Thursday, June 4, 2015

Weekly Brave Update - Chip Kelly, Campbell's Soup Edition

This week I am focused on examples of brave leadership in two industries that nearly all of us have experiences with - food and football.

First lets start with Chip Kelly & the Philadelphia Eagles. There was a great story this past week in Sports Illustrated about Chip's overhaul of the Eagles. While the jury is still out on the effectiveness of his complete overhaul of the team - one thing that is confirmed is Chip's bravery. In fact the title of the article is "Chip Kelly's fearless coaching mind."

Despite presiding over arguably two successful seasons that culminated in 10-6 records, he went 'all in' on his vision for success this past offseason. He let walk or traded his top 3 offensive weapons, including his starting quarterback, and made some big name free agent signings. Listening to sports talk radio during the free agency period you would think that everyone was bi-polar based on the daily reactions to Chip's moves.

You might be thinking 'why are we talking about sports on a business blog?' but coaching an organization like the Eagles is as complicated as being the CEO of any Fortune 500 company and we can find some strong lessons in Chip's mindset toward fearless management.
"Either Kelly is a forward-thinking genius, in the mold of Bill Walsh, Jimmy Johnson and Bill Belichick—or he’s just another coach who never should have left the college ranks. Whichever it is, the word bold doesn’t begin to define the transformation that Kelly has put his team through this off-season, his second since jumping from Oregon to the NFL."
Part of what makes his moves so bold is the fact that he has a very clear vision for his team and is confident in knowing the types of personnel he needs in that system to be successful.
“Certainly he has his strategy and the way he wants to build his team,” says Stephen Jones, executive vice president of the Cowboys. “You’ve got to respect him for that. He seems very convicted in how he wants to do his roster.” At every position he knows exactly what type of player he wants, from physical description to mental makeup."
This vision and understanding of who the organization is and complementing that with the right personnel is the hallmark of a truly brave organization. Another key aspect of corporate cultures that operate in a brave way instead of out of fear is that they are not easily influenced by the media. Despite a preponderance of critics of these moves Chip has been undaunted. Not in a way that is stubborn but in a way the conveys confidence in his strategy and what he wants to accomplish. According to the article,
"It’s impossible to say whether Kelly’s method will thrive long-term in the NFL, but he’s made all the right moves at every level of his career while naysayers shook their heads and said, That’s not the way things are done. He sets his own course and, so far, it’s been one that everyone else ends up following."

Secondly, there was a great in-depth look at the rapidly evolving US food industry in Fortune Magazine. The article provides a great summary of the wrenching changes that are accelerating in the way Americans buy food that is having massive implications on how food is grown, processed, marketed and sold.

The primary driver of this revolution is the impact of changing consumer tastes with a much stronger focus on all-natural foods. As a result it is causing 'big food' manufacturers to reformulate iconic brands, change how they package their food products and buy their way into these new markets to stoke any growth.
"Big Food is suddenly looking like an underdog."
According to the article, to underscore the crisis facing big food, an analysis by Moskow found that the top 25 U.S. food and beverage companies have lost an equivalent of $18 billion in market share since 2009.

The article goes on to profile two iconic companies; Campbell's Soup and The Hersey Co. that are grappling with these changes in different ways.

Despite making products that everyone knows is 'bad for you' or is an indulgence, Hershey vowed to not get caught flat footed by the changing consumer tastes. The article had the following to say about the thought process of Hershey's executives.
It might seem, then, that Hershey had no cause to be worried over the food revolution. But executives at this all-American chocolate maker could see the tumult happening all around them. In February, Hershey took a mammoth leap to get ahead of that trend when it announced it was starting to transition its products to “simple ingredients.” What’s more, the makeover would start with two of its most venerable products—Hershey’s Milk Chocolate bar and milk chocolate Kisses. Rather than, say, remove just artificial flavors—or only GMOs or milk from cows raised with the growth hormone rBST—Hershey was going to spike all of them. In their stead would be only ingredients that people understand: milk, sugar, vanilla, etc. Both the milk chocolate bar and Kisses will have “clean labels” by the end of the year.
A brave step by a company that by all counts was humming. Over the past 5 years their revenues were up 30% and profits were up 67% - making the prospect of monkeying with their namesake product risky for any organization more focused on protecting what they have rather than staying ahead of the pack.

Campbell's Soup
Campbell's CEO Morrison had similar vision for the changing consumer trends and its potential long-term impact on the company but had to work to convince others at the Board level that making bold bets on the future was critical.
Morrison tells Fortune that she knew she had to “shift the center of gravity at Campbell” when she took over the company in 2011. True enough, Morrison’s board was skeptical at first. “Carrots, Denise? Really?” asked one director. The acquisitions have also, as intended, shifted Campbell’s center of gravity—moving it closer to what the food industry calls “the perimeter,” the outer ring of the supermarket where fresh foods are stocked. Executives now even talk a bit differently, infusing a more wholesome-sounding vocabulary in day-to-day conversation. The company “cooks” and “preserves” rather than “processes” and “manufactures”; employees follow “recipes,” not “formulas.”
The problem however for a company like Campbell's facing dramatic shifts in the market, there isn't enough time to build their own brands or risk reformulating their 'bread and butter' product to take advantage of these trends. As a result most of the big brands are buying their way into relevancy with these new consumer needs. The article has the following to say about the risks of this approach:
The inherent risk with such acquisitions is that the parent company swallows up the scrappy upstart into what food industry veteran Alan Murray calls “the machine”—a hidebound, groupthink corporate enterprise—rather than learning from its entrepreneurial culture.
Kellogg made the mistake of relocating Kashi from the San Diego area to its parent’s headquarters in Battle Creek, Mich., but moved Kashi’s operation back after the brand’s sales slipped. “They tried to bring it under their corporate umbrella, and it lost its cachet,” says Erin Lash of Morningstar.
So if buying their way into these fast growth markets present risks - reformulating your core products, like Hersey's has started, can be equally perilous. With the newer all-natural offerings margins are much thinner and with investor pressures for ever larger profit margins on a quarter over quarter basis the pressure on margins can cause 'big food' to let fear drive their decision making on remaking their companies.
That’s why, no matter how serious the rebellion among American shoppers is, Campbell can’t completely remake itself as Bolthouse Inc. It’s also why Mark Alexander, the Campbell exec who oversees the rows and rows of Warhol-celebrated cans on U.S. supermarket shelves, has such a tough job. He can’t risk doing anything to those classic soups that might hurt margins or sales, because Campbell needs that “big economic engine,” he says, to invest in fast-growth areas. Says Alexander, “It’s not an either/or.”
If your products are non-GMO, organic, and have no artificial ingredients, says Simon, you’re always going to give up 10% to 15% on margin. He questions whether the hungry giants are really willing to leave that on the table. “The big companies today, they want to have Annie’s and Small Planet, but on the other hand they want to sell genetically modified ingredients,” he says. “You can’t go both ways. You’ve got to put your stake in the ground.”
Once these big food companies have staked our their strategy and positioning and started to move forward with the desire to go more natural than their mass produced pasts, there is one last thing that a brave organization has to do. Fight the temptation to fight regulations which are only supported by the same consumer behaviors you have staked your future to. Running out ahead of the pack requires that you do the same thing on the regulatory front as well, otherwise you can end up alienating those very consumer tastes you are chasing.
Indeed, the polarizing and emotional GMO-labeling issue may best illustrate the dilemma facing big food companies today. Polls show that the vast majority of consumers say they support labeling products that contain GMOs, even though regulators—and established scientific organizations—have declared such modifications safe. Big food companies, however, have poured millions of dollars into overturning state initiatives that require labeling. “The smartest thing you can do as a CEO right now is to side with the consumer,” says Stonyfield’s Hirshberg.
Campbell Soup has been caught in the middle of the controversy. It helped fund industry anti-labeling efforts in two states before backing off. Morrison says she has always supported letting consumers know which products have GMO ingredients, but she wants one piece of federal legislation rather than 50 state laws.
For the old-school titans, says Boulder Brands CEO Steve Hughes, “It’s a classic case of winning the battle and losing the war.”

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