Just once, a scientific approach would be nice. Just once.
The pundit class’s reaction to the imminent demise of Hostess and its tasty collection of bad-for-us products has been anything but scientific. Because instead of enumerating the possible causes and evaluating each on its merits, they’re mostly engaged in the popular pastime of starting with their one-size-fits-all solutions and working backward to ammunition in the form of bits and pieces of data that reinforce their panaceas.
Hate unions? Hostess’s unions didn’t accede to the company’s most recent requests for concessions. See – it’s the unions’ fault!
Except that the unions made significant concessions to Ripplewood Holdings, the private equity firm that bought Hostess in 2009. And, while the union was making these concessions, executive compensation was more than doubling. According to the best available information, three executives alone accounted for more almost $2.5 million in executive compensation increases. And the company’s top executives will share another $1.8 million in bonuses for successfully liquidating its assets.
(Reminder: My consulting company, IT Catalysts, has a long-standing service offering: We’ll wreck your company for half.)
Also … had union members agreed to work for nothing, the only impact would have been on price. Does anyone seriously think Twinkie sales are down because Twinkies cost too much?
Then there are those who figure greedy private equity firms are what cause companies to fail. It’s all Ripplewood’s fault. After all, it extracted significant management fees following its acquisition. That theory, though, doesn’t stand up to Ripplewood’s decision to stop taking them when the business didn’t turn around. All in all, Ripplewood invested a bunch in the attempt, and it’s taking a bath on its failure.
Innovation! That’s the problem. Hostess didn’t innovate, so as consumer tastes changed, Hostess didn’t change with its customers, who now want healthier fare.
Well, maybe. Certainly, there hasn’t been a flood of new Hostess products over the past decade or so. But on the other hand, there hasn’t been a flood of new beef products either, and despite plenty of evidence that eating lots of red meat is bad for you too, Americans are still eating lots of steak and hamburgers.
Here’s a theory I haven’t read anywhere: Hostess sales declined because Hostess stopped advertising its products.
When I was a kid, Wonder Bread built strong bodies twelve ways, Hostess Cupcakes and Twinkies were all over the airwaves, and when Hostess introduced its fruit pies, everyone in the country knew about it.
I can’t remember the last time I saw an ad for a Hostess product.
Sometimes, what kills a company is nothing more complicated than ignoring the fundamentals. Using advertising to build and maintain demand for your products is as fundamental as it gets.
My point in all of this isn’t to explain why Hostess failed. Without a doubt, it failed for more than just one reason (a horrible thought for purveyors of panaceas).
Or, it failed for just one reason, by definition. Namely, it failed because of bad management. That’s the definition of bad management, isn’t it — management that leads to business failure?
Why does this matter to you? No, not you as a junk food consumer. You as an IT leader. The answer is, I hope, clear: A failing or broken organization is only rarely like a car with a flat tire, where you can make just one patch or replace just one bad component and everything will be groovy a week later.
Pushing the analogy a bit, a failing or broken organizations is more like car with a tire that gradually went flat, starting to lose air five thousand miles ago and out of air a few thousand miles later. Had the owner fixed the tire at the first sign of trouble, the fix might have been easy, but after driving on a bad tire for a couple of thousand miles, the car will require a major overhaul, and the flat tire will be the least-expensive line item on the repair bill.
Organizations, that is, have lots of interconnected moving parts (we’ve identified 150 for IT alone), so when an organization is failing, any attempt to find the root cause, to fix the organization with a single change, is a fool’s errand. Turning the organization around will rarely be as simple as fixing just one broken element. That’s as true for a failing IT organization as it was for Hostess.
My opinion: Any CIO who doesn’t understand this point is a Ding Dong.
> Or, it failed for just one reason, by definition. Namely, it failed because of bad management. That’s the definition of bad management, isn’t it — management that leads to business failure?
A quote from Taranto’s “Best of the Web”:
Success? YOU DIDN’T BUILD THAT!
Failure? (See Lewis quote above)
As an armchair analyst not familiar with the Hostess situation, I agree totally with the “bad management” theory. If Krispy Kreme, Dunkin’ Donuts, umpteen candy companies, etc. can all make it, why couldn’t Hostess? I think that they should have been able to “spin” their advertising message for Twinkies, HoHos, etc. as a little treat or reward kind of thing. Also, possibly their production wasn’t the most efficient?
I agree with the conclusion that lack of advertising doomed the company. Until I read about it in the business pages, I didn’t even realize they still made Wonder Bread. I knew they still made Twinkies, because of all the movie references.
This reminds me of Lectric Shave. I think this is a grat product and I remember in the past that it was advertised regularly, but I can’t recall seeing any ads in the past few years. Will young men who start shaving with electric razors even think to try it?
Obviously, I meant a “great” product! It’s too bad you can’t edit the things you post. Spellcheck would be nice, as well.
Bob, I think you are 100% correct with your theory that Hostess sales declined because Hostess stopped advertising its products. When word got out that Hostess was to be no more, and that Twinkies may forever disappear, the nostalgia for the products among forty- and fifty-somethings skyrocketed. This was not just because Twinkies (and Ding Dongs and HoHos) may be gone forever, but because people had fond memories of the products. If only Hostess had built an advertising campaign around the nostalgia of their products *before* they failed. They would have reached a wide adult audience and still exist today.
Bob, given the already stretched-thin employee wage/union situation at the time of the takeover, and the low margins of this kind of business, do you think that employee ownership of the company, with Ripplewood as a “hired hand / creditor” would have been a better strategy?
I doubt it. While I’m far from an expert in such things, I don’t think employee ownership works well in a turnaround situation. Hostess did need a cash infusion; employee ownership doesn’t provide that.
Private equity ought to do well in a turnaround situation, but it often fails. My sense of private equity folks is that they put too much emphasis on finance and not enough on business fundamentals – fine when the problem is that a company has lost its operating discipline; useless when the problem is revenue.
No, what I think needed to happen was to put someone with an external, sales focus in charge rather than folks with an operational and cost focus.
Your theory is similar to what is seen in most NTSB reports as to the root cause of airplane crashes. It is usually a confluence of events or missed actions that contribute to the incident. It is rare that a single action is attributed to be the cause.
I don’t have an opinion about why Hostess may have failed, but I do have an opinion about your opinion; namely that it fits the same pattern you ascribe to other pundits: You started with your pet theory (running a business is complex and fixing one is a complex task (sometimes requiring an outside perspective (that you would be happy to supply :-))) and working backwards.
You brought up facts to argue against a couple of popular theories – greedy unions were the problem; a greedy private equity company was the problem – but not some of the others. In arguing against the “lack of innovation” theory you didn’t point to any statistics about Americans still eating as much pre-packaged, additive-filled junk food as ever; instead you used beef as another ‘unhealthy food’ example that Americans are still eating ‘lots of’. I won’t mention the unsuitability of comparing Hostess products to the entire category of all beef consumption – I am sure upon reflection you will note them for yourself – but I will note you did not rely on facts in the beef consumption example either: in fact it has gone down slightly in the last few years. For your advertising theory again you have no supporting facts, just a couple of personal observations; and you provide nothing at all linking lack of Hostess advertising to lack of Hostess sales.
So somehow you conclude it must have been a complex problem that led to Hostess’ failure. Well, likely it was; I’m not going to argue that there’s a simple, single factor at fault.
But your article relies much less on logic, facts, and evidence to get to that conclusion than you consistently advocate for. That disappointed me. Your article sounded like any other pundit’s – the ones you attack regularly and in this article specifically – and worse, sounded like an advertisement for your services: “Call us in to identify and solve your complex problems before what happened to Hostess happens to you!”
Of course you have to advertise and you are free to use your column to do so, but then I can’t trust your analysis as much as I have been accustomed to in the past. I am used to a logical, evidence-based analysis in your column and hope to continue to see that.
I suppose you could persuade me that thinking simplistic pet theories are generally wrong is itself a simplistic pet theory. What I was trying to do was to provide counterexamples to each of them as sole causes,. If all of the sole causes fail to hold up, then it would seem to validate the complex-causes alternative.
You’re right that I could have tracked down a source for beef consumption. Here’s one: It shows that while beef consumption peaked in 1977, it’s been stable for the past decade.
Am I advertising my services? Yes, overtly, in the ad space in the middle of the article. It isn’t why I write them, but the same thinking goes into my consulting and writing, so there’s simply no way to avoid the implication.
Re lack of advertising:
You may have heard this before, quotes are approximate:
Someone flying to a meeting with Mr Wrigley, owner of the very successful Wrigley gum products, asked “Why do you keep advertising when you already are dominant in the market?” His answer: “For the same reason that the pilot of this plane doesn’t shut down the engines now that we have reached our altitude.”
Ding Dongs or Ho Hos, it was management (business and unions) fault. A union was the cause of the liquidation, like the assassination of Archduke Franz Ferdinand was the cause of WWI (i.e., the lighted match on a pile of kindling). However, I don’t think Hostess would have survived even if the bakers union had conceded.
I’d like to posit another theory. While, from the outside, the lack of ad support sounds like a good answer, something else about this situation bothers me.
If IBM or John Deere, for example, were about to close the doors, there’d be a boatload of companies demanding the right to buy the company just for a the name value. If Hostess’ competition isn’t charging in to buy them, there might be more problems in that industry or in Hostess than we see from out here.
I wonder why no one is making headlines by buying Hostess and ‘saving’ the company?
Actually, from what I’ve read, there are quite a few companies that want to buy Hostess, or at least, some of its product line. Keep an eye on it – I think you’ll find that this is exactly what happens, and it explains why the Baker’s union refused to settle, too – they figure they’ll get a better deal with new owners.
That’s a smart aswner to a tricky question