By the way, there is a lot of talk now again about zero-based budgeting because of the Kraft-Heinz merger. Some view cost-cutters as people who just come in and blow-torch the place, take out short-term profits and destroy the business. Maybe this was done in the 1980’s.
But there is a lot more to it than that these days, especially when folks like 3G / Buffett are involved. They want to create value in the long term.
Anyway, this book, How to Double Your Profits in 6 Months or Less is apparently the ‘bible’ at 3G and is handed out to managers at their companies. Zero-based budgeting is a lot older than this book, though, so the title of this post might be a little misleading.
It’s an awful book title, like, How to Lose 50 pounds in Three Days! but it really is a good book. It’s a quick read too.
There are things that will make you cringe. I don’t agree with all of it. Like not paying bills until you are billed for it twice and things like that.
But most of the other things are really sensible.
For employees, he doesn’t advocate just firing everyone left and right and cutting salaries. Fifer actually advocates paying productive employees more and paying less productive employees less (or getting rid of them). He says that most companies pay based on seniority so the old guys are happy and the young, productive guys are unhappy. You should do the opposite; make the young, productive guys happy and the old, unproductive guys unhappy. This will lead to better results.
I’ve worked in a large, bloated, bureaucratic organization and saw this first hand. Pay was based mostly on seniority and competence had nothing to do with anything. So what happened? The young, capable people left for higher paying jobs elsewhere (at companies that paid for performance), and the unskilled, unmotivated and not-so-competent stayed. And they got pay raises every year. This continued for years until you had this huge, bloated middle of people getting paid a lot of money for doing nothing and an unhappy work force at the bottom who didn’t stay long.
The funny thing about these companies is that since they don’t like to fire people, and only one person can be CEO, the pyramid just keeps getting bigger and bigger.
I have seen first hand how someone gets old enough to become a head of a division, but all current divisions already have heads. So what do they do? They create another one. And if more people reach a certain age and are eligible for a promotion to division or section head, they will just create another division or section.
And this goes on and on.
I imagine the big food companies like BUD, HNZ and KRFT are (or were) like this too; that’s why it’s so easy for outsiders to come in and boost margins by 8% in such a short period of time. I bet the rest of the companies (KO etc.) are in the exact same position.
And it will usually take outsiders (I don’t mean outsider in the Thorndike (Really Great Book) sense, but outsider in the sense of not being a lifer at the company).
Lifers and long-time employees can’t do what 3G does. If you work at a company for a long time, you know a lot of people. You have mentors and mentees. You’ve done favors and received favors from people in the company. You’ve encouraged people to stay at the company. Encouraged them to join. Helped them start divisions and new businesses, supported new ideas which might have lead to creation of new sections/divisions etc. You’ve been to weddings and bar mitzvahs. You just know too many people. So it will basically be impossible for a normal human being to make rational decisions.
Maybe someone can, but I think it’s hard.
Anyway, it’s a really good read. Again, you won’t agree with everything in there (but then again, when was the last time you read a book and agreed with everything in it?), but there are a lot of great ideas. And you will see that what 3G is doing is not so one-dimensional and simple. It’s not just firing people for the sake of firing people. It’s not about cutting costs for the sake of cutting costs. It’s not either/or or a transfer of wealth from the middle class to the top 1% (which is the way the mainstream press likes to present these things).
Other Books I’ve Read Recently
I do read a lot but most of the time, I don’t want to bother with ‘reviewing’ any book properly. But I do mention books that I really like here. If I had a lot to say about any particular book, they will be their own separate post, of course. I’ve done that in the past.
But since this is sort of a book post, I thought I’d just mention some books I read recently:
Marissa Mayer and the Fight to Save Yahoo!
This was actually a lot better than I thought. I only read it because of the current situation with Alibaba and Yahoo. I’ve owned Yahoo for a long time (mostly as an Alibaba stub trade), but I wanted to get more of a sense of what’s going on there in the Mayer era.
The book title is a little misleading as this book is almost a history of Yahoo and the internet itself. It gives a really good, broad overview of the internet era.
There are a lot of interesting things about the previous CEO’s too which to me were a little eye-opening. Maybe not for some people who follow the industry closely. But it was definitely interesting, with a lot of inside views too. There is some detail on the interaction with Loeb and his involvement etc.
This is also a quick read and I found it definitely worth my time.
Setting the Table: The Transforming Power of Hospitality in Business
This is a book written by the Shake Shack founder Danny Meyer. I am a sucker for books written by people who have done interesting things. Think about it. Most books are written by people who have never done what they write about. That’s not necessarily bad. Journalists never do things they write about, but they write great books too.
Danny Meyer is someone who has created something really great, so it’s great to hear what he has to say about his experience. I enjoyed it.
Haunted Empire: Apple After Steve Jobs
This is a book that was widely panned. I didn’t have any interest in it either until, frankly, Tim Cook mentioned it. That was when I decided I had to read it. If a CEO is going to go out of his way to respond to a book, I figured, there must be something interesting in there. If a book is really totally off and is nonsense, they are usually ignored.
The Amazon reviews, predictably, form a barbell shape. They are either one star or five star. If you love Apple, then you rate it one star. If you don’t like Apple it’s five stars.
Some of the criticism is valid. A lot of these stories are nothing new (labor practices in China), but there is plenty of other stuff in there that caught my interest.
My view on Apple hasn’t really changed. It’s a great company with great products, but to me it’s still a Steve Jobs company and Apple has been putting out iterations and updates to his creation. I don’t really have any faith that Apple will do anything as groundbreaking in any other area to the same degree.
This has nothing to do with my view of current management, which I think is as good as there is. I wonder if even Steve Jobs can keep coming up with world-changing things. At some point, no matter how innovative and earth-shattering, eventually you become the ‘establishment’. You become the target.
Apple will continue to innovate and make great products, I’m sure. But what I don’t have confidence in is that the next product will have the same sort of magnitude of growth for Apple that the others have had. If you look at how the iPod went to the iPhone, that’s a huge leap. The iPhone is a huge product. The next thing has to be even bigger, or just as big just for Apple to stay in place. This is the part I have a question about.
And sure, the iPhone upgrades may keep going for another cycle or two. But at some point, as Clayton Christensen points out in the Innovator’s Dilemma, the incremental improvement will exceed the needs of the consumer, at which point the product cycle will end (opening up an opportunity for alternatives).
But again, who the heck knows what will happen with Apple.
Netflixed: The Epic Battle for America’s Eyeballs
This is also a great read on the story of Netflix, definitely a game-changing company. Of course, one thing that sticks to me is how Blockbuster passed up an opportunity to buy Netflix early on for $40 million, I think it was. Talk about an error of omission!
This is also a great read because it’s not only about Netflix, but about business in general and how businesses can go wrong. This book is almost as much about Blockbuster as it is about Netflix. So it’s almost a text book on “how to fail”.
Blockbuster’s mistakes are obviously being made today by many. So it’s good to learn about what went wrong there.