Our unplanned theme this week is leaders taking risks: Tuesday it was Caterpillar CEO Doug Oberhelman’s high-stakes unsuccessful bet on commodities and emerging markets, which is costing him his job, and yesterday it was the staggering risks that Neflix’s Reed Hastings, Apple’s Tim Cook, and Alphabet’s Larry Page are taking in the vast digital economy. Today’s risk-taker is Walmart CEO Doug McMillon. He’s changing strategy at the world’s largest public company, and the change will cost billions before it has a chance to pay off significantly. For investors, employees, and him personally, much depends on whether his big bets are winners.
His most visible move has been unilaterally raising the pay of entry-level workers and department managers. The logic was simple. Shoppers were giving Walmart terrible scores in surveys and were visiting the stores less; sales were falling, At the same time, the company’s most important competitor strategically was and is Amazon. McMillon reasoned that to keep customers away from other stores and from Amazon, he needed to give shoppers a better experience in Walmart stores. And the way to get the happier, better qualified workers who would deliver that experience, he figured, was to pay them more. The move made sense, but it had to work in practice as well as in theory because it would immediately increase the company’s annual costs by over $1 billion.
Less visible but possibly more important was his decision to offer employees significantly more training. Their ability to perform better is only the beginning of the benefits. Training attracts higher-caliber workers who are seeking a career, not just a temporary job. So you attract better workers, then you make them still better through training while also reducing turnover. Sounds like every retailer’s dream, but again, it costs before it pays. To pursue this initiative, Walmart is organizing some 200 training sites.
McMillon is making yet another big bet, last month spending $3.3 billion to buy jet.com, an ecommerce startup that was not obviously successful. But he knows that if Walmart can’t compete strongly against Amazon, then it’s headed eventually for second-tier status in retailing. McMillon has made walmart.com a top priority since becoming CEO in 2014, but he’s still way behind Amazon in online revenue — $14 billion worldwide in a recent 12-month period vs. Amazon’s $83 billion. Jet.com brings technology that helps customers save money, a good fit with Walmart, and it brings talent led by founder Marc Lore. But whether the hefty investment will pay a decent return is anybody’s guess.
Early signs are that McMillon’s investments in higher pay and more training are working. Customer satisfaction is way up and sales are rising again. Whether McMillon, who just turned 50, is the CEO Walmart badly needs for a revolutionary era in retailing remains to be seen, but he seems to understand that taking major risks and living with significant uncertainty is his only chance.
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What We’re Reading Today
All new Tesla vehicles will have fully autonomous capabilities
CEO Elon Musk announced that every new Tesla will carry the hardware needed to make the vehicle fully autonomous, requiring no human intervention at all. The necessary software won’t be uploaded until more testing is done, which Musk says could be as early as late next year. Wired
California opens criminal probe against Wells Fargo
Attorney General Kamala Harris has issued a warrant to seize records and other bank documents to determine if felonies were committed in opening bank accounts without customer knowledge. It’s unclear if ex-CEO John Stumpf‘s actions will be included in the scope of the investigation. Reuters
Duterte turns to China
As relations between the U.S. and Philippine president Rodrigo Duterte deteriorate, he is turning to a former foe, China. The two countries have argued over control of the South China Sea, where Chinese president Xi Jinping has increased the country’s presence in recent years. Xi and Duterte have agreed to open a dialogue on the issue, while Duterte says “it’s time to say goodbye” to a U.S. alliance. Bloomberg
Inside Steve Cohen’s comeback
As founder of hedge fund SAC Capital, Steve Cohen made billions. But an insider trading investigation led to his firm paying a $1.8-billion fine; Cohen settled civil charges, agreeing not to manage other people’s money until 2018. So will he resume investing for others when he’s allowed to? He’s thinking about it. Fortune
Building a Better Leader
More centralized decision making…
…gets failing products killed faster. It reduces delays that arise from office politics. Harvard Business Review
When Intel executive v.p. Diane Bryant started at the company…
…it was male dominated. So to fit in, she began cursing… “a lot.” Fortune
The board search process is often very closed…
…says Lesley Grossblatt, chief operating officer at theBoardlist. Women suffer as a result because boards in urgent need of a new director often turn to someone like themselves. Inc.
At the Final Presidential Debate
The third debate’s tone remains acid
After two caustic debates in which the candidates chided each other throughout, there was little hope of a calmer, cool-headed policy discussion. Hillary Clinton attacked Donald Trump for being a Russian puppet; he shot back, calling her “such a nasty woman.” CNN
Trump won’t say if he’ll accept election results
In what could be his costliest mistake in the debates, Trump wouldn’t say if he will accept the election results, in keeping with his repeated warnings of a rigged election. He said he will “keep you in suspense.” Fortune
Hillary tries to end on a high note
The final debate was a chance to improve her likability; most voters still view Clinton unfavorably. With jabs at Trump‘s use of Chinese steel in his hotels, and calling him a puppet of Vladimir Putin, she apparently won the debate, according to polls, though she may not have gained new fans. TIME
Up or Out
Nissan Motors CEO Carlos Ghosn will also become chairman of Mitsubishi Motors after Nissan acquires a controlling stake. WSJ
Fortune Reads and Videos
Netflix challenges 21st Century Fox’s noncompete contracts
21st Century Fox sued Netflix for poaching employees, but Netflix has countersued, accusing the studio of using illegal noncompetes. Fortune
J.P. Morgan in talks to exit its Chinese securities venture
It made only $7.5 million of profit in the year’s first half. Fortune
More business travelers are using Uber and Lyft services…
…than taxis and rental cars combined. Uber alone accounted for 48% of rides. Fortune
Horror movie producer plans a mini-series on Roger Ailes
Jason Blum‘s production company has signed Spotlight writer and director Tom McCarthy as the project’s executive producer. Fortune
Quote of the Day
“I will look at it at the time…I will keep you in suspense.” — Donald Trump on whether he will accept the election results. NYT