Monthly Archives: June 2016

Book review: Louis V. Gerstner- “Who says Elephants Can’t dance ?”

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“Who says Elephant’s can dance” is the book from the former CEO of IBM who took over in 1993 when IBM was struggling hard and then turned around the company until he left in 2002.

Interestingly he wrote the book himself without the help of a professional writer, which is very rare for such kind of memoirs, but makes the book very interesting.

Gerstner came to IBM from RJR Nabisco but he did spend most of his previous career ar Amex and was shocked how bureaucratic the company was. The book then describes in detail how he managed to focus the company on the then little known internet and “e-business” segment away from the focus on the traditional mainframe computers.

The most interesting chapters come towards the end of the book where he reflects on company culture and strategy.

A few of my take aways from Louis Gerstner’s insight:

  • Alignment of interest is important. He required managers to hold multiples of their salaries in company stocks
  • One company: bonuses only based on total company targets, no divisional targets
  • Company culture is many times a reflection of the personality of the founder and endures a long time (in IBM’s case almost 100 years)
  • If a company is struggling, focus on the core business. Don’t di”worsify” and try “transformational” M&A transactions
  • Processes are overrated. Lead by principles to maintain flexibility
  • capital management within a company is hard. Succesful units want to reinvest their profit and not share it with others
  • Centralization vs. decentralization is always a struggle, find the right balance, don’t go to either extreme
  • revenue decreases during a turn around can be actually a sign of strength

At the end of the book he even gives some advice to stock analysts and proposes 5 questions to ask (and answer) when considering an investment:

  1. Is the company a major force in a growing market (Segment) ?
  2. Is the company holding or increasing market share by using sustainable advantages (cost, technology, quality)
  3. Is the growing market share reflected in growing cash flow after ALL costs (forget adjustments)
  4. Is the company using the cash flow wisely (Avoid “macho” acquisitions, concentrate on R&D, marketing)
  5. Is the management aligned with shareholders. Do executives hold meaningful amounts of stock ? Does the company distribute dividends and/or buy back shares ?

Coming from a manager and not an investment guru, I think this 5 points pretty much capture everything.

Overall, I found the book one of the best “Business books” I have ever read and I can only recommend it highly.

 

 

 

 

 

 

 

 

Hornbach Baumarkt AG revisited- Where are the market share donators ?

Hornbach Baumarkt is one of my few remaining initial position after almost 5 and a half years.

Looking at the stock chart we can see that compared to the German small cap index, Hornbach looks pretty lame:

 

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At the time of writing, within my portfolio Hornbach clearly was a drag on performance with a total performance of 13,7% since 01.01.2011 vs. 109,5% for the portfolio and 73% for the SDAX.

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