Thursday, May 24, 2007

Burberry's New CEO and New Focus

Today's Wall Street Journal featured an article on Burberry's new CEO, Angela Ahrendts, and her retrenchment strategy at the famous brand's company.

I think Ms. Ahrendts is a very bright and decisive CEO. Her corporate pedigree suggests she's ideal for the job.

What really puzzles me, however, is that her predecessor was unable to effect the same strategy, even though it is more than 50 years old.

According to the article, when

"Walking through the Burberry showroom here after becoming chief executive last July, Angela Ahrendts looked at the wealth of apparel and accessories and thought, she recalls, "Way too much stuff."

....On her third day as CEO at Burberry Group PLC, Ms. Ahrendts asked Burberry Chief Financial Officer Stacey Cartwright for a report on what each product contributed to the business. Its findings: 80% of Burberry's sales came from 20% of its wares."

This simple, yet magnificently effective analytical approach was pioneered by Russell Ackoff in the 1950s among America's steel mills.

My manager and mentor at Chase Manhattan Bank, Gerry Weiss, used to say,

"There are hundreds of business aphorisms which we all know. The question is, which three or four apply in this particular instance?"

Few CEOs, it appears, know enough of the business strategy playbook to be able to shift gears and handle different situations, well, differently. So many seem, in effect to be one-trick ponies. Perhaps growth, or cost-cutting, or simply 'steady as she goes.'

Thus, Ms. Ahrendt's predecessor, Rose Marie Bravo, pursued rapid growth at Burberry's, although it eventually plateaued after almost a decade.

What I think this suggests is that boards of directors need to be more sensitive to how a CEO continues to perform over time. Initial successes are fine, and should be compensated. But that does not guarantee an endless honeymoon.

The reality of business seems to be that most CEOs cannot easily transition between environments, such as turnarounds, cost-cutting, or growth.

So at Burberry's, as Ms. Ahrendt reins in the product line, improving profitability, it will probably be worth watching in a few years to see how she does re-igniting profitable growth, when the pruning is finished.

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