JE 4b-Misalignment

During the 2011 winter semester, I interned for Biosense Webster, a Johnson and Johnson company. In the healthcare industry, Johnson and Johnson is well-known and respected for its credo; not that the credo says anything more spectacular than what other firms state in their respective "credos", but rather how strictly JNJ follows it, even at the expense of market share and substantial sales revenues. This strictness in following the credo is part of a corporate culture, or "style" as defined in the 7S model, to "do the right thing"; the credo itself is the "share values" portion of the 7S model. As an example, you may recall the Tyenol incident in the 70's, in which a person outside of JNJ purposefully put cyanide into bottles of Tyenol. JNJ was not responsible for the incident, however in the interest in public safety, a massive recall was ordered, resulting in a loss in the hundreds of millions; consequently to this incident, JNJ devised the "safety seal". As a result of the actions of JNJ in the interest of public safety, and the development of the safety seal, several analysts have concluded that JNJ more than made up the losses in both revenues and market share from the Tyenol-cyanide incident. That was then; let me tell you about "the now."

Upon arrival to Los Angeles, I took the opportunity to re-read the JNJ credo, per the request of JNJ. When I reported to BWI Ops Finance, I saw something quite different from what I read. A part of the credo talks about how people are a key asset in the JNJ business model, the "staff" part of the 7S model; furthermore, the HR policy was to never assign difficult projects to personnel without providing training, if such training was needed. What I saw was a finance department vastly understaffed and overworked; I also saw department heads of other departments placing unrealistic demands upon the senior finance personnel. I got a vibe from the other finance personnel, including my direct report, of a mixture of "we have to do it or it's our behinds"; my peers often joked out loud "where the heck is the credo now?" A misalignment appeared to be between the expectations of personnel via how things were in the past, very closely followed credo internally, and how things were now.

This misalignment became ever more painfully apparent 6 weeks later: my direct report, an amazing and vital part of the finance team, quit to join a no-name company. This spread like a contagious disease as more resignations soon followed; I was left as the sole Operations Finance team member that was US based, as an intern! I had just completed a painstaking project of computer programming; a project that was very frustrating as a finance guy, and put a bad taste in my mouth; so much for that HR policy. I repeatedly stated that I didn't know how to do computer programming and the reply was simply, "get it done". I went to IT and had to repeatedly grovel to get help and finally, with ITs divine guidance and help from my direct report, before she quit, got the project done. Therefore, I quickly observed that a significant misalignment between their "shared values" of how to treat and help employees versus the reality of the work environment and the "structure", or how tasks should be divided, is what led to the sudden and quick departure of key senior financial analysts. I later learned that my IT project was similar to other projects given to the Ops Finance team that had no relevance to our defined roles in Ops Finance, and furthermore, was exacerbated by the lack of people to help lighten the load and pressure from upper-eschelon management.

This misalignment was more severely felt with the departure of several key analysts; my new direct report and Ops Finance colleague in Juarez, Mexico, could both feel the pain more than I could. Furthermore, my new direct report, a very talented and hard-working Israeli with whom I felt a close bond, felt under-appreciated. He had accomplished amazing projects from JNJ and took on a role that was not an easy role to fulfill. He had hoped, this would elevate him from "contractor" status, of which he had been in for a few years, to being hired as a permanent employee of Johnson and Johnson. When JNJ failed to do so, and even talked of letting the other Ops Finance colleague in Juarez, Mexico go (who was an excellent and needed team player), my new direct report confided in me he was going to switch companies. Furthermore, a break down in the "strategy" portion of the company seemed to be occurring across the US; several plants were shut down for federal manufacturing-compliance issues, and recall after recall plagued the company's market cap and market share.

It was an odd paradox; my colleagues highly-respected our immediate CEO, CFO, and President; the "style" of management was doing the best they could, and even I felt it a great privilege to learn from these great men, and saw that they took first-hand interest in our lives. However, it seemed like despite their acute awareness of finance shortage, things were not happening to correct the problem. This pattern may not have been unfamiliar territory for the seasoned employees I worked with; the jokes often abounded behind closed doors.

The purpose of this post has been to concentrate on the pain of misalignment, first-hand experienced, within an organization. When talking of pain, the focus will be mainly negative and seemingly depressing. I wish to emphasize I am grateful to JNJ and BWI for the internship opportunity and experience, for good and bad. I will state that the pain of misalignment outweighed the perceived benefits of higher salary and prestige of working for JNJ; upon leaving the internship, the VP of Operations asked if I was coming back. I just can't bear to put myself back in such an environment again; if they can get things better aligned, I'd consider it, but as of this moment, I want a firm that is better aligned internally. No company is perfect, and cannot be, with imperfect people composing and leading it, which is why the understanding and application of the basic 7S model is critical.

Journal Entry 4 10/14/2011

The CAPSIM simulation has provided a very effective means of applying and clarifying what we learn in class by process of decision making. During the simulation, I have observed my own team members confuse the term or concept of strategy with application of strategy. For example, one team member said, "our strategy is to spend more than our competitors in marketing and sales while decreasing our variable costs." In actuality, our strategy as Digby is a hybrid of "Low Cost Provider with Product Cycle Focus" and "Niche Differentiation". One of the several methods we employ to enforce that strategy is by spending more on marketing and sales budgets, while decreasing our variable costs via automation investment. Thus, the CAPSIM simulation has created a series of epiphanies, if you will, to understanding and clarifying strategy concepts discussed in class; this also includes the reality of constraints that clearly force a firm, if that firm wishes to succeed, to pick their core competency and pursue it with all vigor.

A core competency reflects what one person or entity can do better than everyone else. For CAPSIM, the model we adopted to help us determine our strategy, reflecting our core competency, is adopted from the Forumla 1 case, the VRIO Model of Sustained Competitive Advantage.

We then move the the table form of the VRIO model and ask ourselves, in a variation from what Dr. Burke posted on the slides. Will this decision maximize value to the firm? Is it a rare move, relative to our competition? Will such yield to us a first mover advantage and thus be costly for our competitors to imitate? Will this decision allow us to exploit the target segment and eventually earn super-normal profits? The consequences of adopting this strategy were clearly seen yesterday.

We had a bad round one, biting off more than we could chew and getting hit with a big Al, destroying value of the firm. Adopting the VRIO strategy, we jumped forward significantly, gaining ground on every team, including the computer; in fact, aside from the computer, we were the only team that had a stock price increase. We also had products that did extremely well in the Performance, Size, and Traditional target segments, our segments of focus, yet we generated significant returns in the Low-End target segment. We feel we are also well positioned going into the next round, having earned a large amount of cash almost entirely generated from operations. Therefore, round three should prove even better than round two.

Journal Entry 3, 10/6/2011

As I enjoy my final semester of the Business Management-Finance program at the Marriott School of Management, I notice an extreme amount of concern for future, primarily regarding students obtaining gainful employment. Indeed, achieving the goal of landing a niche position within a respected firm is so often labeled the culmination of graduation, that I cannot help but wonder if students become so focused on the short-term that they forget the all-important, ever-patient, long-term perspective on life; for eventually, every long-term perspective becomes the short-term. I have taken the long-term perspective, and it has forever changed my thinking and decision-making process.

I executed an internship for Johnson and Johnson, in the medical devices division, for the well-respected industry leader Biosense Webster; my position was within Operations Finance. Shortly after beginning the internship, I came to the quick and painful realization of how understaffed the operations finance department was at the time; with global operations reaching nearly a billion dollars in revenue, the Ops Finance team consisted of two full-time employees (one US, one Mexico), two sub-contractors (one Israel, one Mexico), and me, the intern. Several weeks into the internship, my direct report left the company to pursue a competitive offer; by so doing, I became the only Operations Finance personnel based in the US, for the entire company. To further compound the stress, my new direct report was located in Israel, which made communication for guidance very difficult; I also had the gruesome responsibility to get our financial reports online, which required basic computer programming, though far beyond VBA and ISYS 201. The business partners in other departments repeatedly asked when the reports would be ready; the reports were vital to assist in their daily, weekly, quarterly, and even annual decision making. Now that I was the only go to guy, the amount of pressure to get the reports done and soon was increasing daily; needless to say I was stressed.

At the end of my internship, by God's help, I had accomplished every task given to me, in a reasonable time period. I had also produced a new manual, nearly 150 pages, for all interns that follow after me; engineered and consulted in the automation of the critical reports so that the key reports, so vital to decision making, can never go offline again; and created a new process for accomplishing key tasks that by the end of my internship, I literally was asking others if I could help them with their work, as I had finished my own. Before leaving the internship, the VP of Operations asked me if I was coming back; we had a conversation in which he tried to persuade me to apply for the position, so he could hire me. The FLDP program for JNJ for SoCal pays around $60K, plus benefits. Not bad to start out; however, I had another great opportunity to become a sales manager with Vivint, $100K, plus other benefits. A model in strategy illustrates the two opportunities:

Looking at the graph shows the analysis I used to make my decision. The decision is essentially between doing sales at Vivint, something I had done three years previously, or enter the corporate finance world directly. The x axis represents the top four categories that are important to me personally; the HL and LL signify "High Level" and "Low Level" respectively.

Passion is something I love doing; opportunity is the the future bridges that are built as a result of the decision; free time is time outside of work; monetary compensation, as a means to support my family and invest early to secure our financial future. As the graph depicts, the decision was close, but I chose Vivint. Why? The ability to pass the CFA exams much faster than working full time, plus double earning power I currently earn to invest in properties and secure perpetual rents, compensate for lower opportunities available upon leaving Vivint. I furthermore have a strategy of transitioning from Vivint to an equity-research position with a well-respected firm. In a sense, I am taking a back-door approach to a successful life, but to me, it's not risky at all; I've done my due diligence, I have hedge the risk, and God willing and with his blessing, I will be successful. The model helps depict the logic of what may appear to be an illogical decision.

Journal Entry 2, 9/23/2011

The idea behind the Hedgehog Concept is combine a three-pronged strategy to success: first, do what you can be the best at, relative to competition; second, do what you can be passionate about doing; third, do what drives your economic engine. This concept is introduced by Collins and his research team in Chapter 4 of his book, Good to Great, who effectively prove that this concept is a principle for one's actions to gain greater success than previously enjoyed; in the business world, that would be increased or even dominant profits. Collins cites companies that consciously or unconsciously utilized the Hedgehog Concept, as it is called, proving instances of success in its application.

This idea, or combination of ideas really, intrigued me, so I decided to use it in application to my classes. I have determined which classes I can be the best at, namely my venture capitalist internship with KickStart, and my 241 Business Law class. I have a few unique core competencies that are not shared by my colleagues: Excel/VBA mastery, Harvard and Bloomberg Certifications, finance internships with JNJ and GFA, plus my polished skills in oral presentation; I should dominate and earn an A, relative to my peer competition. I also love the material I am learning, so it's easy to be passionate and look forward to learning more each period, and the material has potential application to my future career, as I see myself as either a VC or an attorney one day. As a consequence, I have decided to dedicate the majority of my effort and focus in these two classes this semester.  The other classes are so organized, including strategy, essentially applying the Hedgehog Concept in doing a cost/benefit analysis of my position relative to peer competition, since we are on a grading curve in the Marriott School.

I am excited to see if the application of the Hedgehog Concept can extend beyond the business world in my experimental test on my classes this semester.

Journal Entry 1, 9/16/2011

"There is nothing wrong with pursing a vision of greatness", says Jim Collins in his book, Good to Great, location 1319/6341, IPad e-book.However, in the same paragraph, he states that "the good-to-great companies continually refined the path to greatness with the brutal facts of reality".The context of this quote references what many companies seek to achieve or establish early on: their vision. Vision is a vital element that contributes to the strategy; but as Collins points out, it's not the strategy itself. Vision with data-driven strategy is key. I see this in my profession as a salesman. 

Too often, I see colleagues and managers getting riled up in the "hoorah" of hype, but believe that the vision itself is the strategy; that somehow, without a logical checklist, we can will our way to amazing sales. Case in Point: This past summer, I was one of the top salesman for Vivint in the Oklahoma City office; furthermore, I was part of a company-wide competition, in which the top five-veteran salesmen competed against one another, from office to office. Thus the top five of Oklahoma City, my office, competed against the top five salesmen of St. Louis, for example. 

Our team was doing great; we absolutely steam-rolled our way through the competition; as teams eliminated teams, the point in the competition is reached when steam-rolling changes to winning by a nose, as only the very elite are left. My team was matched up against Nashville; we were behind. My manager and friend, Scott Brown, proposed a city, 2 hours away, to target for our team. The idea was that if we could individually have outstanding performances for the next two-days, we could make-up the lag and achieve victory over Nashville. I ran the data on the city he proposed, Altus, Oklahoma. I found disturbing evidence: (1) less crime than Provo, UT, which for alarm/home automation sales, that's a big problem; (2) military town, and military recently suffered significant pay and benefit reductions; (3) competing company had been there two months earlier, harder to find interested prospects; (4) median income was fairly low. I presented these facts to the team, and suggested we find a new target location. The response was mainly negative, blaming me for bringing the team down for presenting the facts. I was shocked! I merely presented data to enhance our decision-making prowess, how would this bring the team down. The fact was the team didn't want to go against Scott, for fear of offending the manager who proposed the strategy, and also they wanted to ignore the reality of current events and demographics on Altus. So to Altus we went.

The result was disaster, as the data indicated it would be. Many people, including a heavy portion of non-military, stated that they were not spending money in light of pay cuts for the military. The military for obvious reasons, the locals because the military made-up the majority spending on their small business. Furthermore, those who decided to purchase were already customers of our competition. Others said that they had lived for decades without any incidents of crime and believed our services unnecessary. 

Reflecting back on this event, while reading Good to Great, has made me a believer in what Collins teaches, or rather what he found in his research. Vision is not strategy, and strategy is not vision; you must have both elements in place to be great, and to ignore either element will result poorly in your favor.