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2. Getting Whacked— and Getting Better

The other day, one of us—not the one who fell asleep during the concert in Vegas, OK?—was in the garage looking for a favorite old golf club. The prospect wasn’t promising, frankly, in that our garage is mainly a place where boxes go to die.

Surprisingly, however, one such box did hold the missing club. And it was just after locating it that our protagonist stood up and did a complete head slam into a shelf that was jutting out from the wall.

It was the ouch heard ’round the block, although perhaps it wasn’t exactly an “ouch.”

Look, getting whacked hurts like crazy. First there’s the true, “I-see-stars” kind of pain. And then, right along with it, there’s the shock. “How in the world,” you wonder, “did I let that happen?”

It’s only later, usually long after the bump is gone, that you come to say, “You know, getting clobbered actually taught me something. I won’t let that happen again.”

Business is full of whacks.

A major client uses your monthly update meeting to fire you while lodging a litany of complaints. The new product that was supposed to launch at 1,000 units a week sells 500, or 250, or 10. Your biggest competitor buys your second-biggest competitor, and starts coming after your best customers with their combined sales team. You learn that your secret-sauce marketing channel is going to be “retired” by your biggest digital partner in two weeks. A customer’s bout of bad service in one of your stores sets off a hailstorm of hate on Twitter.

And then there’s the kind of whack that’s more like a wallop—the market you serve collapses because of a regulatory or natural event, or a disruptive technology outright kills your industry, or there’s a staggering recession, the likes of which, say, comes ’round every 80 years.

Surprise!

Surprise—sometimes. In Silicon Valley, disastrous and sudden “disruptions” are so much a part of the fabric of everyday business, there’s even a popular acronym for them, WFIO, which stands for, “We’re F—, It’s Over.” Technology businesses, almost by nature, are whack-magnets.

By contrast, whacks can happen out of nowhere or with very little warning. Think of the businesses in New Orleans that were wiped out by Hurricane Katrina in 2005, or Superstorm Sandy in 2012.

But such outright calamities are rare. Far more often, we get whacked because our organization was not prepared; we didn’t see something coming. A competitive threat, a cultural change, a new technology, the list goes on and on. It’s as Google CEO Larry Page put it in his 2014 TED talk: “The main thing that has caused companies to fail, in my view, is that they missed the future.”

Look, why your organization got whacked isn’t all that important for our purposes here. Something bad happened. This chapter is about making repairs—about fixing things so that the organization rallies back as quickly as possible, and in the best-case scenario, is functioning in a way that makes another whack a lot less likely.

To that end, we’ve got six pieces of whack-recovery advice we’re going to explain and explore in the coming pages.

1. Own your whack.

2. Hang on tight to your best.

3. Get maniacal about the drivers of costs, performance, and growth, using data as your guide.

4. Reinvent your strategy process.

5. Reality-check your social architecture.

6. Worry more productively.

Ready? Great. Because we love talking about these tactics. They belong at companies in the throes of recovery, and, we would go so far as to say, at all companies, whacked or not. Any coach will tell you the best defense is a good offense. Same’s true in the game of business.

Code (Almost) Blue

If Hollywood ticket receipts are any indicator, everyone loves a good horror story. Watching a good horror story, we should say, because living through one is another matter.

Just ask Joe DeAngelo and his team at HD Supply (HDS). The company got its start in 1975 as a regional, California-based distributor to the building trades called Maintenance Warehouse. By 1997, it had grown substantially, and Home Depot, seeing all sorts of product synergies, snapped it up, establishing it as a division, and investing heavily in online ordering and logistics. HDS customers remained highly fragmented—plumbers, contractors, apartment building superintendents, facility managers, and the like. That fragmentation had never been a problem with the real estate market booming, however, and HDS had enjoyed a long stretch of success over the decades. (Its revenues in 2005, for instance, were around $12 billion, with earnings before interest, taxes, depreciation, and amortization [an EBITDA] of $1 billion.)

But then in 2008, HDS received two massive “body blows,” as Joe puts it. First, the long-overinflated residential housing bubble burst. That was tough on HDS, of course, but the company was able to pivot to its secondary market, commercial real estate, which is typically countercyclical with residential. A few months later, though, the entire building sector went down the tubes with the recession, and HDS’s revenues eventually fell by 40 percent. Just to stay alive, the company let go of 12,000 of its 26,000 employees, sold three of its business units, and shuttered a third of its branches.

To make matters worse, at the time of these events, HDS was already in a precarious financial situation. Recently spun out of Home Depot and sold to private equity, it was loaded with debt. Indeed, for all the good PE can do rescuing and realigning companies, this is one of the industry’s major downsides. Early on, its acquisitions often have limited cash flow and a heavily leveraged balance sheet.

“On the outside, everyone thought it was over for us,” Joe recalls of 2008. “They were just waiting for the death certificate.”

It wasn’t forthcoming. In fact, even though the HDS story is about getting whacked at the far reaches of in extremis, the company’s response provides a great example of our first four pieces of advice in action.

Own Your Whack

If you’ve ever been in an organization that’s taken a hit, you know all the behaviors that immediately start to set in. People huddling behind closed doors, whispering about “who’s going to go,” managers scuttling between meetings with piles of binders and worried looks, not making eye contact with anyone, and general fear-and-loathing in the lunchroom. There’s such internal paralysis that the main work going on, basically, is people gossiping and sending out resumes.

This kind of response to trouble is natural, because self-preservation is natural. But it’s also a self-fulfilling prophecy. Distracted, frightened, depressed people can’t fix anything.

HDS put a kibosh on this dynamic. There was no denial, and just as important, no blaming or victimhood-claiming. Comments like, “Finance should have seen this coming,” and “I can’t believe this happened to us; we don’t deserve it,” were verboten. What good were they? Instead, HDS leaders adopted a massive “we’re going to beat this” mentality, and rewarded those doing the same.

Such a mindset was achieved first by a constant invoking of the company’s mission and behaviors. “We had to set fourteen thousand people all going in the exact same direction,” Joe says. “Our mission was eight words: ‘One team driving customer success and value creation.’ We said it again and again.” At the same time, the organization’s behaviors were communicated through the acronym SPIRIT—service, performance, integrity, respect, innovation, and teamwork—and reinforced with small, spontaneous cash awards for the people demonstrating them. Importantly, such battlefield commissions, so to speak, were openly celebrated.

There’s also a bit of theater to owning your whack. Take your pick at the best approach to reignite the organization—an off-site teambuilding event, an inspiring speaker—the options can get as creative as you want. At HDS, Joe chose to assign a special SWAT team to study the special attributes shared by the most famous champions in history—George Washington, Muhammad Ali, Secretariat, among others. Their findings—insanely hard work, a defeat-is-impossible attitude, and passion to be the best of the best—were touted and invoked in company meetings for two years. “We talked about the championship project findings a lot,” Joe says. “Secretariat won by thirty-one lengths. We used that example all the time to reset how people were thinking. We wanted everyone asking, ‘Is hiring that person going to help us win by thirty-one lengths? Is going to that conference going to help us win by thirty-one lengths?’ ”

The champion project, Joe says, “really helped stopship the pity party. It celebrated how we were going to get better, and that started with a very purifying thought. Losing was not an option.”

Hang On Tight to Your Best

Far too often, when a company gets in trouble, its leadership has the knee-jerk reaction of firing people without consideration of performance. Many times this kind of willy-nilly approach happens because the company doesn’t have a performance appraisal system in place, and wanting to show the board how fast they’re acting and how deeply they’re cutting, the leadership team takes the easy way out and tells every manager to fire 10 percent of their staff, or lower salaries by 10 percent across the board. Similarly, they offer buyout packages to anyone who will take them, and of course, too often, the highest-paid, most qualified people tend to snap them up and leave, as they get the best terms and have the best opportunities elsewhere.

Not to put too fine a point on it, but this behavior is the epitome of weak, cowardly, demoralizing management. Why on earth would you want to incentivize your best out the door and risk setting off a mass talent exodus?

Getting out of a hole is hard enough. But you are never, ever going to get out of a hole without your best people. That’s why in hard times, you must do something counterintuitive and even courageous, which is give your best people more in current pay and long-term, performance-based equity, going so far as to err on the side of too many participants rather than too few.

We say courageous because, in the darkest days, bringing such an idea to your boss, or in some cases the board, can feel like walking into moving helicopter blades. Your boss is often paralyzed and the board is worried about proxy optics. It takes guts to say, “Let’s compare our proxy noise embarrassment about pay with the pain of bankruptcy headlines, shall we?”

But guts are required. Indeed, more than guts. If there was ever a time to unleash the generosity gene we talked about in the last chapter, it is now. In hard times, your best people become your best role models. “If Sam and Sarah are staying,” other employees think, “things can’t be that bad and they’re definitely going to get better. I’m in.”

Or put another way: your best people are your best hope for survival—and success. Do what it takes not to lose them.

Get Maniacal About the Drivers of Performance

With the right people on board, you can turn to the next part of fixing your whack. That is, meticulously searching for ways to improve every part of the business.

Meticulously? Hello, that does not mean slow. It means intelligently and deliberately, and in particular, it means driven by the vast stores of information about markets and consumers now available for free or for a price. Some people refer to this new ocean of facts and figures as big data, and we suppose that’s fine (if a bit jargony). For us, the imperative around big data is not necessarily getting more information; you could drown in it all. The main issue is discerning what information matters to your organization and crunching it to determine the true drivers of cost and growth. Ultimately, it is as Sir Terry Leahy, the former CEO of Tesco, has so famously (and wisely) said: the only data that matters is the data that is actionable.

It was just such analysis that allowed HDS to quickly decide which businesses to divest because they had no clear path to a leadership market position. “The diagnostics allowed us to see what we needed to see,” Joe says. “We looked at every external market. Is there a way for us to make money there? What are the customer needs, which of them is most important, and how do we compare to our competition?” Similarly, the data pinpointed the best opportunities for investment.

As a result, HDS sold off lumber, plumbing, and industrial piping, redoubling its focus on facilities maintenance and upping its technology investment to improve its delivery logistics. At the same time, again using a heavy dose of data analytics as a tool, the company launched a program to reward and spread process improvement. Its Los Angeles operation, for instance, was scoring much better results than other HDS outposts on numerous measurements. A headquarters team was assigned to find out why, and make sure its superior practices were disseminated across every branch of the organization. Meanwhile, every member of the HDS field team was hitting the streets with a new iPad loaded with Salesforce.com software, with its reams of information about which products to promote to each customer for the best results.

“We were maniacal about performance, basically,” Joe says. “In a life-threatening event, you have no alternative.”

Fortunately, today, due to advances in data gathering and analytics, maniacal can mean meticulous and fast at the very same time.

Reinvent Your Strategy Process

Let’s move on to something else critical to HDS’s recovery: the way the company handled strategy, post-whack, which for our purposes also illustrates how strategy and tactics should be increasingly integrated today, regardless of circumstances.

Because the truth of the matter is, strategy-making—at least as those of us over 40 used to know it—is dead. It’s irrelevant. Big, staged biannual sessions with elaborate presentations about “trends” and “core competencies” and the like? Meetings before the meetings to establish buy-in with “internal constituents”? Forget it. Markets move too fast for any of that old ritual. They move too fast, and they change too fast.

Now, we’ve long been proponents of a much simpler, more flexible approach to strategy that we call the “Five Slides,” because the process can basically be boiled down to, obviously, five slides. These slides, incidentally, should not be created by some sort of “SVP of Strategy” or outside consultants. No, they should be created by a team led by the CEO and comprise an organization’s best minds, engaged, knowledgeable, curious, and original. People who are likely to debate, and even disagree, drawn from any and every part and level of the organization that makes sense. And, importantly, people with a propensity for paranoia—not just what-if-ers, mind you, but worst-casers. Strategy today demands that kind of mindset because in business today, virtually anything can happen, and it does. A tech start-up comes in the side door and topples an industry giant. An offhanded comment by a senior executive offends a huge category of customers. Oh, the list goes on and on.

Which is why the Five Slides are so paranoid and externally focused in their approach. Their objective is singular, actually, as it should be in any strategy process: to get the organization outside itself—a huge challenge! A review:

The first slide provides a nitty-gritty assessment of the current competitive playing field. Who are our competitors? What’s their market share; what are their strengths and weaknesses? What does it look like inside their organizations? For the process to work, please understand that these kinds of questions cannot be debated at 10,000 feet, like some sort of white-glove, intellectual discourse. We’ve seen that too many times, and it’s a waste of energy. You have to wallow in the detail—as if you’re in each and every competitor’s conference room. Does that sound hard? Well, it is, absolutely. It takes rigor and discipline to really dig into the competition’s head. But if there is one thing we’ve seen time and again, it’s that strategy-makers underestimate their competition in the present time frame—for instance, dismissively opining, “That company’s crazy with their prices—they’re going to go out of business,” rather than asking, “Whoa, are our costs too high?” To make matters worse, they also imagine the competition as stagnant when predicting the future. Sorry, but we just can’t hammer this one hard enough. People can’t seem to help themselves. In their analysis, they’re moving forward while their competitors are assumed to be standing still. It’s nuts. The antidote can only be: when it comes to market analysis, be afraid, be very afraid.

On the second slide, you put together an assessment of all your competition’s recent activity in terms of products, technology, and people moves that changed the competitive landscape. On the third, you outline what you’ve been up to in the same regard over the same time period. The fourth slide identifies what’s around the corner, in particular what worries you to pieces, such as a competitor’s new product, an M&A deal that could really shake things up, or a disruptor from another industry showing up to play in the space. And the fifth and final slide identifies what you see as your big, wow-worthy, winning move to change and dominate that same space, filled with old, new, and potential competitors alike.

The Five Slides approach obviously reflects our belief that strategy is not a particularly high-brain endeavor, but far more a matter of coming up with the big aha for your business, putting the right people in the right jobs to drive the aha forward, and relentlessly seeking the best practices to achieve the aha. (For the record, we define “big aha” as a smart, realistic, relatively fast way to gain a sustainable competitive advantage.)

Now, when we first started talking about the Five Slides approach to strategy about a decade ago, it was received as somewhat “outside the lines.” No surprise, really, as MBA curriculums at the time (not to mention the consulting firms that employed many of their graduates) were built around the strategy-making process being as intellectually complex as humanly possible.

Over the past several years, however, we’ve observed a significant movement toward more flexible, swifter strategy processes that promote agility. Because being agile really matters. At a tech conference we attended not long ago, for instance, Qualcomm’s then CEO Paul Jacobs (he is now executive chairman) noted that his team conducted an informal strategy review monthly, and if the markets were demanding it, more often. No one in the audience seemed shocked by this statement, and many nodded approvingly, as if they knew exactly what he was talking about.

Which brings us back to HDS. Before it got whacked, it too wasn’t exactly stuck in old strategy habits, it just hadn’t fully embraced the new. But its crisis changed that, to put it mildly. Instead of quarterly strategy sessions, it moved to market reviews every Thursday.

Yes, every Thursday.

Just as significant—and this is really key—the company made sure its Thursday strategy (and tactics) review process was an exercise in exploring the external world.

Look, too often, strategy can become a bunch of people in a windowless room (literally and figuratively) talking about history. About trends they’ve seen. About who did what back when. About things they know to be true because that’s the way they’ve been. About the way things just seem to go in the business. About what’s happening in the company right now—as in, what it can do and can’t do because of this person and that person.

No, no, no.

Effective strategy-making is about the future—and the markets. Customers and competitors today, tomorrow, and a year from now, technology coming down the pike sooner and later, products not yet invented, looming social and political events. You name it—as long as it is out there.

At HDS, “I just kept returning every strategy conversation to the markets,” Joe says. “We were never going to succeed talking about us and what we could or couldn’t do. We had to talk about the customers, the competitors, new products, new services, new technologies. What else is there?”

That’s a great question.

Let’s now turn to our final two pieces of advice about surviving a whacking, and, indeed, getting better because of it.

Reality-Check Your Social Architecture

Social architecture describes how a business has its people arranged—its reporting relationships—and inasmuch conveys who and what are important to the organization. Put simply, we’re talking about the “org chart.”

Generally, people in business avoid talking about org charts because they’re boring, especially when dotted-line-heavy matrix organizations come into the conversation. Org charts can also make some people a bit frantic, especially people who care a lot about how high their little box is compared to other people’s little boxes. But that’s not our point here.

Our point is the following: in our experience, too many companies still get whacked because their social architecture has not changed with the times. And to be even more specific, because their social architecture is too often a relic of the past, with today’s critical functions of IT and risk management reporting either to the wrong level (misunderstanding their importance) or on the wrong function (misunderstanding their value-add).

Hanging on to outdated social architecture usually isn’t malevolent, of course. But it still happens, a historic habit, left over from the days when the nice semiretired lawyer or out-to-pasture accountant in risk management chatted with the company’s auditing firm a couple of times a year and checked in with the line people every now and again. As for IT, well, it was the number you called when you wanted help running a WebEx with your team in the field.

Today, of course, IT has a major strategic function in just about every business. And with the rise of cybercrime and proliferation of government regulation, risk management should be as well.

Yet, in too many companies, we still observe that the social architecture doesn’t reflect reality. Risk managers are trotted out to report to the board twice a year and get patted on the head and sent back to their caves. Similarly, the leaders of too many companies can’t bring themselves to let the CIO into the room for strategy conversations. We certainly know where that fear comes from. Even with the advent of low-cost cloud-based solutions, it can still feel like IT comes around too often asking for huge sums of money to upgrade this or that system, or for some other “urgent” technology infrastructure project no one really understands. “Puh-leez,” everyone is thinking to themselves, “make your expensive gobbledygook go away.”

There’s a terrible cost for marginalizing risk management and the CIO, however, and the time you see it is when a company has just taken a huge whack. Take the case of Target. Right before Christmas in 2013, during the peak-peak of the year’s biggest selling season, the store had the very unpleasant task of announcing that cyber-thieves had broken into its system, accessing the account information of 70 million customers.

Seventy million!

Target is hardly alone. Think of Sony’s hacking debacle, surrounding its release of The Interview. It was nothing short of an international incident. Think of GM recalling millions of cars for lethally faulty ignition switches after 13 deaths. Think of JPMorgan Chase losing billions of dollars due to the so-called London Whale incident.

How agonizing. Disaster shouldn’t have to strike for companies to examine who’s reporting to whom, and how often. There is, of course, no “ideal” social architecture. There is only the “ideal” social architecture for each individual company and its market. That said, it’s hard to think of a business today that shouldn’t have risk and information tech positions filled with the top talent, talent that understands not just their immediate function but the business strategy as a whole, connected closely to top leadership in high-profile reporting relationships, and sitting in the room during every conversation that matters.

And Finally, Worry More Productively

Last year, we got a midnight email from an old friend. This friend, whom we’ll call Julie here, runs a $2 million ad agency with a part-time staff of 12. And she’s thinking of adding more, in fact; business is booming. Yet her late-night missive read, “I’m worrying constantly these days. It’s stupid to worry, right?”

Wrong.

It is only stupid to worry about worrying. It’s smart to worry as long as you nail down what you’re worried about—and face into it.

Look, we don’t need to belabor this point except to say one thing: in business, worrying can often be a signal you’re about to get whacked. It’s your early warning system, based on just . . . stuff . . . vague inputs. A big client taking a few hours longer than usual to return emails. Unexpectedly positive tweets about a competitor’s product that you’d written off. Your landlord making noncommittal noises about his plans to sell the building “eventually.”

These kinds of mushy, nebulous data points are part of every manager’s day, and too often, managers wave them off. As we said in the last chapter, “the work” gets in the way. Our message there was that alignment is part of the work. And our message here is that worrying—constructive worrying—is too. Doing the painful pinpointing of what trend, occurrence, offhanded comment, or whatever-it-was that is causing the uh-oh feeling in your stomach, and then doing the equally painful investigation into whether your worrying is justified or paranoid. You win either way. If you discover your worry is justified, you can fix things before it’s too late. If you discover you were just being paranoid, you can rest easy with the knowledge that, at least this time, you’re not going to need to groan, “Damn, I knew that was coming.”

Our friend Julie, unfortunately, didn’t want to go there. When we pushed her to identify the source of her worry, the best she could do was, “I just get the feeling Harry is mad at me.” Harry was the VP of marketing, and Julie’s main point of contact, at her marquee client.

Then we advised her to visit Harry to test her concerns. She demurred. You guessed it—she was too busy.

At their next monthly meeting, you guessed it again, Julie was fired with a litany of complaints about her team’s shoddy performance. We alluded to her whacking, in fact, at the beginning of this chapter.

She called us right afterward. “I’m just sitting here in my car. I can’t bring myself to go back to the office and tell everyone. It’s too humiliating,” she said. “I’ll do it tomorrow.” We weren’t going to suggest otherwise. Whacks, as we said earlier, can hurt like crazy.

Nor did we want to remind her of her midnight email. But she brought it up. “I told you I was worried,” she said.

Yes, she had. But not worried enough to worry the right way—the way that chases worry down and catches it. After all, it’s far better to own your worry than own your whack.

We saw Julie recently. Harry is gone as a client, but getting blown out the door by him that fateful day was a great learning experience. She and her company, she says, are better for it having happened.

That’s the way whacks usually work.

Joe DeAngelo would agree. “I wouldn’t want to do it again,” he says of HDS’s near-death experience, “but it allowed us to refine and hone everything we were doing. A crisis does that. It gives you the speed and the urgency to fix what’s broken a lot faster.”

In 2014, HDS had a very successful public offering, giving its employees and owners a great opportunity to celebrate what surviving a whack really feels like.

The facts are, a whack can hit any size company, from a multibillion-dollar conglomerate to a one-person show. That’s life. That’s business.

Just remember this. If one comes your way, a whack is a terrible thing to waste.