Doing What Matters

When the hard-nosed Harold Geneen was driving the growth of ITT in its heyday in the 1960s and '70s from a $760 million company to a $17 billion conglomerate, his management philosophy was blunt: "In business, words are words, explanations are explanations, promises are promises, but only performance is reality.

When Jim Kilts showed up at Gillette in 2001, the first outsider to run the Boston-based company in more than 70 years, he found a business with great brands losing market share. Its acquisitions of Duracell and Braun were not delivering. Sales and earnings were flat, the company had missed its earnings estimates for 15 straight quarters, the stock had plummeted, and Wall Street had lost patience. Yet two-thirds of the top managers were getting top ratings. People were being rewarded for effort; performance, under Mr. Kilts regime, became the new measure.

As he recounts in "Doing What Matters," Mr. Kilts was fortunate to have a wise board that included Warren Buffett and Henry Kravis. Mr. Kilts says that in Mr. Buffett's view, unrealistic earnings estimates were the problem. Mr. Buffett made his opinion known "both at Gillette board meetings and in public comments," Mr. Kilts writes, quoting him saying: "For a major corporation to predict that its per share earnings will grow over the long term at, say, 15 percent annually, is to court trouble." And: "Managers that always promise to 'make the numbers' will at some point be tempted to 'make up' the numbers."

The book cites a fascinating McKinsey study showing that only 15% of companies in a sample of more than 1,000 were able to sustain double-digit earnings growth for five consecutive years. Make that 10 consecutive years and the number drops to less than 1%. Overambitious projections lead to the death spiral that Mr. Kilts calls the "Circle of Doom" -- sales shortfalls, increased prices, cuts in marketing, "loading the trade" with excessive shipments to make sales forecasts, and . . . doom.

In considering a business book, the place to start is with the credibility of the author. It has been entertaining, in recent years, to read management advice based on unexpected sources like Sun Tzu's "Art of War" or Genghis Khan, but any correlation between theory and business results is likely to be coincidence. We're on surer ground with "Doing What Matters." Jim Kilts has a stellar track record, ably leading Kraft and Nabisco before really hitting his stride at Gillette, where he engineered a major turnaround.

His account, written with John F. Manfredi and Robert L. Lorber, of facing down Gillette's problems is particularly instructive. Plenty of options greeted him when he took over: Should Gillete divest itself of Duracell and cut further losses or hold Duracell but treat batteries as a commodity and slash prices? Divest itself of Braun? Divest itself of the personal-care business? Should he strip the company of everything but the profitable razor and blade business? Introduce a fresh growth strategy by taking Gillette into new product sectors? Or just throw in the towel and call in the bankers for the best possible endgame?

DETAILS

DOING WHAT MATTERS

By James M. Kilts with John F. Manfredi and Robert L. Lorber

(Crown Business, 318 pages, $27.50)Mr. Kilts took none of these steps. How he and his team -- and he gives generous credit to his team (and mentors) -- went about setting a new and successful course is the heart of "Doing What Matters." As at Kraft and Nabisco, Mr. Kilts introduced a policy called Zero Overhead Growth (ZOG),