Print this article | Return to Article | Return to CFO.com
Harsh talk about business rivals has gone out of style.
Roy Harris, CFO Magazine
June 1, 2003
"There can be no question that we are at war," Home Depot CFO and executive vice president Carol Tomé told a recent conference of finance executives. The combat, of course, is with Lowe's — the fastest-growing company in the home-improvement industry, which Home Depot dominates. And Tomé startled some listeners with a few verbal missiles of her own. "From our perspective, they've never had an original idea," she said of the Lowe's approach. "They copy everything we do."
Such old-style, knock-down-drag-out competitive remarks may sound refreshing in an era when "No comment" is the preferred statement from executives asked about a rival. These days it seems the tough talk that once consumed companies, from the sales department to the CEO's suite, has gone the way of, well, the hostile takeover. Sure, companies still fire shots when they sue one another. But back in the early 1990s, for example, The Walt Disney Co. routinely attacked arch-rival Universal Studios's veracity over its attendance claims for the Universal Studios theme park in the Orlando vicinity, which was cutting into Disney World's attendance. Pretty Mickey Mouse stuff. And even those "Uncola" and "We try harder" campaigns have given way to tamer verbiage like "Think different."
For the most part, this new era of corporate diplomacy is good, suggests Margaret Neale, professor of organizations and dispute resolution at Stanford University. She notes that harsh words about the competition often have a negative impact by forcing a response in kind. "A general maxim in negotiations is never to paint [the other side] into a corner," she says.
On the other hand, if frankness is strategically designed, it may be an effective way to achieve results. "The question is, how do you want to focus it?" says Neale, recalling how Lee Iacocca bluntly challenged automobile price-rebate policies by Ford and General Motors in the early 1980s with critical words and a threat to match them. "He was conveying a great deal of information about his willingness to go toe-to-toe with his competitors, by drawing a line in the sand," she says.
"Sometimes, though, it's just personal," adds Neale. "The two guys say, 'You know what? I just don't like you.' It's no longer strategic. And that's when it gets crazy."
Diplomacy certainly pays among hoteliers, according to Hilton Hotels Corp. executive vice president and CFO Matthew Hart. "My own belief is that talking down a competitor is actually counterproductive," he says. Why? "In my industry, we all trade generally in a band," explains Hart. "That band is a multiple of earnings or a multiple of cash flow, or some other multiple. With our two biggest competitors — Marriott and Starwood — to the extent their share price declines, mine probably will, too, because investors can lose confidence in the [industry] outlook."
Says Hart, "You might get a short-term evil pleasure in seeing someone else's problems surface," but it won't seem worth it when it comes back to haunt your own stock. (A former Disney treasurer, he remembers the tough rivalry with Universal, and says he doesn't miss it.)
Competitive zeal may also be lower these days because little data is hidden from rivals, Hart notes, at least in the businesses he knows best: hotels and gaming. "There's so much information available in both industries, in terms of monthly data, and certainly a lot of regulatory pressure has purified the numbers across all accounting and reporting disciplines. So there's not much spinning you really can do" in talking about competitors, Hart says. "There's very little room for surprise."
Glenn Schaeffer, president, CFO, and treasurer of hotel-casino operator Mandalay Resort Group, agrees with Hart about the unpleasant rebound from knocking competitors. "We're all domiciled in the same town; the major operators are all in Las Vegas," he notes. "When demand is on the upswing, you pay attention to what the other guy says. We're really describing the same environment."
Still, "we do differ in pricing, property to property, and it's very competitive and always will be," says Schaeffer, whose company operates Mandalay Bay, Luxor, Circus Circus, and other casinos. When he's asked to discuss chief rivals like MGM Mirage and Park Place Entertainment Inc., he'll address their differing strategies, but little else. "I don't make publicly challenging comments about our competition," he says. And there's another reason not to get too nasty with rivals, he adds: today's competitor might be tomorrow's partner. Mandalay, for example, is a part owner with MGM Mirage of the Monte Carlo casino.
Things weren't always so nice in Las Vegas, of course. Mandalay's predecessor, Circus Circus Enterprises Inc., was bad-mouthed by rivals in the 1980s for being tacky, and for concentrating on family business rather than the industry's main target, high-rollers. "We lived to tell about it," Schaeffer says with a laugh, noting that family business is currently a staple of many hotel-casino operators in town, and that his own company now has upscale clientele to worry about. Indeed, he claims, "as Mandalay Resort Group, we're more sensitive than any other company to rising room rates."
While industry numbers may be more available in the hotel and gaming industries, Home Depot still tries to protect proprietary numbers — such as the results for individual product lines — from prying rival eyes, says CFO Tomé. And that helps its competitive juices flow, especially when another company's strategies seem to be modeled on its own. Indeed, Tomé's remarks about Lowe's did have the kind of real purpose that Stanford's Neale describes: to explain to the audience of finance executives why Home Depot is no longer making quarterly forecasts, which might be of more value to rivals than they would be to investors. (Not that investors have had a lot to cheer about lately: Home Depot was the Dow's worst-performing stock in 2002.)
Tomé doesn't like being critical, she says. "I think all companies should spend their time talking about their company, not the competition. That is certainly our approach." She concedes that she is quite open in commenting on competitors to investors and analysts. But, she adds, "I'm quick to compliment Lowe's, because they had a great year in 2002."