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Why You Need to Stay in the Rat Race — A Wake-up Call for Lazy CEOs

Todd Buchholz |Former White House Economic Adviser HKSCKPVIamp; Author, "RUSH"
Friday, 3 Jun 2011 | 10:44 AM ET

Guest Author Blog: by Todd G. Buchholz author of, "RUSH: Why You Need and Love the Rat Race"

We all think we will be happy when we finally have some downtime – when we can get away, disconnect, shut down.

You may even daydream about withdrawing from the rat race full-time. What you don’t know is that all that peace and quiet will ruin your state of mind.

The same is true in the workplace.

CEOs who try to lift self-esteem by stomping on internal competition will drive their company right to bankruptcy court.

We need competition as individuals, as consumers, as executives and as employees.

Here the truth about competition: First, consumers do best when companies have to compete for their business. If not for Toyota, we could all be stuck on the side of the ride, sitting on the hoods of overheating Chevy Vegas. Second, management must instill competition within organizations. Alfred Sloan succeeded for GM in the 1930s because every time a prospective buyer strolled into a Chevy dealer, the Pontiac team tried to wave a flag to get that customer’s attention. Third and most important, management should feel an obligation to motivate their employees, even when the employees don’t want to be motivated. Giving in to union demands for non-work is a recipe for bankruptcy and for frustration.

Life in Commodity Hell

By the time many CEOs get to the top, they have lost the fire in their bellies. They see the corner suite, not as an incentive to push harder, but as a reward for what they have already done in the past. They want to rest on their laurels and on the Herman Aeron chairs. They cease to enjoy the thorns that prick them to compete. They grow too timid to draw on the competitive drives of their employees. And so they drive their companies into what I call “commodity hell.” Who pays the price? The employees and the shareholders.

What is commodity hell?

Commodity hell is when you have a product or a service that you cannot honestly tell clients that your product or service is better, faster, or more reliable. When a client asks how your product compares to others, all you can say is, “We got what they got.” That means you have no pricing power, no profit margin, and frankly, no reason to be in business.

"We need competition as individuals, as consumers, as executives and as employees." -Author, Rush, Todd Buchholz

Such an executive might think he has in a genteel way, alleviated the high pressure and rat-race nature of his business, creating a cushier place for his workers. But the truth is any executive who leads his company into commodity hell might as well lead his employees right to the state department of unemployment insurance claims.

Look at Michael Dell.

A brilliant inventory manager, Michael Dell built from his off-campus dorm room at the University of Texas, Austin a computer company that once trounced Hewlett Packard, IBM, Gateway and others. He dropped out of school and designed a lean, just-in-time inventory system that delivered reliable customizable computers to the doors of his customers.

They were delighted.

As a customer I was so impressed, I visited the Dell factory in Austin to marvel at his system. Dell insisted that UPS have an airport close by so he didn’t have to worry about airport delays. But then Michael Dell slipped out of the picture as CEO in 2004, and other managers moved in. Hewlett Packard, Toshiba, and others started to copy Dell’s inventory techniques and by 2005, Dell was dropping into commodity hell.

The company struggled to explain why customers should buy a Dell.

In 2006, Dell’s market share in PCs slipped from about 19 percent to 14 percent. Pricing and profit margins collapsed. A popular advertising campaign based on a mischievous slacker’s catchphrase, “Dude, you got a Dell,” started to symbolize a laid-back, ineffective strategy. To add insult, the young actor in the commercials got arrested for attempting to buy a bag of marijuana in New York. Today, Dell is still fighting its way out of commodity hell. But it’s a tough fight, a fight they could have avoided if they had vigorously pursued a competitive edge, instead of rounding off the edges and getting too comfortable.

Too much comfort should make you squirm.

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Todd G. Buchholz is a former director of White House economic policy, managing director of the Tiger hedge fund and winner of the Allyn Young Teaching prize at Harvard. You can check out his blog at www.toddbuchholz.com and follow him on twitter @Rushbook

Email me at bullishonbooks@cnbc.comAnd follow me on Twitter @BullishonBooks

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