Turnaround Strategy

Jamie Dimon – The man behind JPMorgan’s Turnaround

Jamie Dimon (Dimon), president of JPMorgan is referred to as one of the best numbers men around, a Wall Street legend or the right-hand man to Sandy Weill – the titan of banking behind Citigroup. He is also known as an aggressive banker, savage cost-cutter, direct boss who eschews excessive wealth ($44.4 million or £22.2 million annual salary) and invests heavily in philanthropy. In 2007, he was ranked 15 on the 25 most powerful people in business by Fortune.

Dimon was born in New York to second-generation Greek immigrants. He has a degree in biology and economics from Tufts, and a MBA from Harvard. At Harvard he met Sandy Weill. Both went on to create the banking major Citigroup and emerged as a powerful force on Wall Street. In 1998, both separated after having worked together for 16 years. Rumor mills suggested that Dimon was fired by Weill for not promoting his daughter in the company.

After leaving Citigroup, Dimon became the chief executive of Bank One. In 2001, Dimon played a key role in the turnaround of Bank One. In January 2004, he negotiated the acquisition of Bank One by JP Morgan Chase & Company. After the merger, Dimon was appointed President and Chief Operating Officer of JP Morgan Chase. The merger was the third largest acquisition (at the time) in the US history at US$ 58 billion.

Dimon, since then has been aggressively involved with JPMorgan and aims to turn it into the biggest and best banking group in the US. So far, he has been successful in his endeavor and is emerging as one of the most successful navigators of the credit crunch. Over the last few years, he has focused strongly on cutting costs, improving technology and integrating JPMorgan’s disparate operations. But he also has been resolute about preparing the company for an economic downturn. While other investment banks are struggling, Dimon managed several accomplishments one after the other. He co-chaired the summit of world and business leaders in Davos, Switzerland. He even persuaded former Prime Minister Tony Blair to sign on as an adviser and ambassador for JPMorgan. And in what is being regarded as his biggest coup, he has plans to prop up Bear Stearns to avoid a full-blown banking crisis. This draws similar reference to John Pierpoint Morgan (JPMorgan’s founder). JP Morgan financed the US government and other large corporations during the Great Depression and the two world wars. In 1907 during the panic, his organization and personal funding for rescuing of the banking system was representative of the end of a long recession.

Similarly Dimon has played a key role in JPMorgan and the Federal Reserve guaranteeing the huge trading obligations of the troubled firm Bear Stearns. JPMorgan agreed to pay only about $270 million in stock for Bear’s big losses on investments linked to mortgages. Dimon negotiated the deal with Bear and government officials, sleeping only for a few hours over the weekend. Though Dimon had his doubts about the deal and has not been an aggressive acquirer since his joining the company, the quick decision making to buy Bear is outstanding.

Related Reading:

Backsourcing at JPMorgan

Restructuring at Sears – Can the Retailer Turnaround its business?

Sears – Moving from centralized to decentralized management structure

In 2005, Sears Holdings was formed with the merger of Kmart and Sears. When the merger took place, a centralized managed structure was essential to control costs and focus on integrating the two companies. But recent profit declines and its struggle to win customers from its competitors have prompted retailer Sears Holdings Corp (Sears) to go for a new decentralized structure in order to turn around its business. Sears had earlier announced lower quarter profit expectations compared to last year. Even its holiday sales and sales of home goods such as appliances and tools slowed with the crumbling U.S. housing market and competition. A new structure was necessary for a turnaround.

The new structure – Five business units

The new structure separates its business units into:

  • Operating businesses – current product lines like appliances, apparel and electronics
  • Support – marketing, store operations and customer strategy
  • Brands
  • Online and
  • Real estate

The real estate and onine units will focus on increasing the “sales productivity” of real and virtual holdings. Each business unit will have a leader and an advisory group including senior Sears Holdings executives who will oversee performance. With these five business units, Sears (controlled by hedge fund manager Edward Lampert) can simplify the way they are managed, besides giving each unit greater power to focus on consumers and operating more efficiently.

AOL-Time Warner Turnaround Strategy

AOL-Time Warner Turnaround Strategy

The problem faced by Time Warner after its merger with AOL is an issue which merits discussion. The AOL-Time Warner merger in 2001 resulted in the largest media company in the world. AOL joined hands with Time Warner (TW) to create synergy between its online businesses and Warner’s media business.

Two significant factors affected the post merger company. One, the dot com bust meant adverse effect on AOL’s advertising revenues. And two, dial-up subscribers decreased thereby affecting revenues and overall profitability of AOL. Richard Parsons, the CEO and Chairman of Time Warner and Joe Miller, the CEO of AOL took steps to turnaround AOL. A key element of their turnaround strategy was to offer free content on its portal. This strategy benefited AOL in attracting more online users and advertising revenues.

When AOL began operations it soon became the leading company for-pay online subscriber service, bringing easy-to-use Internet service to more than 30 million users. AOL was mainly based on around its dial up business. With customers shifting to broadband, AOL was losing subscribers rapidly. In 2004, AOL had 20 million subscribers. The dial-up segment though profitable, was declining in revenues having lost 2.6 million subscribers in a period of one year. The share price of AOL Time Warner fell by 60% after the merger. The merger was heavily criticized from all quarters.

Growth in advertising business came with AOL establishing itself as a support service rather than an internet access provider. Seeing AOL’s success Google entered into a global advertising partnership with the AOL. Google acquired a 5% equity stake in AOL for US$ 1 billion.

To be continued…