The Outsiders: A book review by Bob Morris

Posted on: October 28th, 2012 by bobmorris

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success
William N. Thorndike, Jr.
Harvard Business Review Press (2012)

Whatever got an organization here probably won’t get it there

There are countless examples of once-great companies such as Kodak and Sears that became victims of what had once been the reasons for their success. When George Eastman founded Eastman Kodak (in 1901) and Richard Sears and Julius Rosenwald founded Sears, Roebuck (in 1906), they did so with what William N. Thorndike characterizes as a “radically rational blueprint for success.” Both companies eventually became among the largest and most profitable in the world. However, for reasons that vary from one company to another in nature and extent, that is no longer true.

The business lessons to be learned from companies such as Kodak and Sears were obvious to CEOs such as Tom Murphy (Capital Cities Broadcasting), Henry Singleton (Teledyne, Bill Anders (General Dynamics), John Malone (TCI), Katherine Graham (the Washington Post Company), Bill Stiritz (Ralston Purina), Dick Smith (General Cinema), and Warren Buffett (Berkshire Hathaway). They are the “outsiders,” focal points of this book. As Thorndike explains, there are immensely valuable lessons to be learned from the “radical rationality” of their leadership.

These are among the dozens of passages that caught my eye:

o The Capital Cities culture (Page 23)
o The Cap Cities Publishing Division (Pages 31-33)
o Buffett and Singleton: Separated at Birth? (56-58)
o Postscript: The Sincerest Form of Flattery (80-81)
o The Edifice Complex (88)
o Benjamin Graham’s investment strategy during the recession of early-1900s (121-126)
o Stiritz’s “fiercely independent mind-set” (145-146)
o A recent example of flattery of imitation: Sara Lee (146-147)
o The “nuts and bolts” of management at General Cinema (159-162)
o How Buffett achieves Berkshire Hathaway’s operating results (190-193)

Thorndike includes a mini-profile for each of the eight “outliers.” Here is a brief excerpt from the first three:

Tom Murphy (Pages 13-34 plus cross references): He and Dan Burke “were comfortable giving responsibilities to promising young managers. As Murphy described it to me, ‘We’d been fortunate enough to have it ourselves and knew it could work.’ Bill James was thirty-five and had no radio experience when he took over WJR; Phil Meek came over from the Fiord Motor Company at thirty-two with no publishing experience to run the Pontiac Press; and Bob Iger was thirty-seven and has spent his career in broadcast sports when he moved from New York to Hollywood to assume responsibility for ABC Entertainment.” (page 26)

Henry Singleton (37-58+): Arthur Rock’s response to Singleton’s proposed repurchase strategy, “I like it,” launched “one of the seminal moments in the history of capital allocation…To say that Singleton was a pioneer in the field of share repurchases is to dramatically understate the case. It is perhaps more accurate to describe him as the Babe Ruth of repurchases, the towering Olympian figure from the early history of this branch of corporate finance…[Between 1972 and 1984] Singleton defied orthodox thinking, in eight separate tender offers, buying back an astonishing 90 percent of Teledyne’s shares.” (46)

Bill Anders (61-81+): “When it came to capital allocation, Anders and his associates made coinsistentky often radically, different decisions than their largest peers. At a time when his peers were on an acquisition binge, Anders was an active seller. He made no acquisitions, spent very little on capital expenditures, and made savvy use of dividends and share repurchases, both of which were new to the industry.” (79)

There are also mini-profiles of the other five: John Malone (TCI, Pages 83-107+), Katherine Graham (the Washington Post Company, 109-127+), Bill Stiritz (Ralston Purina, 129-147+), Dick Smith (General Cinema, 149-166+), and Warren Buffett (Berkshire Hathaway, 167-195+).

However different the eight may be in most respects, all agreed on certain core principles which serve as the foundation of what Thorndike characterizes as “the outsider’s mind-set”: the denomination matters when attempting to maximize value over share; maintain feisty independence when making capital allocation decisions; charisma is overrated and (more often than not) self-serving and counter-productive; develop a crocodile-like temperament that mixes patience with occasional bold and aggressive action; and finally, take a consistently rational, analytical approach to all decisions, major and minor.

William Thorndike offers an immensely informative and consistently thought-provoking explanation of how and why eight “outliers” refused to allow their companies or themselves to fall victim to what James O’Toole so aptly characterizes as “the ideology of comfort and the tyranny of custom.” As he well realizes, how easy it is to identify the core elements and defining characteristics of a “radically rational blueprint for success”; how difficult it is to then build an organization with that blueprint, one that achieves and then sustains extrordinary success.

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