I have written before of Professor Tom Johnson up at Portland State – the author of Relevance Lost the book that opened everyone's eyes to the problems accounting cause for manufacturing, winner of just about every award for business and lean thinking, and one of the 200 most influential thinkers in the US, according to Harvard. His current passion is exposing the lunacy of growth for growth's sake – pointing out that value and sustainability are the goals – not just getting bigger. "Financial targets compel businesses to pursue endless growth," he points out and, " Endless growth is incompatible with true sustainability." I recall Tom telling me a few years ago that an ant should not aspire to be the size of a human, and a human who tries to be the size of an elephant will inevitably die at an early age. His view – which I have learned to believe is the correct view even though it sometimes takes me a few years to catch up with his thinking - is that every organization has a right size – just like every living organism has an optimum size.
The opposite view is that of the management of Proctor & Gamble. Their 2007 annual report– the last one before the world was turned upside down – has one theme: Growth. "Designed to Grow" is the title and it rambles on and on about growth through acquisition and organic growth, and it goes on and on about innovation and brand management. It only mentions manufacturing in passing, and that passing reference is about the economies of scale they get as a result of their gargantuan growth. What is glaring in its absence is anything about creating genuine value for P&G's customers.
A funny thing happened on the way to fulfilling that strategy. Rather than grow, P&G has sold their prescription drug business to Warner Chilcott, their Noxzema skin care brand to Alberto-Culver, and Folgers coffee to Smucker. Rumor has it that their Braun, Duracell, and Pringles businesses can be found on eBay, available to the highest bidder. Sales and market share are going in the wrong direction at P&G and, according to Market Watch, "Procter & Gamble Co., whose stable of household products include some of the world's most recognizable brands, is paying the price for past success, requiring the company to make what it calls 'surgical' price adjustments to stem further loss of market share." Private label products are growing and P&G – the idol of the 'brand management and innovation' crowd is scrambling.
The most telling article about P&G's woes is one that appeared in the Wall Street Journal titled, "Tide Turns Basic for P&G in Slump." In the article, "After years of spending $17 on bottles of Matrix shampoo and conditioner, 28-year-old Ms. Ball recently bought $5 Pantene instead." She says, "I don't know that you can even tell the difference." She can't tell the difference because there is not likely to be much difference. P&G has been all blow and no show - their business model has been to create the illusion of value, rather than the substance of value. Brand management built on a staggering investment in advertising, and minimal investment in the actual products. They are exactly the sort of company Will Rogers had in mind when he said, "If advertisers spent the same amount of money on improving their products as they do on advertising then they wouldn't have to advertise them."
Walmart is hardly the ogre, bashing solid American companies into going to China to survive the price pressure from Bentonville, Arkansas. More often the opposite is true – they are not allowing the companies which have gone to China to get away with pricing that reflects the value they used to get when they paid attention to manufacturing in the United States. There are plenty of American manufactured products in Walmart, selling well and at higher prices than the Made in China brands – KitchenAid and my old friends at Wahl Clipper to name a few, and there are dozens more. What Walmart does is represents their millions of customers very, very well. They see right through the 'brand managers' like Levis, Huffy and now P&G who try to pawn off Chinese value at American prices. Companies who have forsaken continuous improvement of their products and the manufacturing processes that generate them, and focus instead on advertising and product positioning – who think the design of the package is more important than the value of the contents of the package – can't fool Walmart because Walmart knows that they can't fool Walmart's customers.
Guess what P&G – Ms. Ball and millions like her will not come back to your hollow brands once the economy comes back now that she knows the $5 stuff is exactly the same as the $17 stuff. Your best bet is to listen to Tom Johnson – stop the obsessing about growth and brand management, and start paying attention to value and sustainability … and you will not achieve that through economies of scale.