April 30, 2007
BOOK EXCERPT: Inside L.L.Bean | Maine's most famous privately held company doesn't give away many of its secrets, but Leon Gorman's recently published book, L.L.Bean: The Making of an American Icon, may be the closest we'll get to act
When we returned from our directors' canoe trip down the Allagash in 1984 we were just completing our first doubling in size of the Freeport store. Going to 50,000 square feet was a big change for us. To do it, we converted the entire original buildings to retail space. We added a fair amount of new construction in addition to refurbishing existing space. We changed the exterior to a Maine barnboard finish and a nice front entrance framed with bricks. The building's main door still stayed open all the time. I could find some remnants of the old building there, but the new store was more than an evolution; it was a transformation.
It was a much-needed one. The old store had been so crowded with products that one customer said shopping at L.L.Bean had been like looking for buried treasure, but "now everything's out in the open." The expansion included an atrium as well as a trout pond (with fifteen healthy Maine brookies). It also provided room for selling bicycles, sea kayaks, and saltwater fishing gear.
Even though I had been much involved in the planning and had approved all the fixtures and floor layouts, it was still a shock to see such a change from the store I had liked so much in the 1970s. This was a big step toward modernity, and almost a complete break from the past. But what most upset me was that it seemed to change the personality of the store from a comfortable and woodsy, uniquely L.L.Bean environment to one that was starting to feel like other stores.
Putting down green carpeting in the store years earlier, which old-timers talked about so much, marked the dividing line between L.L. and me. Now it was clear, though perhaps only to me, that L.L.Bean had entered yet another era. We had grown as a company from $30 million in 1975 to more than $250 million in 1984 and were on our way to more than doubling that in 1990. The retail store's dramatic physical growth and change (it would almost double again, to 96,000 square feet, in 1989) reflected those of L.L.Bean's.
With growth came larger size in all dimensions, and greater complexity. Size alone would have brought problems, but many of the strategies we adopted to deal with a more competitive world (for example, product line extensions and service enhancements) brought even more complexity. L.L.Bean was a far different company from the one it had been only ten years earlier. During the 1980s, a writer noted that we had grown more than 100 times the size we were when I joined the company. "That is a problem," he said. "There are very few things in the world that can grow a hundredfold and still be recognizable. And if L.L.Bean is ever unrecognizable, the jig is up." We knew this.
We were experiencing a number of paradoxes. Our traditional Maine values required increasingly sophisticated management techniques. Our high growth rates were the result of complex direct marketing systems and merchandising rules. We had a paternalistic working environment yet rigorous performance standards and the latest in human resource practices. We had family ownership and publicly traded financial standards. We wanted to be good citizens in our various communities and good custodians of our natural environment, backed up by a lot of knowledge and technological expertise. It was an ongoing balancing act to keep L.L.Bean recognizable. Keeping things simple was getting more and more complicated.
From a business point of view, the greatest problem we faced in the 1980s was a precipitous decline in profitability. Our return on equity fell from about 30 percent in 1975 to about 15 percent in 1990, with most of the decline occurring in the latter part of the 1980s. Although sales increased significantly, our selling and operating costs increased at a greater rate.
Our high profitability levels of the late 1970s and early 1980s, when L.L.Bean was discovered by the "rugged outdoors" and "preppy boom" trends, were simply not sustainable in the more competitive retail world of the 1980s. Much of our uniqueness in products had at least superficially been taken away by other retailers following the outdoors and preppy trends. We depended on double-digit growth rates to sustain a satisfactory level of profit.
To a great extent we were all responsible for the profit decline because of our bias to sell more Bean products and grow out of cost problems. Our orientation was toward growth rather than cost control, and this was the inclination of virtually everyone in management. Our ongoing loss of productivity, however, wasn't because we weren't paying attention. We were.
We recognized the initial productivity problem as early as 1976, when we developed and installed L.L.Bean's first operating budget. Almost every new iteration of strategic initiatives since then had included a cost reduction or productivity project.
In 1982 we adopted the American Productivity Center's cost and productivity accounting theory and system in order to identify areas where we were losing productivity. It turned out to be almost everywhere, with no obvious or easy answers.
WES DEVRIES [marketing consultant]: Leon tried very hard to increase the awareness of profitability. He introduced this fairly complex profit management system in the product arena, but that didn't seem to heighten the awareness of "How do I manage profitability?" ˆ You didn't get the impression when you worked with the people that, "OK, the most important thing is my bottom line, so let me see how do I get there." The emphasis was on the top line. I think within the corporate purpose statement it says that the bottom line will take care of itself if you do all these other things. I think that's a true statement. But I think that statement got misinterpreted.
L.L.'s theory (and ours) was to sell good merchandise and treat customers like human beings. The profits were supposed to take care of themselves. Unfortunately, the theory didn't work quite that well. Our best strategy meant being best for our customers ˆ exceeding their expectations ˆ as well as being best competitively. It was not directly related to our cost structure. Our customer orientation may have forced us to think we didn't need the same budget discipline and profit requirements as everybody else. A lot of Bean people had disdain for the P word.
Many of the organizational challenges of growth and complexity showed up in our employee surveys. The hectic pace and day-to-day workload were obscuring our long-range aspirations. Where were we going? Why were we changing the locations or layouts of our work areas almost every year, along with our manufacturing and customer service spaces and catalog production and almost all of our various departments? Could we sustain our employee commitment amid this apparent chaos? To cut through the complexity, we needed to be more effective at communicating up and down and sideways in the organization. More feedback on individual performance was especially needed. Interdepartmental teamwork was also perceived to be lacking.
BOB PEIXOTTO [senior vice president and chief operating officer, 1982-present]: [Employee surveys through the 1980s] did show things and things did change. For instance, I know that we always got low scores on recognition, that people didn't feel recognized in the workplace. And building on that, what always happened, the way that Leon did business was, if you had a weakness ˆ lack of recognition would become a weakness in SWOT parlance ˆ then you had to have a plan in place to fix it.
By the mid-1980s the surveys revealed a perception of increasing centralization of power and a decrease in feelings of autonomy. This was despite our emphasis (or talk, anyway) on responsible autonomy and participative decision making. The latter may actually have been part of the problem.
JOHN FINDLAY [senior vice president of operations, 1976-1992]: Part of the climate survey results forced us to look for ways to expand the decision-making groups, with subcommittees and that sort of thing. And it was basically a disaster in the sense that, for whatever reason, we had some real decision makers in that tight group [of senior managers]. All of us were used to making [decisions], wanted to make them, thought we knew what we were doing ˆ The more people came up through middle management ranks ˆ the more that became an issue and the more we tried to diffuse the decision making. I look back on it now, it's sort of funny, but basically, there was an issue of autonomy. Basically decision making was even more closely held than the five guys [senior managers]. There was one guy. So, we had five guys fighting for autonomy from Leon, essentially, and then ten other guys fighting for autonomy from the five guys, and, you know, it was never going to be solved. There wasn't going to be a resolution of that. I looked at it almost as humorous. I mean, it wasn't, but I understood at the time the problem was partly me, partly Leon.
As a result of productivity and team activities we had more committees and task forces than you could count. Decision making was buried in a lot of meetings. Ultimately issues were referred to our senior managers to keep things moving, and that exacerbated the feeling that power and decision making were at too high a level.
CHRIS MCCORMICK [president and CEO, 1983-present]: It's not fair to point at Leon for this because we were all doing it. It was a high-control environment where before I'd present my ad plan to Leon, I'm going to be very involved in what my people are recommending. So, there's that type of micro-management, if you will, all the way down the organization. There was a feeling where people even lower would say, "Why do you need me? Chris is the manager of advertising and he's doing my job. "Well, because I want to make sure, because Leon knows his stuff. Leon knows the rep and he knows the circulation of the New Yorker. He knows the renewal rate and you better have that stuff on the top of your head because when you present to Leon, it's like going into a final exam. So that went down the organization. Was that what drove it, that Leon was so knowledgeable and exacting? That was part of it, no question. But I think also it was the people we hired. I mean, I look to myself. I'm more of a controlling manager too. I want to know what's going on. Plus, I loved what I did. I still do. So, I got involved in some of the details because I wanted to know how the New Yorker was doing.
Our growth strategies of the 1980s succeeded on the demand side. But we were not able to integrate them into our operations and merchandising in a cost-effective manner. Without lifestyle merchandising we could not have enjoyed the kind of growth we saw in the 1980s. Yet it directly and indirectly led to complexity and proliferation in the number of catalogs.
Each specialty catalog, which focused on a different category of specialized outdoors products, required a separate round of planning, design, product selection, picking of recipient names, mailing, and results tracking. We increased our catalog mailings from five per year (in 1975) to twenty-eight (in 1990), and our circulation (total catalogs mailed) from 6 million pieces to 114 million. Each catalog required all kinds of internal and external coordination (creative agencies, printers, U.S.P.S., and more).
Because of the lifestyle strategy, we expanded substantially into men's and women's casual weekend apparel. These are product lines with higher year-to-year product turnover, broader color and size assortments, and higher return rates. Stockkeeping units (SKUs) ˆ perhaps the biggest cause of complexity in merchandising, warehousing, inventory management, and throughout the organization ˆ quadrupled in the 1980s, from about 15,000 to 60,000.
CHRIS MCCORMICK: I think as a result of that split [between active and casual apparel], what happened was there was more tension in the organization. Because now you're vying for space in the catalog and you've got two merchants who want more pages and more SKUsˆ We were competing with ourselves more than competing with the competition.
The lifestyle strategy was intended to be a unifying concept, one L.L.Bean umbrella that would cover both traditional and contemporary outdoors customers, the active and the relaxed weekend parts of their lives. But consistent and coherent execution became complicated. We developed an array of strategic guidelines regarding appropriate L.L.Bean product assortments, quality standards, service standards, a communications persona, and so on. Still, I worried that we weren't communicating our L.L.Bean concept effectively.
People who were active users of outdoors gear may well have seen us as a casual clothing company, and casual recreational users may have seen us as an active company. Were we giving the L.L.Bean brand a split personality?
Reprinted by permission of Harvard Business School Press. Excerpt from LL Bean: The Making of an American Icon by Leon Gorman. Copyright (c) 2006 Leon Gorman. All rights reserved.
It was a much-needed one. The old store had been so crowded with products that one customer said shopping at L.L.Bean had been like looking for buried treasure, but "now everything's out in the open." The expansion included an atrium as well as a trout pond (with fifteen healthy Maine brookies). It also provided room for selling bicycles, sea kayaks, and saltwater fishing gear.
Even though I had been much involved in the planning and had approved all the fixtures and floor layouts, it was still a shock to see such a change from the store I had liked so much in the 1970s. This was a big step toward modernity, and almost a complete break from the past. But what most upset me was that it seemed to change the personality of the store from a comfortable and woodsy, uniquely L.L.Bean environment to one that was starting to feel like other stores.
Putting down green carpeting in the store years earlier, which old-timers talked about so much, marked the dividing line between L.L. and me. Now it was clear, though perhaps only to me, that L.L.Bean had entered yet another era. We had grown as a company from $30 million in 1975 to more than $250 million in 1984 and were on our way to more than doubling that in 1990. The retail store's dramatic physical growth and change (it would almost double again, to 96,000 square feet, in 1989) reflected those of L.L.Bean's.
With growth came larger size in all dimensions, and greater complexity. Size alone would have brought problems, but many of the strategies we adopted to deal with a more competitive world (for example, product line extensions and service enhancements) brought even more complexity. L.L.Bean was a far different company from the one it had been only ten years earlier. During the 1980s, a writer noted that we had grown more than 100 times the size we were when I joined the company. "That is a problem," he said. "There are very few things in the world that can grow a hundredfold and still be recognizable. And if L.L.Bean is ever unrecognizable, the jig is up." We knew this.
We were experiencing a number of paradoxes. Our traditional Maine values required increasingly sophisticated management techniques. Our high growth rates were the result of complex direct marketing systems and merchandising rules. We had a paternalistic working environment yet rigorous performance standards and the latest in human resource practices. We had family ownership and publicly traded financial standards. We wanted to be good citizens in our various communities and good custodians of our natural environment, backed up by a lot of knowledge and technological expertise. It was an ongoing balancing act to keep L.L.Bean recognizable. Keeping things simple was getting more and more complicated.
From a business point of view, the greatest problem we faced in the 1980s was a precipitous decline in profitability. Our return on equity fell from about 30 percent in 1975 to about 15 percent in 1990, with most of the decline occurring in the latter part of the 1980s. Although sales increased significantly, our selling and operating costs increased at a greater rate.
Our high profitability levels of the late 1970s and early 1980s, when L.L.Bean was discovered by the "rugged outdoors" and "preppy boom" trends, were simply not sustainable in the more competitive retail world of the 1980s. Much of our uniqueness in products had at least superficially been taken away by other retailers following the outdoors and preppy trends. We depended on double-digit growth rates to sustain a satisfactory level of profit.
To a great extent we were all responsible for the profit decline because of our bias to sell more Bean products and grow out of cost problems. Our orientation was toward growth rather than cost control, and this was the inclination of virtually everyone in management. Our ongoing loss of productivity, however, wasn't because we weren't paying attention. We were.
We recognized the initial productivity problem as early as 1976, when we developed and installed L.L.Bean's first operating budget. Almost every new iteration of strategic initiatives since then had included a cost reduction or productivity project.
In 1982 we adopted the American Productivity Center's cost and productivity accounting theory and system in order to identify areas where we were losing productivity. It turned out to be almost everywhere, with no obvious or easy answers.
WES DEVRIES [marketing consultant]: Leon tried very hard to increase the awareness of profitability. He introduced this fairly complex profit management system in the product arena, but that didn't seem to heighten the awareness of "How do I manage profitability?" ˆ You didn't get the impression when you worked with the people that, "OK, the most important thing is my bottom line, so let me see how do I get there." The emphasis was on the top line. I think within the corporate purpose statement it says that the bottom line will take care of itself if you do all these other things. I think that's a true statement. But I think that statement got misinterpreted.
L.L.'s theory (and ours) was to sell good merchandise and treat customers like human beings. The profits were supposed to take care of themselves. Unfortunately, the theory didn't work quite that well. Our best strategy meant being best for our customers ˆ exceeding their expectations ˆ as well as being best competitively. It was not directly related to our cost structure. Our customer orientation may have forced us to think we didn't need the same budget discipline and profit requirements as everybody else. A lot of Bean people had disdain for the P word.
Many of the organizational challenges of growth and complexity showed up in our employee surveys. The hectic pace and day-to-day workload were obscuring our long-range aspirations. Where were we going? Why were we changing the locations or layouts of our work areas almost every year, along with our manufacturing and customer service spaces and catalog production and almost all of our various departments? Could we sustain our employee commitment amid this apparent chaos? To cut through the complexity, we needed to be more effective at communicating up and down and sideways in the organization. More feedback on individual performance was especially needed. Interdepartmental teamwork was also perceived to be lacking.
BOB PEIXOTTO [senior vice president and chief operating officer, 1982-present]: [Employee surveys through the 1980s] did show things and things did change. For instance, I know that we always got low scores on recognition, that people didn't feel recognized in the workplace. And building on that, what always happened, the way that Leon did business was, if you had a weakness ˆ lack of recognition would become a weakness in SWOT parlance ˆ then you had to have a plan in place to fix it.
By the mid-1980s the surveys revealed a perception of increasing centralization of power and a decrease in feelings of autonomy. This was despite our emphasis (or talk, anyway) on responsible autonomy and participative decision making. The latter may actually have been part of the problem.
JOHN FINDLAY [senior vice president of operations, 1976-1992]: Part of the climate survey results forced us to look for ways to expand the decision-making groups, with subcommittees and that sort of thing. And it was basically a disaster in the sense that, for whatever reason, we had some real decision makers in that tight group [of senior managers]. All of us were used to making [decisions], wanted to make them, thought we knew what we were doing ˆ The more people came up through middle management ranks ˆ the more that became an issue and the more we tried to diffuse the decision making. I look back on it now, it's sort of funny, but basically, there was an issue of autonomy. Basically decision making was even more closely held than the five guys [senior managers]. There was one guy. So, we had five guys fighting for autonomy from Leon, essentially, and then ten other guys fighting for autonomy from the five guys, and, you know, it was never going to be solved. There wasn't going to be a resolution of that. I looked at it almost as humorous. I mean, it wasn't, but I understood at the time the problem was partly me, partly Leon.
As a result of productivity and team activities we had more committees and task forces than you could count. Decision making was buried in a lot of meetings. Ultimately issues were referred to our senior managers to keep things moving, and that exacerbated the feeling that power and decision making were at too high a level.
CHRIS MCCORMICK [president and CEO, 1983-present]: It's not fair to point at Leon for this because we were all doing it. It was a high-control environment where before I'd present my ad plan to Leon, I'm going to be very involved in what my people are recommending. So, there's that type of micro-management, if you will, all the way down the organization. There was a feeling where people even lower would say, "Why do you need me? Chris is the manager of advertising and he's doing my job. "Well, because I want to make sure, because Leon knows his stuff. Leon knows the rep and he knows the circulation of the New Yorker. He knows the renewal rate and you better have that stuff on the top of your head because when you present to Leon, it's like going into a final exam. So that went down the organization. Was that what drove it, that Leon was so knowledgeable and exacting? That was part of it, no question. But I think also it was the people we hired. I mean, I look to myself. I'm more of a controlling manager too. I want to know what's going on. Plus, I loved what I did. I still do. So, I got involved in some of the details because I wanted to know how the New Yorker was doing.
Our growth strategies of the 1980s succeeded on the demand side. But we were not able to integrate them into our operations and merchandising in a cost-effective manner. Without lifestyle merchandising we could not have enjoyed the kind of growth we saw in the 1980s. Yet it directly and indirectly led to complexity and proliferation in the number of catalogs.
Each specialty catalog, which focused on a different category of specialized outdoors products, required a separate round of planning, design, product selection, picking of recipient names, mailing, and results tracking. We increased our catalog mailings from five per year (in 1975) to twenty-eight (in 1990), and our circulation (total catalogs mailed) from 6 million pieces to 114 million. Each catalog required all kinds of internal and external coordination (creative agencies, printers, U.S.P.S., and more).
Because of the lifestyle strategy, we expanded substantially into men's and women's casual weekend apparel. These are product lines with higher year-to-year product turnover, broader color and size assortments, and higher return rates. Stockkeeping units (SKUs) ˆ perhaps the biggest cause of complexity in merchandising, warehousing, inventory management, and throughout the organization ˆ quadrupled in the 1980s, from about 15,000 to 60,000.
CHRIS MCCORMICK: I think as a result of that split [between active and casual apparel], what happened was there was more tension in the organization. Because now you're vying for space in the catalog and you've got two merchants who want more pages and more SKUsˆ We were competing with ourselves more than competing with the competition.
The lifestyle strategy was intended to be a unifying concept, one L.L.Bean umbrella that would cover both traditional and contemporary outdoors customers, the active and the relaxed weekend parts of their lives. But consistent and coherent execution became complicated. We developed an array of strategic guidelines regarding appropriate L.L.Bean product assortments, quality standards, service standards, a communications persona, and so on. Still, I worried that we weren't communicating our L.L.Bean concept effectively.
People who were active users of outdoors gear may well have seen us as a casual clothing company, and casual recreational users may have seen us as an active company. Were we giving the L.L.Bean brand a split personality?
Reprinted by permission of Harvard Business School Press. Excerpt from LL Bean: The Making of an American Icon by Leon Gorman. Copyright (c) 2006 Leon Gorman. All rights reserved.
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