Timothy R. Clark: Hostess is 'Lost in the Fifties Tonight'
Derek Petersen, Deseret News
When I first heard the news about Hostess Brands, I thought of country singer Ronnie Milsap’s song, “Lost in the Fifties Tonight.” I wasn’t surprised.
If you visit hostessbrands.com, you’re greeted with this curt message: “We are sorry to announce that Hostess Brands, Inc. has been forced by a Bakers Union strike to shut down all operations and sell all company assets. For more information, go to hostessbrands.info. Thank you for all of your loyalty and support over the years.”
Just like that.
What a fascinating study in self-deception. In a very matter of fact way, management lays the blame wholly at the feet of the union.
If you read the press release that follows, you’ll encounter this statement:
“Hostess Brands worked tirelessly to complete a reorganization of its business as a going concern, including spending the better part of 18 months negotiating with its key constituents to obtain a consensual agreement to lower costs to a sustainable level. The company had obtained the support of its largest union, the International Brotherhood of Teamsters, and its lenders. However, the BCTGM (Bakery, Confectionery, Tobacco and Grain Millers Union) leadership chose not to negotiate a new labor contract and instead, when presented with a final offer, launched a campaign to cripple the company’s operations and force it to liquidate.”
Is the postmortem really that simple? I don’t think so. The seeds of demise were sown years ago.
In business, we like to cry in our beer and tell each other that it’s a jungle out there. Certainly it is. There’s never been a more competitive time. It’s fast-paced, turbulent and unforgiving.
But what we underestimate is the challenge within. The biggest obstacles to change often come in extricating ourselves from the status quo. The status quo bias, as it’s called, is an irrational maintenance of the status quo. It’s like a bear trap. It has iron jaws and a crushing grip to keep things the way they are, even in the face of danger.
Hostess Brands gave up the ghost last week and 18,500 people will lose their jobs. Why? Yes, there is intense competition, but Hostess failed more due to its own self-defeating behavior. The company drew its last breaths as it stumbled over itself. It wasn’t just the union.
Hostess first went into bankruptcy in 2004 and emerged reorganized in 2009. Labor costs have been too high for a long time, and silly and suffocating work rules written into the labor agreement have stifled productivity. No question.
But where’s the leadership? With the backing of private equity investors, management piled the company’s balance sheet with far too much debt. There hasn’t been enough access to capital to invest in new technology or serious R&D.
More broadly, who has been in charge of strategy? This is an 82-year-old junk-food (excuse my language) company. So I have a few questions for management:
Do you know what year it is? (It’s not the '50).
Do you see what is happening to consumer tastes?
What have you done to innovate, adapt and adjust to changing conditions?
Did you not detect your fading glory a few years ago?
The status quo represents the sum total of all the decisions made to allocate resources. To gain competitive advantage, Hostess invested in some things and did not invest in everything else. That’s the essence of strategy. The status quo bias pulls the organization to continue investing in the same things so as not to waste the original investment. But you can’t rely on Twinkies and Ding Dongs for the eternities. There is denial here and deeply entrenched pain avoidance and loss aversion.
This is the folly of enlisting marginal cost analysis to guide the next resource-allocating decision instead of full cost analysis. As Clayton Christensen points out, we intentionally bias ourselves to justify the next investment. To change, then, is to fight against the edifice of investment we built with our own hands. When you fight against it, you become a heretic. No wonder most innovations must come from skunk works far from the mother ship.
Both management and the union resisted change because it represented the specter of personal loss. Now both will go down together.
Timothy R. Clark is the CEO and founder of TRClark LLC, a management consulting and leadership development organization. His newest book, "The Employee Engagement Mindset," has just been released from McGraw-Hill. Email: email@example.com
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