It was an unusual hire for a tech giant but one that held the promise of a bold move when, five years ago,
It was also a bold investment. To lure her from Burberry, Ahrendts’ first year compensation package was $73.4 million. In 2017 she earned $25 million, twice as much as CEO Cook, making her Apple’s highest paid executive.
Five years later, after reaping $172.8 million including stock awards, the returns are in and Ahrendts is out. Walmart (NYSE: WMT) has blown past Apple to become the third-largest US e-tailer. A Wall Street Journal report about her departure concluded that under her tenure, “little changed.” Ahrendts quit last month, offering the customary vague explanation that betrays mutual disappointment—to embark on "new personal and professional pursuits.”
Ahrendts’ vacated title and responsibilities were tacked on to those of an Apple veteran of 30 years, Deidre O’Brien, who is now officially senior VP of “People + Retail,” for which she was granted a relatively paltry $8 million in stock options. And we now have a clear lesson in what happens when bosses get distracted by the shiny new thing.
To be fair, Ms. Ahrendts may have accomplished more than meets the eye, and Tim Cook has the unenviable burden of keeping Apple on the leading edge while staying true to the culture that made the company such a success. Either way, the episode stands out as a spectacular fumble that begs analysis and an answer to the question that confronts all CEOs and directors when a seemingly good idea goes south: What were they thinking?
Why did a company whose signature hires are typically promotions from within (Tim Cook) or hires from tech sector rivals and vendors think that success in fashion retailing would translate into consumer electronics? Ahrendts had no experience outside of fashion. From the age of sixteen, her career ambitions were “always fashion,” she told the British newspaper The Guardian. Her resume boasted stints at a host of well-known brands before Burberry: Liz Claiborne, Henri Bendel, and Donna Karan.
In my work with retailers my mantra to customers is to measure twice, cut once. New products fail more than half the time. The way to improve the odds is predictive analysis – i.e. test marketing new products before committing capital and shelf space.
The same concept applies to the deployment of human capital, but the predictive process is less about metrics than it is about common sense. Success in one sphere cannot guarantee success in another.
Marquee hires in particular may be less likely to become effective team players and may come to their new jobs with fixed ideas about culture that are mismatched. Ms. Ahrendts told the Wall Street Journal when she was hired that Apple is “a brilliant design company working to create a lifestyle.” However, many Apple customers are less interested in lifestyle than they are in equipment and software that is efficient, durable, easy to understand, and fun to use.
The person credited with creating and developing Apple’s retail juggernaut, Ron Johnson, came to Apple in 2000 after successfully repositioning Target Stores as a hip retailer with a proprietary line of housewares. Working with Apple founder Steve Jobs, Johnson spent a decade developing and building out Apple’s stores and cementing a reputation for himself as a retail wunderkind.
When Jobs became ill and it was clear Johnson would not be chosen to succeed him, he signed up with JCPenney (NYSE: JCP) as a marquee hire with a mandate to do for the traditional brand what he’d done for Target and Apple. He hired an Apple store veteran as COO, tried to make Penney’s a fun place to hang out, rejected product testing as time-consuming, alienated customers, and was fired after just two years, by which time the company’s stock had tanked. What were they thinking?
In the absence of metrics, what are some of the predictive factors for a successful senior hire? Recent research suggests one of the key personality traits is humility. Hogan Assessments, a developer of personality tests for employers, is this year rolling out a scale to measure humility in job seekers. According to the Wall Street Journal, the test asks, for example, whether takers agree or disagree with statements such as, “I appreciate other people’s advice at work,” or “I’m entitled to more respect than the average person.”
“Most of the thinking suggests leaders should be charismatic, attention-seeking and persuasive,” said Hogan’s chief science officer, Ryne Sherman. “Yet such leaders tend to ruin their companies because they take on more than they can handle, are overconfident and don’t listen to feedback from others.” As President Calvin Coolidge once observed, “No one ever lost his job by listening too much.”
Furthermore, there are plenty of examples of success among CEOs and other top executives that suggest other clues for forecasting performance. One that stands out today is Walmart, which is on track by some estimates to capture a 4.6% share of the US ecommerce market this year, up about a third over last year.
Walmart got a new CEO in 2014, only the fifth in the company’s nearly 70 years in business. When he was appointed, Doug McMillon was a name that few outside the company had heard of. But McMillon was a Walmart lifer. His first job was as a Walmart employee, unloading trucks for $6.50 an hour. Today he is credited with reinventing the company.
When McMillon was appointed CEO, he arrived on his first day on the job to the 250-square-foot, modest office that has been occupied by every chief executive going back to Sam Walton himself. McMillon was flummoxed. “I couldn’t sit behind that desk,” he told Fortune magazine in 2015. Instead he took a chair on the visitors’ side and began working from there.
