July 1st, 2014

Why Robert McDonald, ex-CEO at P&G, was likely nominated to head the VA

Back in 2010, AdAge produced a profile of Robert McDonald, then CEO of Procter & Gamble, who was pushing a digitization/productivity initiative at P&G.

http://adage.com/article/news/p-g-ceo-bob-mcdonald-size-matter/141536/

In this and in other articles over the next year or so, McDonald and his interviewers would consistently frame his approach to management in terms of his military experience, but the overall message was one of Using Technology to Do Every Job Better.

"Mr. McDonald keeps no paper files and wants to fully digitize P&G, and to the extent possible, it's marketing."

"The natural tendency of a company is to become bureaucratic, hierarchical and slow-moving. We're trying to [combat] that through the removal of layers and hierarchy and the use of technology, which frankly fits my engineering background and the fact that I studied computer science."

http://www.mckinsey.com/insights/consumer_and_retail/inside_p_and_ampgs_digital_revolution

"To get there, the 31-year company veteran and former US Army captain is overseeing the large-scale application of digital technology and advanced analytics across every aspect of P&G’s operations and activities—from the way the consumer goods giant creates molecules in its R&D labs to how it maintains relationships with retailers, manufactures products, builds brands, and interacts with customers. The prize: better innovation, higher productivity, lower costs, and the promise of faster growth."

"With digital technology, it’s now possible to have a one-on-one relationship with every consumer in the world."

"We’re not there yet, but we envision a system where I could literally see, on my laptop, any product at any moment as it goes through the manufacturing line of any one of our plants. And what I’d love to be able to do is see the costs of that product at the same time. It’s challenging because accounting systems aren’t designed today for operations—they tend to look backward—but we’re working on integrating our operational system with the financial system to move in that direction."

"we use and support GDSN,2 which is basically a standardized data warehouse that allows us to do commerce with our retail partners in a totally automated way, with no human intervention. The industry association GS1 did a study a few years ago that found that 70 percent of orders between retailers and suppliers had errors. But if everyone used a common data warehouse like GDSN—where the data are kept dynamically correct—that number goes down to virtually zero, and it saves millions of dollars in doing commerce together."

"Another thing we do is to use our scale to bring state-of-the-art technology to retailers that otherwise can’t afford it. ... We can provide sophisticated ordering applications to help people there run their businesses better than they would be able to otherwise. We have mobile-phone applications that allow retailers to order from us ... we believe you should arrange your store in a certain way to maximize consumer sales. ... you can call up the performance standards on your phone, hold it up, look around your store, and compare it with what you see. Eventually, I want to be able to take a picture of the shelf, have it digitally compared, and then automatically send action steps back to the retailer to help rearrange the shelf for maximum consumer sales."

"P&G employees have a “cockpit” interface on their computers that they help design. It has certain tolerances for the metrics that are important to them. When we go outside those tolerances, either negatively or positively, an alarm goes off. ... it’s real time and continuous; it gives us the ability to click down to find causality, make decisions, and then move on. ... If a company we buy syndicated data from goes into stores in the Philippines once every two months and does a handheld questionnaire audit, then it doesn’t matter if we meet every Monday or not. Our data’s not going to be very good. So we’ve been working with all our data partners to help them understand that our need is for real-time data. For us it’s really constraint theory—understanding where the constraint in our data is and pushing it all the way to the data source. Then, change the data source."

By 2013, the business community was not as impressed with Robert McDonald; he was now explaining his digitization efforts to InformationWeek.

http://www.informationweek.com/it-leadership/pandg-ceo-shares-3-steps-to-analytics-driven-business/d/d-id/1108559?

In this article, McDonald is up front about some of the problems anyone leading such an initiative needs to expect: the tools you need won't be what the market is providing, you'll have to find the right people to lead these difficult projects, and you'll have to create a corporate culture that welcomes this amount and kind of change. Meanwhile, Bill Ackman was hammering away at P&G, trying to get them to replace McDonald with someone else because he believed growth should be greater than it was. One of Ackman's complaints about McDonald was that he was spending too much time on other company's boards. McDonald left and was replaced as CEO by his predecessor.

While Ackman has gotten at least one prediction really conspicuously right, and while Ackman is a super-nerdy, probably ASD guy and apparently a good human being in many ways, I recognize that Ackman gets a lot of things wrong -- especially in retail. Ackman is a guy who is so bad at figuring out retail, that it is probably safe to say that if Ackman says something that has anything to do with retail, you should probably take the opposite position. He'll sound really reasonable, and he'll find really smart people, but he'll still be wrong (c.f. JCP and Ron Johnson). I view Ackman complaining about McDonald's performance as CEO of P&G, especially for reasons of serving on other corporate boards, to be a great of example of making someone look good by the way you complain about that person.

Obama has chosen Robert McDonald to head up the VA. I feel cautiously optimistic about this. I'm less impressed with the news coverage of who McDonald is, and why Obama chose him. The emphasis has been on military background, family history, his personal politics (Republican). Ackman's criticism in the WaPo article is described this way:

http://www.washingtonpost.com/politics/bob-mcdonald-former-pandg-chief-to-be-obamas-nominee-to-lead-veterans-affairs/2014/06/29/2fddd794-ffab-11e3-b8ff-89afd3fad6bd_story.html

"Analysts reported at the time that large investors and some employees were losing confidence in his ability to expand the company in the face of increasing global competition.

The Wall Street Journal and other business publications also reported that McDonald had come under fire over the time he spent serving on an array of corporate boards."

I know nobody wants to put Ackman's name in print, because everyone would prefer to just wish him out of existence (altho how that would help has never been clear to me), but still, this is ridiculous. Would you have generalized Icahn to "large investors"? Doubtful. Would you have even reported on this if it had been Einhorn? Unlikely, unless it was to gratuitously skewer Einhorn. Worse, there is just no discussion at all of the massive, multi-year effort at digitization at P&G that McDonald started in operations, led as CEO, and left for his predecessor to complete -- which is really weird, because it must have been that effort, its relevance and its success that led Obama to choose McDonald.

"The un­or­tho­dox pick of a retired corporate executive whose former company makes iconic household products such as Tide detergent and Charmin toilet paper — rather than a former military general — underscores the serious management problems facing the agency charged with serving more than 8 million veterans a year."

This is actually the orthodox choice, once a scandal has attained this level of credibility. In the late 1990s, the IRS (during its real scandal, not these pathetic, ginned up scandal-lite teases of late) was headed by Charles O. Rossotti, similarly a Republican chosen by a Democratic President to come in and fix a massive agency whose management had failed in too many crucial ways. Rossotti did not fix the IT problems over at the IRS (we wish), but he did do an absolutely necessary reorg that he describes in _Many Unhappy Returns_, a book that now seems freshly relevant.

Here's hoping Mcdonald's efforts at the VA will be as successful, and therefore ultimately as forgettable, as Rossotti's. Because at least here in America, we really prefer to pay attention to colossal fuckups than we do to quiet success.

ETA: If you are wondering where this theory came from, I'll offer two possibilities. When I heard the nomination, I went, hey, I bet this is like that Rossotti pick. McDonald is going to turn out to have headed up a big technology/IT initiative that is directly relevant to what the VA needs to do. And off I went to Google. The other theory is that in the back of my head, I remembered reading the P&G coverage because someone was trying to talk me into buying some P&G stock a while back, and I totally loved the digitization initiative but was not all that impressed with the growth opportunities. I also noticed the Ackman thing go by and didn't take that seriously at all. In any event, I am finding it really amusing that the coverage of the choice is spending so much time trying to wedge the McDonald pick into whatever expectations people had for a VA chief replacement, and comparatively little time drilling down with the business community to understand why McDonald might actually have something meaningful to offer here. Perhaps, "Getting Rid of All That Fucking Paper" is an uncompelling story?