’s Principle 4.